<PAGE> 1
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
DTE HOLDINGS, INC.
(Exact name of registrant as specified in charter)
MICHIGAN
(State or other jurisdiction of
incorporation or organization)
6719
(Primary Standard Industrial
Classification Code Number)
38-3217752
(I.R.S. Employer
Identification No.)
-------------------------
2000 Second Avenue
Detroit, Michigan 48226
(313) 237-8666
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------------
SUSAN M. BEALE
Corporate Secretary
2000 Second Avenue
Detroit, Michigan 48226
(313) 237-8666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
COPIES TO:
ROBERT A. YOLLES, ESQ.
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
(312) 782-3939
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective and all other
conditions to the share exchange (the "Exchange") of the Common Stock of The
Detroit Edison Company and the Common Stock of DTE Holdings, Inc. pursuant to
the Exchange Agreement described in the enclosed Prospectus and Proxy Statement
have been satisfied or waived.
-------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(3) PRICE(3) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value(1)......... 145,185,241 $27.8125 $4,037,964,515 $1,392,412
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, without par value, for
Dividend Reinvestment Plan(2)............ 10,000,000 $27.8125 $278,125,000 $95,906
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Total...................................... 155,175,241 $27.8125 $4,316,089,515 $1,488,318
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</TABLE>
(1) The number of shares of DTE Holdings, Inc. Common Stock to be issued in the
Exchange described herein cannot be precisely determined at the time this
Registration Statement becomes effective because shares of The Detroit
Edison Company Common Stock may be issued thereafter and prior to the
effective time of the Exchange upon conversion of its Convertible Cumulative
Preferred Stock, 5 1/2% Series, $100 par value. This Registration Statement
covers a number of shares of DTE Holdings, Inc. Common Stock which is
estimated to be at least as large as the number of shares of The Detroit
Edison Company Common Stock which is expected to be outstanding at the
effective time of the Exchange. See the undertaking in Item 22(4) in Part II
of this Registration Statement.
(2) To be issued from time to time pursuant to DTE Holdings, Inc.'s Dividend
Reinvestment Plan which will succeed The Detroit Edison Company Dividend
Reinvestment Plan on the effectiveness of the Exchange. A post-effective
amendment on Form S-3 to this Form S-4 will be filed in connection
therewith.
(3) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, based
upon the per share market value of the shares of The Detroit Edison Company
Common Stock to be exchanged in the Exchange, which is the average of the
high and low sales price of a share of The Detroit Edison Company Common
Stock on the New York Stock Exchange, Inc. Composite Tape on January 26,
1995.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DTE HOLDINGS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
CAPTION OR LOCATION
IN PROXY STATEMENT
FORM S-4 ITEM NUMBER AND HEADING AND PROSPECTUS
- --------------------------------------------------- -------------------------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus...... Facing page of Registration Statement; Cross
Reference Sheet; Cover Page of Prospectus and
Proxy Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Available Information; Incorporation of Certain
Information by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... Cover Page of Prospectus and Proxy Statement;
Summary of Restructuring Proposal; Item 2.
Corporate Restructuring Proposal
4. Terms of Transaction........................ Cover Page of Prospectus and Proxy Statement;
Summary of Restructuring Proposal; Item 2.
Corporate Restructuring Proposal
5. Pro Forma Financial Information............. Not Applicable
6. Material Contacts with the Company Being
Acquired.................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................. Not Applicable
8. Interests of Named Experts and Counsel...... Item 2. Corporate Restructuring Proposal
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not Applicable
B. Information About the Registrant
10. Information With Respect to S-3
Registrants................................. Not Applicable
11. Incorporation of Certain Information
by Reference................................ Not Applicable
12. Information with Respect to S-2 or
S-3 Registrants............................. Not Applicable
13. Incorporation of Certain Information
by Reference................................ Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants........... Cover Page of Prospectus and Proxy Statement;
Summary of Proposed Restructuring; Item 2.
Corporate Restructuring Proposal
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies... Available Information; Incorporation of Certain
Documents by Reference
16. Information with Respect to S-2 or
S-3 Companies............................... Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies................... Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited.......... Notice of Annual Meeting; Incorporation of
Certain Documents by Reference; Summary of
Proposed Restructuring; Introduction; Item 1. The
Election of Directors; Item 2. Corporate
Restructuring Proposal
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer........................... Not Applicable
</TABLE>
<PAGE> 3
[DETROIT EDISON LOGO]
March 17, 1995
Dear Detroit Edison Shareholder:
On behalf of the Board of Directors and management, I cordially invite you to
attend the Annual Meeting of Common Stock Shareholders of The Detroit Edison
Company on Monday, April 24, 1995, at 10:00 a.m. at Detroit Edison's General
Offices, 2000 Second Avenue, Detroit, Michigan.
The principal items of business will be (1) the election of directors, (2) the
adoption of a plan of share exchange pursuant to which the holders of Common
Stock of The Detroit Edison Company will become holders of the Common Stock of a
newly formed holding company, which will become the sole holder of the Common
Stock of The Detroit Edison Company, (3) the approval of a long-term incentive
plan for officers, other employes, and non-employe directors, and (4) the
ratification of the appointment of the independent accountants.
Additional details about the meeting are in the accompanying Notice of Annual
Meeting and Prospectus and Proxy Statement. At the meeting, I will also report
on the progress of the Company during the past year and answer shareholder
questions.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. WHETHER OR NOT
YOU PLAN TO ATTEND PERSONALLY, PLEASE COMPLETE AND MAIL THE ENCLOSED PROXY CARD
IN THE RETURN ENVELOPE. IF YOU DO ATTEND AND VOTE AT THE MEETING, THAT VOTE WILL
SUPERSEDE THE EARLIER VOTE BY PROXY.
SINCERELY,
[Facsimile Signature]
JOHN E. LOBBIA
Chairman and Chief Executive Officer
<PAGE> 4
[Detroit Edison Logo]
NOTICE OF ANNUAL MEETING OF COMMON STOCK SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting of Common Stock Shareholders
(the "Annual Meeting") of THE DETROIT EDISON COMPANY ("Detroit Edison") will be
held at Detroit Edison's General Offices, 2000 Second Avenue, Detroit, Michigan,
on Monday, April 24, 1995, at 10:00 a.m., Detroit time, to consider and take
action on:
1. The election of three directors;
2. An Agreement and Plan of Exchange, a copy of which is attached as
Exhibit A to the accompanying Prospectus and Proxy Statement, pursuant to
which the holders of Common Stock of Detroit Edison will become holders of
the Common Stock of a newly formed holding company ("Holding Company"), and
Holding Company will become the sole holder of the Common Stock of Detroit
Edison, with the result that Detroit Edison will become a subsidiary of
Holding Company;
3. The Long-Term Incentive Plan, a copy of which is attached as
Exhibit C to the accompanying Prospectus and Proxy Statement;
4. Ratification of the appointment of Deloitte & Touche LLP by the
Board of Directors as the independent accountants of Detroit Edison for the
year 1995; and
5. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
Holders of record of shares of Common Stock at the close of business on February
24, 1995 are entitled to notice of, and to vote at, the meeting.
As described under "Item 2. Corporate Restructuring Proposal -- Statutory
Appraisal Rights Inapplicable" of the accompanying Prospectus and Proxy
Statement, no shareholder of Detroit Edison is entitled to statutory dissenters'
appraisal rights in connection with the approval of the Agreement and Plan of
Exchange referred to in Item 2 above.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING.
MARCH 17, 1995 BY ORDER OF THE BOARD OF DIRECTORS,
SUSAN M. BEALE
CORPORATE SECRETARY
IMPORTANT
EVEN THOUGH YOU EXPECT TO ATTEND THE ANNUAL MEETING, IT IS URGENTLY REQUESTED
THAT, WHETHER YOUR SHARE HOLDINGS ARE LARGE OR SMALL, YOU PROMPTLY FILL IN,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED HEREWITH.
IF YOU WILL DO SO NOW, DETROIT EDISON WILL BE SAVED THE EXPENSE OF FOLLOW-UP
NOTICES.
<PAGE> 5
PROXY STATEMENT
FOR
THE DETROIT EDISON COMPANY
PROSPECTUS
FOR
DTE HOLDINGS, INC.
COMMON STOCK
This Prospectus, including the Proxy Statement forming a part hereof, has
been prepared in connection with the issuance of up to 145,185,241 shares of
Common Stock, without par value, of DTE Holdings, Inc., a Michigan corporation
("Holding Company"), a wholly-owned subsidiary of The Detroit Edison Company, a
Michigan corporation ("Detroit Edison"), upon the consummation of the proposed
share exchange pursuant to which each outstanding share of Detroit Edison Common
Stock, $10.00 par value ("Detroit Edison Common Stock") will be exchanged for
one share of Holding Company Common Stock, without par value ("Holding Company
Common Stock).
At the effective time of such share exchange, each then outstanding share
of Detroit Edison Common Stock will automatically be exchanged for and, without
action on the part of the holder thereof, become one share of Holding Company
Common Stock. It is anticipated that the absence of a par value of the Holding
Company Common Stock will not affect the market value of such stock. Thereafter,
Detroit Edison will continue to carry on its present utility business as a
subsidiary of Holding Company. Reference is made to "Item 2. Corporate
Restructuring Proposal -- Holding Company Capital Stock" for further information
concerning the securities offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The executive offices of Detroit Edison are located at 2000 Second Avenue,
Detroit, Michigan 48226-1279, and its telephone number at such address is (313)
237-8000. Holding Company's executive offices are at the same address and its
telephone number is (313) 237-8666.
This Prospectus and Proxy Statement and the proxy card were first mailed to
shareholders of Detroit Edison on or about March 17, 1995.
------------------------------
The date of this Prospectus and Proxy Statement is March 17, 1995.
<PAGE> 6
AVAILABLE INFORMATION
Detroit Edison is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("1934 Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission ("SEC"). Reports, proxy statements and other information filed by
Detroit Edison can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices located at Citicorp Center, 500 West Madison Street,
Chicago, IL 60661 and Seven World Trade Center, New York, NY 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
reports, proxy statements and other information concerning Detroit Edison may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, NY, and the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, IL,
the exchanges on which certain of Detroit Edison's securities are listed.
Holding Company has filed with the SEC a Registration Statement on Form S-4
under the Securities Act of 1933, as amended ("1933 Act"), with respect to the
shares of Holding Company Common Stock offered hereby. This Prospectus and Proxy
Statement does not contain all of the information set forth in such Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. The omitted information can be inspected and copied at
the above-described reference facilities maintained by the SEC. For further
information, reference is made to such Registration Statement.
Holding Company will become subject to the same informational requirements
as Detroit Edison following the share exchange described in this Prospectus and
Proxy Statement, and will file reports, proxy statements and other information
with the SEC in accordance with the 1934 Act. Detroit Edison will continue to be
subject to such requirements.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Detroit Edison with the SEC (File No.
1-2198) are incorporated in this Prospectus and Proxy Statement by reference and
made a part hereof:
(i) The Annual Report on Form 10-K for the year ended December 31,
1993 (the "1993 Form 10-K");
(ii) The Quarterly Reports on Form 10-Q for the quarters ended March
31, 1994, June 30, 1994 and September 30, 1994 (collectively, the "1994
10-Q's"); and
(iii) The Current Reports on Form 8-K dated January 24, 1994; April 7,
1994 (Amendment No. 1); June 22, 1994; August 3, 1994; January 27, 1995;
and , 1995 (collectively, the "8-K's").
All documents subsequently filed by Detroit Edison pursuant to Section
13(a), 13(c), 14 or 15(d) of the 1934 Act, after the date of this Prospectus and
Proxy Statement and prior to the termination of the offer made by this
Prospectus and Proxy Statement, shall be deemed to be incorporated in this
Prospectus and Proxy Statement by reference and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus and Proxy Statement shall be deemed to be modified or superseded for
purposes of this Prospectus and Proxy Statement to the extent that a statement
contained in this Prospectus and Proxy Statement or in any other subsequently
filed document which also is or is deemed to be incorporated by reference in
this Prospectus and Proxy Statement modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus and Proxy Statement.
THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DETROIT EDISON WILL
PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROSPECTUS AND PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST
OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS THAT HAVE BEEN OR MAY BE
INCORPORATED IN THIS PROSPECTUS AND PROXY STATEMENT BY REFERENCE, OTHER THAN
CERTAIN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS PROSPECTUS AND PROXY
STATEMENT
<PAGE> 7
INCORPORATES. SUCH REQUESTS SHOULD BE DIRECTED TO SUSAN M. BEALE, CORPORATE
SECRETARY, THE DETROIT EDISON COMPANY, 2000 SECOND AVENUE, DETROIT, MICHIGAN
48226 (TELEPHONE NUMBER (313) 237-8666). IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL 17, 1995.
------------------------------
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and Proxy Statement in
connection with the offer contained in this Prospectus and Proxy Statement, and,
if given or made, such information or representation must not be relied upon as
having been authorized. Neither the delivery of this Prospectus and Proxy
Statement nor any distribution of shares of Holding Company Common Stock made
hereunder shall, under any circumstances, create any implication that there has
not been any change in the affairs of Detroit Edison or Holding Company since
the respective dates as of which information is given herein. This Prospectus
and Proxy Statement does not constitute an offer to sell or a solicitation of an
offer to buy shares of Holding Company Common Stock by any person in any
jurisdiction or in any circumstance in which such offer would be unlawful.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY OF RESTRUCTURING PROPOSAL..................................................... 1
INTRODUCTION.......................................................................... 5
ITEM 1. THE ELECTION OF DIRECTORS..................................................... 5
Nominees for Election at this Meeting to Terms Expiring in 1998.................. 6
Directors Whose Present Terms Continue Until 1996................................ 6
Directors Whose Present Terms Continue Until 1997................................ 7
Directors Not Standing for Re-Election........................................... 8
Security Ownership of Management................................................. 9
The Board of Directors and Board Committees...................................... 9
Board Compensation Committee Report on Executive Compensation.................... 10
Shareholder Value Improvement Plan ("SVIP")...................................... 11
Summary Compensation Table....................................................... 12
Performance Graph................................................................ 14
Compensation Committee Interlocks & Insider Participation........................ 14
ITEM 2. CORPORATE RESTRUCTURING PROPOSAL.............................................. 15
Introduction..................................................................... 15
Vote Required.................................................................... 15
Reasons for the Restructuring.................................................... 15
Certain Considerations........................................................... 16
Exchange Agreement............................................................... 17
Required Regulatory Approvals.................................................... 17
Transfer of Detroit Edison Assets to Holding Company............................. 18
Dividend Policy.................................................................. 18
Treatment of Preferred and Preference Stock...................................... 18
Amendment or Termination......................................................... 20
Statutory Appraisal Rights Inapplicable.......................................... 20
Effectiveness of the Restructuring............................................... 20
Exchange of Stock Certificates................................................... 20
Dividend Reinvestment Plan....................................................... 20
Certain Federal Income Tax Consequences.......................................... 21
Listing of Holding Company Common Stock.......................................... 21
Regulation of Holding Company.................................................... 21
Management....................................................................... 22
Holding Company Capital Stock.................................................... 22
Comparative Shareholders' Rights................................................. 23
Stock Plans...................................................................... 25
Transfer Agent and Registrar..................................................... 25
Detroit Edison Common Stock Market Prices and Dividends.......................... 25
Legal Opinions................................................................... 25
Experts.......................................................................... 26
ITEM 3. APPROVAL OF LONG-TERM INCENTIVE PLAN.......................................... 26
Introduction..................................................................... 26
Vote Required.................................................................... 26
Summary of Plan Features......................................................... 27
Federal Income Tax Consequences of Incentive Plan................................ 31
Effect of Approval of Exchange Agreement......................................... 33
ITEM 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS........................ 33
TRANSACTION OF OTHER BUSINESS AND OTHER INFORMATION................................... 34
EXHIBIT A............................................................................. A-1
EXHIBIT B............................................................................. B-1
EXHIBIT C............................................................................. C-1
</TABLE>
i
<PAGE> 9
SUMMARY OF RESTRUCTURING PROPOSAL
The following is a summary of certain information regarding the
restructuring proposal contained or incorporated by reference in this Prospectus
and Proxy Statement and is qualified in its entirety by the more detailed
information contained or incorporated by reference herein. Information
concerning other matters to be acted on at the Annual Meeting is set forth
elsewhere herein.
PROPOSED RESTRUCTURING
Holding Company has been organized to become the holding company for, and
the direct owner of the Common Stock of, Detroit Edison. The formation of the
holding company structure will be achieved through a share exchange (the
"Exchange") in which the holders of Detroit Edison Common Stock immediately
prior to the Exchange will become the holders of Holding Company Common Stock
immediately after the Exchange and pursuant thereto Holding Company will become
the sole holder of Detroit Edison Common Stock. The Exchange will be
accomplished pursuant to an Agreement and Plan of Exchange (the "Exchange
Agreement").
Shares of Detroit Edison Cumulative Preferred Stock, $100 par value (issued
and outstanding in six series) (collectively, "Detroit Edison Preferred Stock"),
and Detroit Edison Preference Stock, $1 par value, none of which is currently
outstanding ("Detroit Edison Preference Stock"), will not be affected by or
exchanged in the Exchange but will continue to be held by the holders thereof.
Except as noted in the next sentence, the Exchange will not change any rights of
holders of such shares. If the Exchange is approved by the Detroit Edison Common
Stock shareholders and all necessary regulatory approvals are obtained, Detroit
Edison expects to optionally redeem, prior to the effective time of the
Exchange, all outstanding shares of Convertible Cumulative Preferred Stock,
5 1/2% Series, $100 Par Value (the "5 1/2% Preferred Stock"). See "Item 2.
Corporate Restructuring Proposal -- Treatment of Preferred and Preference
Stock."
Detroit Edison is a regulated public utility engaged in the generation,
purchase, transmission, distribution and sale of electric energy in a 7,600
square mile area in Southeastern Michigan. Detroit Edison's service area
includes about 13% of Michigan's total land area, and about half its population
(approximately five million people), electric energy consumption and industrial
capacity. Detroit Edison's residential customers reside in urban and rural
areas, including an extensive shoreline along the Great Lakes and connecting
waters. After the Exchange, Detroit Edison will continue to carry on its current
utility business as a subsidiary of Holding Company.
Holding Company will have no assets other than those involved in its
ownership of stock of its subsidiaries, which after the effective time of the
Exchange will consist of all of the Detroit Edison Common Stock, and after the
Exchange is expected to consist of all of the common stock of certain existing
Detroit Edison subsidiaries involved in non-utility operations (collectively,
the "non-utility subsidiaries"). See "Item 2. Corporate Restructuring Proposal
- -- Transfer of Detroit Edison Assets to Holding Company". Holding Company will
conduct no business other than the ownership of the stock of its subsidiaries.
The principal executive office of Detroit Edison is located at 2000 Second
Avenue, Detroit, Michigan 48226-1279, and its telephone number is (313)
237-8000. Holding Company's principal executive office is at the same address;
its telephone number is (313) 237-8666.
1
<PAGE> 10
Figure 1 below illustrates the present corporate structure of Detroit
Edison and its subsidiaries before the Exchange. Figure 2 below illustrates the
proposed corporate structure of Holding Company and its subsidiaries following
the Exchange. After the effective time of the Exchange, Detroit Edison will
transfer certain non-utility subsidiaries to Holding Company. Detroit Edison
will retain its other subsidiaries.
FIGURE 1: PRESENT STRUCTURE
_______________________
| |
| DETROIT EDISON |
|_______________________|
|
_____________________________________|_______________________________________
| | | |
| Utility Subsidiaries | | Non-Utility Subsidiaries |
|_________________________| |___________________________|
FIGURE 2: PROPOSED STRUCTURE
_______________________
| |
| HOLDING COMPANY |
|_______________________|
|
_____________________________________|_______________________________________
| | | |
| Detroit Edison | | Non-Utility Subsidiaries |
|_________________________| |___________________________|
|
____________|____________
| |
| Utility Subsidiaries |
|_________________________|
EXCHANGE OF CERTIFICATES
It will not be necessary for shareholders to turn in their certificates for
Detroit Edison Common Stock in exchange for certificates for Holding Company
Common Stock. The certificates which presently represent outstanding shares of
Detroit Edison Common Stock will automatically represent shares of Holding
Company Common Stock following the effectiveness of the Exchange. New
certificates bearing the name of Holding Company will be issued after the
Exchange in the future, if, and as, certificates for shares of Detroit Edison
Common Stock outstanding immediately prior to the Exchange are presented for
exchange or transfer.
DIVIDEND REINVESTMENT PLAN
Detroit Edison Common Stock held under the Detroit Edison Dividend
Reinvestment Plan (including uncertificated whole and fractional shares) will be
exchanged automatically for shares of Holding Company Common Stock as of the
effective time of the Exchange. Holding Company will establish a dividend
reinvestment plan providing for participation and other features at least as
favorable as the Detroit Edison Dividend Reinvestment Plan.
2
<PAGE> 11
STOCK EXCHANGE LISTINGS
Holding Company will apply to list its Common Stock on the New York and
Chicago Stock Exchanges. It is expected that such listings will become effective
at the effective time of the Exchange, subject to the rules of such Stock
Exchanges. See "Item 2. Corporate Restructuring Proposal -- Listing of Holding
Company Common Stock." Holding Company reserves the right to terminate its
listing on any exchange in the future, upon notice to shareholders, in
compliance with its listing agreements.
DIVIDEND POLICY
Dividends on Holding Company Common Stock will depend primarily on the
earnings, financial condition and capital requirements of Detroit Edison, and
its ability to pay dividends on the Detroit Edison Common Stock owned by Holding
Company. It is currently contemplated that Holding Company will initially pay
quarterly dividends on Holding Company Common Stock at least equal to the rate,
and on approximately the same schedule, as dividends most recently declared on
Detroit Edison Common Stock. See "Item 2. Corporate Restructuring Proposal --
Dividend Policy."
REASONS FOR THE RESTRUCTURING
The management and the Board of Directors of Detroit Edison unanimously
believe that the proposed restructuring is beneficial because it will provide
greater financial flexibility to develop and operate new businesses in an
increasingly competitive business environment. It will also offer a mechanism
for better defining and separating the utility and non-utility businesses and
for protecting the utility business and utility customers from the risks
involved in non-utility ventures. See "Item 2. Corporate Restructuring Proposal
- -- Reasons for the Restructuring." THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE CORPORATE RESTRUCTURING PROPOSAL.
CERTAIN CONSIDERATIONS
Certain factors which should be considered in determining whether or not to
vote to approve the Exchange Agreement are discussed under "Item 2. Corporate
Restructuring Proposal -- Certain Considerations."
VOTE REQUIRED
Only holders of Detroit Edison Common Stock and Detroit Edison Preferred
Stock at 5:00 P.M. Detroit time on February 24, 1995 (the "Record Date") will be
entitled to receive notice of the Annual Meeting. Only holders of shares of
Detroit Edison Common Stock on the Record Date will be entitled to vote at the
Annual Meeting to consider approval of the Exchange Agreement pursuant to which
the restructuring proposal will be consummated. As of February 24, 1995, there
were shares of Detroit Edison Common Stock outstanding. The affirmative
votes of the holders of a majority of the outstanding shares of Detroit Edison
Common Stock are required to approve the Exchange Agreement. See "Item 2.
Corporate Restructuring Proposal -- Vote Required."
REGULATORY APPROVALS
Applications for approval of the restructuring have been filed with the
Federal Energy Regulatory Commission ("FERC") under the Federal Power Act and
the Nuclear Regulatory Commission ("NRC") under the Atomic Energy Act. No
approvals are required under the Public Utility Holding Company Act of 1935 (the
"Holding Company Act") or from the Michigan Public Service Commission ("MPSC")
under applicable Michigan law. Following the Exchange, Holding Company will
qualify for an exemption from registration under the Holding Company Act. See
"Item 2. Corporate Restructuring Proposal -- Required Regulatory Approvals."
3
<PAGE> 12
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Detroit Edison Common Stock solely for
Holding Company Common Stock in the Exchange will not be taxable under Federal
income tax laws, and it is a condition for the Exchange to become effective that
Detroit Edison receive either an opinion of counsel or a ruling from the
Internal Revenue Service satisfactory to the Detroit Edison Board of Directors
with respect to the Federal income tax consequences of the Exchange. Detroit
Edison does not expect to apply for such a ruling because it has received an
opinion of Jones, Day, Reavis & Pogue, counsel to Detroit Edison, with respect
to certain Federal income tax consequences of the Exchange. See "Item 2.
Corporate Restructuring Proposal -- Certain Federal Income Tax Consequences."
STATUTORY APPRAISAL RIGHTS INAPPLICABLE
No holders of Detroit Edison Common Stock, Detroit Edison Preferred Stock
or Detroit Edison Preference Stock have the right to dissent from consummation
of the Exchange or to receive dissenters' appraisal rights in connection with
the Exchange. See "Item 2. Corporate Restructuring Proposal -- Statutory
Appraisal Rights Inapplicable."
4
<PAGE> 13
INTRODUCTION
The Proxy Statement forming a part hereof is furnished in connection with
the solicitation by the Board of Directors of Detroit Edison of proxies for use
at the Detroit Edison Annual Meeting of Common Stock Shareholders to be held on
April 24, 1995 (the "Annual Meeting"). If the enclosed proxy card is executed
and returned, it will be voted as specified on such proxy card. If the proxy
card is executed and returned but no specification is made on the proxy card as
to any proposal, the shares represented by the proxy will be voted FOR the
election of directors and FOR Proposals 2, 3, and 4.
It is the policy of Detroit Edison that any proxy, ballot or other voting
material that identifies the particular vote of a shareholder will be kept
confidential except in the event of a contested proxy solicitation or as may be
required by law. Detroit Edison may be informed whether or not a particular
shareholder has voted and will have access to any comment written on a proxy
card, ballot or other material. Under the policy, the inspectors of election at
any meeting will be outside parties.
You may revoke your proxy by a written request or by a subsequently dated
proxy card, which, in either case, must be received by the Corporate Secretary
of Detroit Edison before the Annual Meeting, or by voting in person at the
Annual Meeting.
The holders of Detroit Edison Common Stock, the only security of the
Company entitled to vote at the meeting, are entitled to one vote for each share
of such stock held, whether of record or in any account under the Detroit
Edison's Dividend Reinvestment Plan or the Savings and Investment Plans, on the
Record Date. Record shares and Dividend Reinvestment Plan shares are combined in
a single proxy card. A majority of the shares of outstanding Detroit Edison
Common Stock present in person or represented by proxy will constitute a quorum.
An Annual Report of Detroit Edison for the calendar year 1994 was mailed on
or about March 7, 1995 to all Detroit Edison shareholders of record on the
Record Date.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL DIRECTOR NOMINEES NAMED IN
ITEM 1, FOR APPROVAL OF THE EXCHANGE AGREEMENT AS DISCUSSED IN ITEM 2, FOR
APPROVAL OF THE LONG-TERM INCENTIVE PLAN AS DISCUSSED IN ITEM 3, AND FOR
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS AS DISCUSSED IN
ITEM 4.
ITEM 1. THE ELECTION OF DIRECTORS
The Board of Directors of Detroit Edison is divided into three classes,
with one class of directors elected each year for a three-year term. The terms
of directors in one class expire in 1995. Two directors in the class have been
nominated for re-election for terms expiring in 1998 and one person has been
nominated to fill a vacancy. All of the nominees have consented to serve, if
elected, and, except for the nominee to fill the vacancy, are presently members
of the Board of Directors. Pursuant to the provisions of the Company's By-Laws,
the Board of Directors has by resolution set the number of directors comprising
the full Board, effective as of the date of the Annual Meeting, at thirteen.
Proxies cannot be voted for more than three persons. It is the intention of
the persons named in the enclosed proxy card, unless otherwise instructed by the
shareholders, to vote for the nominees named below. If, for any reason, any of
the nominees becomes unable or is unwilling to serve at the time of the meeting,
the persons named in the enclosed proxy card will have discretionary authority
to vote for a substitute nominee or nominees. It is not anticipated that any
nominee will be unavailable for election.
Each holder of Detroit Edison Common Stock has the right, without prior
notice to Detroit Edison, to cumulate votes for the election of directors by
multiplying the number of votes to which such holder is entitled by the number
of directors to be elected and casting all such votes for one candidate or
distributing them among any two or more candidates. Any shareholder who may wish
to withhold votes from one or more director or directors may do so by writing
the name or names of such directors in the space provided on the proxy card for
such purpose. Shareholders cannot vote for more than three directors. The
election of each director requires the affirmative vote of the holders of a
plurality of the shares of Detroit Edison Common
5
<PAGE> 14
Stock voted. Broker non-votes will not be included in determining the number of
votes cast in the election. A "withhold" from voting for a director is the
equivalent of a "no" vote and will be included in determining the number of
votes cast in the election of directors. Under Michigan law, only votes cast are
counted and, with respect to the election of directors, abstentions have no
effect.
The following sets forth information as to each nominee for election at this
meeting and each director continuing in office.
NOMINEES FOR ELECTION AT THIS MEETING TO TERMS EXPIRING IN 1998
TERENCE E. ADDERLEY, 61, President and Chief Executive Officer,
Kelly Services, Inc., Troy, Michigan--provider of temporary
help, business services and assisted living (home care)
services. Mr. Adderley has served in his present position since
[Photo] 1967. He has been a director of Detroit Edison since 1987. Mr.
Adderley is also a director of Kelly Services, Inc.; NBD Bank,
N.A. and NBD Bancorp, Inc. He received B.B.A. and M.B.A. degrees
from the University of Michigan. Committees: Executive, Finance
and Organization and Compensation.
ANTHONY F. EARLEY, JR., 45, President and Chief Operating
Officer, Detroit Edison. Mr. Earley has served in his present
position since March 1, 1994. He previously served as President
and Chief Operating Officer of the Long Island Lighting Company
[Photo] (LILCO), an electric and gas utility company serving Long
Island, New York, from 1989 to 1994; and in various executive
capacities at LILCO from 1985 to 1989. Before that, Mr. Earley
was a partner in the law firm of Hunton & Williams and served as
an officer in the United States Navy nuclear submarine program.
He has been a director of Detroit Edison since March 1994. Mr.
Earley is also a director of Mutual of America Capital
Management Corporation. He received a B.S. degree in physics,
an M.S. degree in engineering and a J.D. degree, all from the
University of Notre Dame. Committee: Executive.
[IDENTITY OF, AND INFORMATION REGARDING, ADDITIONAL NOMINEE TO
COME]
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 1996
LILLIAN BAUDER, 55, President and Chief Executive Officer,
Cranbrook Educational Community, Bloomfield Hills, Michigan. Dr.
Bauder has served in her present position since 1984. She has
[Photo] been a director of Detroit Edison since 1986 and is also a
director of Comerica Bank and Masco Corporation. Dr. Bauder
received a B.A. degree from Douglass College and M.A. and Ph.D.
degrees in sociology from the University of Michigan.
Committees: Audit, Executive and Nuclear Review.
6
<PAGE> 15
DAVID BING, 51, Chairman of the Board, Bing Steel, Inc.,
Detroit, Michigan--a steel service center serving automobile
manufacturers, steel fabricators, construction subcontractors
and the farm implement and appliance industries. Mr. Bing has
[Photo] served in his present position since 1986 and previously served
as President. He is also Chief Executive Officer of Superb
Manufacturing, Inc., a metal stamping company. Mr. Bing played
professional basketball for 12 years and continues to serve the
community as advisor to many youth groups. He also serves as a
director of a number of civic organizations. Mr. Bing has been
a director of Detroit Edison since 1985. He received a B.A.
degree from Syracuse University. Committees: Audit, Energy
Resources Planning and Organization and Compensation.
LARRY G. GARBERDING, 56, Executive Vice President and Chief
Financial Officer, Detroit Edison. Mr. Garberding has served in
his present position since 1990. He previously served as
President of NICOR, Inc., a natural gas utility serving suburban
[Photo] Chicago, Illinois, from 1988 to 1990 and in various executive
capacities at Tenneco Gas, Houston, Texas, from 1981 to 1987.
Mr. Garberding has been a director of Detroit Edison since 1990.
He received a B.S. degree in industrial administration from Iowa
State University. Committees: Executive and Finance.
ALAN E. SCHWARTZ, 69, a Partner of the law firm of Honigman
Miller Schwartz and Cohn, Detroit, Michigan. Mr. Schwartz has
been a director of Detroit Edison since 1969. He is also a
director of Comerica Incorporated; Core Industries, Inc.;
[Photo] Handleman Company; Howell Industries, Inc.; Pulte Corporation
and Unisys Corporation. Mr. Schwartz received a B.A. degree from
the University of Michigan and a law degree from Harvard Law
School. Committees: Executive, Finance, Nominating and
Organization and Compensation.
WILLIAM WEGNER, 69, Consultant; owner of W-Squared, Inc.--a
consulting firm engaged in providing services to nuclear utility
companies. Mr. Wegner has been a nuclear consultant since 1979.
From 1964 to 1979 he served as Admiral Rickover's Deputy
[Photo] Director. In addition to his work in the nuclear field, Mr.
Wegner operates a fine arts bronze foundry in Fredericksburg,
Virginia. Mr. Wegner has been a director of Detroit Edison since
1990. He graduated from the U.S. Naval Academy, received
master's degrees in naval architecture and marine engineering
from the Webb Institute of Naval Architecture and a master's
degree in nuclear engineering from the Massachusetts Institute
of Technology. Committees: Energy Resources Planning and
Nuclear Review.
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL 1997
THEODORE S. LEIPPRANDT, 61, Marketing Specialist, Cooperative
Elevator Company, Pigeon, Michigan--handling export and domestic
marketing of dry beans in the Thumb area for the farming
industry. Mr. Leipprandt has served the Cooperative in various
[Photo] positions since 1958. He is a past president of the Michigan
Grain and Agri-Dealers Association and has been a member of the
Michigan 4-H Foundation Board of Trustees since 1984, serving
two years as its president. Mr. Leipprandt is a past District
Governor of Rotary International, having served in that
capacity in 1990 and 1991. In addition, he is a director of
the East Central Michigan Farm Credit Services and serves on
the boards of a variety of civic organizations and his church.
Mr. Leipprandt has been a director of Detroit Edison since
1990. He received a B.S. degree in animal science from Michigan
State University. Committees: Audit, Energy Resources Planning
and Nuclear Review.
7
<PAGE> 16
JOHN E. LOBBIA, 53, Chairman of the Board and Chief Executive
Officer, Detroit Edison. Mr. Lobbia has served in his present
position since 1990. He previously served as President and Chief
Operating Officer from 1988 to 1994. Mr. Lobbia has been a
[Photo] director of Detroit Edison since 1988. He is also a director of
Flint Ink Corporation; NBD Bank, N.A.; NBD Bancorp, Inc. and the
Rouge Steel Company, as well as a director and trustee of a
number of community and professional organizations. Mr. Lobbia
received a B.S. degree in electrical engineering from the
University of Detroit. Committee: Executive.
PATRICIA S. LONGE, 61, Economist; Senior Partner, The Longe
Company, Naples, Florida--an economic consulting and investment
firm. Dr. Longe has served in her present position since 1981.
She was a professor of Business Administration at the University
of Michigan from 1973 to 1986. Dr. Longe has been a director of
[Photo] Detroit Edison since 1973. She is also a director of Jacobson
Stores, Inc.; The Kroger Company; Comerica Incorporated;
Comerica Bank & Trust, F.S.B. and The Warner-Lambert Company.
Dr. Longe received B.S. and M.B.A. degrees from the University
of Detroit and a Ph.D. degree in economics from Wayne State
University. Committees: Audit, Finance, Nominating and Nuclear
Review.
EUGENE A. MILLER, 57, Chairman of the Board and Chief Executive
Officer, Comerica Incorporated and Comerica Bank, Detroit,
Michigan. Mr. Miller served as Chairman of the Board, President
and Chief Executive Officer of Comerica Incorporated and
Comerica Bank prior to the merger of Comerica Incorporated and
[Photo] Manufacturers National Corporation in 1992. He has been a
director of Detroit Edison since 1989. Mr. Miller also serves as
a director or trustee of a number of community and professional
organizations. He received a B.B.A. degree from the Detroit
Institute of Technology. Committees: Finance, Nominating and
Organization and Compensation.
DEAN E. RICHARDSON, 67, retired Chairman of the Board,
Manufacturers National Corporation, Detroit, Michigan. Prior to
his retirement in 1990, Mr. Richardson served in the above
position since 1973. He has been a director of Detroit Edison
[Photo] since 1977. Mr. Richardson is also a director of the Automobile
Club of Michigan, Ford Holdings, Inc., and Tecumseh Products
Company. He received a B.A. degree from Michigan State
University and an LL.B. degree from the University of Michigan.
Committees: Audit, Executive, Finance and Organization and
Compensation.
DIRECTORS NOT STANDING FOR RE-ELECTION
MESSRS. WENDELL W. ANDERSON, JR. and WALTER J. MCCARTHY, JR. have reached
mandatory retirement age and are not standing for re-election. Detroit Edison
expresses its appreciation to Messrs. Anderson and McCarthy for their
contributions during their years of dedicated service as directors of Detroit
Edison.
[PHOTO] [PHOTO]
Wendell W. Anderson, Jr. Walter J. McCarthy, Jr.
8
<PAGE> 17
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
SHARES OF STOCK
OWNED BENEFICIALLY
DIRECTOR/EXECUTIVE OFFICER CLASS OF STOCK MARCH 1, 1995(1)(2)
------------------------------------------- -------------- -------------------
<S> <C> <C>
Terence E. Adderley........................ Common
Frank E. Agosti............................ Common (3)
Preferred
Wendell W. Anderson, Jr.................... Common
Lillian Bauder............................. Common
David Bing................................. Common
Anthony F. Earley, Jr...................... Common
Larry G. Garberding........................ Common (3)
Douglas R. Gipson.......................... Common (3)
Theodore S. Leipprandt..................... Common
John E. Lobbia............................. Common (3)
Patricia S. Longe.......................... Common
Walter J. McCarthy, Jr..................... Common
Eugene A. Miller........................... Common
Dean E. Richardson......................... Common
Alan E. Schwartz........................... Common
William Wegner............................. Common
Directors and executive officers as a group
(24 persons)............................. Common (3)
and
Preferred
</TABLE>
- -------------------------
(1) Directors and officers owned not more than 1 percent individually and
in the aggregate of any class of the Company's outstanding stock.
Voting power and investment power in many instances are shared with a
joint tenant, generally a spouse.
(2) Does not include shares held by spouse or other family member
in which the director or officer disclaims any beneficial ownership
interest.
(3) Includes shares held in the Savings and Investment Plan as of December
31, 1994.
THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Directors of Detroit Edison are paid an annual retainer of $18,000 and $750
for attending a meeting of the Board or Board committees or other
Company-related meetings. Directors who serve as chairs of Board committees are
paid an additional annual retainer of $2,000. Directors who are also officers of
the Company receive no payment for service as a director. Reimbursement is made
for out-of-pocket expenses incurred by any director to attend meetings.
Directors may elect to defer the receipt of all or any part of their annual
retainer and meeting fees for payment in the future, with interest accrued
monthly at the 5-year U.S. Treasury Bond rate.
Non-employe directors with a minimum of five years of Board service are
eligible to participate in a retirement plan. The plan provides for a monthly
retirement payment for the number of months that an eligible director served on
the Board in the amount of one-twelfth of the annual retainer in effect at the
time of retirement.
During the year 1994 there were 11 meetings of the Board of Directors and
36 meetings of the various committees of the Board. All directors attended at
least 90 percent of the meetings held during 1994.
The Board of Directors of Detroit Edison has established seven standing
committees (Audit, Energy Resources Planning, Executive, Finance, Nominating,
Nuclear Review and Organization and Compensation), the members of which are
identified on the preceding pages. With the exception of the Executive
Committee, which has authority to act on most matters when the Board of
Directors is not in session, such committees act
9
<PAGE> 18
in an advisory capacity to the full Board of Directors. All committees report to
the full Board of Directors with respect to matters considered at each committee
meeting held.
The principal functions of the Audit Committee are to review the scope of
the annual audit and the annual audit report of the independent accountants,
recommend the firm of independent accountants to perform such audits, consider
non-audit functions proposed to be performed by the independent accountants,
review the functions performed by the internal audit staff, ascertain whether
the recommendations of auditors are satisfactorily implemented and recommend
such special studies or actions which the Committee deems desirable. During
1994, three meetings of the Audit Committee were held.
The principal functions of the Nominating Committee are to consider the
organizational structure of the Board of Directors and to assist the full Board
in the selection of the nominees for the Board of Directors. In the selection of
nominees for the Board of Directors, the Committee will consider any nominee
recommended by a shareholder if the recommendation is made in writing and
includes (i) the qualifications of the proposed nominee to serve on the Board of
Directors, (ii) the principal occupations and employment of the proposed nominee
during the past five years, (iii) each directorship currently held by the
proposed nominee and (iv) a statement from the proposed nominee that he or she
has consented to the submission of the recommendation. Recommendations should be
addressed to the Corporate Secretary of the Company at its principal business
address. Two meetings of the Nominating Committee were held during 1994.
The Organization and Compensation Committee is comprised of six outside
directors. The Committee reviews recommendations and approves, subject to full
Board agreement, the compensation of those executives who are at the level of
vice president or higher. The Committee also assists in the selection of
officers to assure that successors for each office are provided for and
selected. Seven meetings of the Organization and Compensation Committee were
held during 1994.
The Nuclear Review Committee provides non-management oversight and review
of Fermi-2, focusing on matters such as staffing, personnel selection, training
and retention, adequacy of funding, internal performance review and internal
safety review. During 1994, nineteen meetings of the Nuclear Review Committee
were held.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERALL POLICY
The Company's executive compensation program is designed to align
compensation with the achievement of corporate goals. To this end, the Company
has developed an overall compensation plan that rewards executives for the
enhancement of shareholder and customer value and supports performance-oriented
behavior. The overall objectives of this compensation strategy are to motivate
key executives to achieve the corporate goals, to link executive and shareholder
interests, to attract and retain key executives and to provide a compensation
package that recognizes individual contributions to corporate performance.
ORGANIZATION AND COMPENSATION COMMITTEE
The Organization and Compensation Committee ("Committee") of the Board of
Directors is comprised of six outside directors. The Committee reviews
recommendations and approves, subject to Board agreement, the compensation of
those executives who are at the level of vice president or higher, including the
individuals whose compensation is detailed in this proxy statement. The
Committee has retained an independent consultant to review the Company's
executive compensation program.
The Committee reviews the Company's executive compensation program
annually. This review includes comparing the Company's executive compensation,
business performance and total shareholder return to several groups of electric
utilities. For purposes of comparing shareholder return, the Committee believes
that the appropriate group is the 48 Dow Jones Electric Utilities Companies
(DJEU) since shareholder return information is available for all of these
companies. However, the Committee believes the appropriate group for the purpose
of total compensation comparisons is not the utilities included in the Dow Jones
Electric Utility
10
<PAGE> 19
Index, but rather a group of utilities selected on the basis of revenues
generated, availability of compensation information, financial performance and
geographic area (the "Comparative Market"). The companies in this group may
change from year to year, based on the above factors. It is the Committee's
intent that total compensation be competitive with the Comparative Market taking
into account the Company's relative performance.
The key elements of the Company's executive compensation program for the
years 1992 and 1993 were base salary and the Shareholder Value Improvement Plan.
As discussed below, in 1994 a lump sum payment in lieu of a base salary
adjustment was made. The Committee's policies with respect to each of these
elements, including the basis for the compensation awarded to Mr. Lobbia, the
Company's chief executive officer, are discussed below.
BASE SALARIES AND LUMP SUM AWARDS
Base salaries for executive officers are determined by evaluating the
responsibilities of the position held and the experience and performance of the
individual. Reference is also made to the competition for executive talent,
including a comparison to comparable positions at other utility companies in the
Comparative Market.
Annual increases in each officer's base salary, if any, are determined by
considering the market position of the salary and by evaluating the performance
of the Company and of each executive officer. In reviewing Company performance,
no specific performance target is used, but rather, a subjective judgment is
used. In reviewing the individual performance of the officers at the level of
vice president or higher, the Committee takes into account Mr. Lobbia's
evaluation of such officers' performance. This evaluation is based in part on
the attainment of the officers' individual objectives established for the year.
Three of the executive officer's salaries were below and two were approximately
at the Competitive Market median.
In 1994, the Company awarded lump sum awards in lieu of base salary
adjustments for all employes, including the named executive officers, except for
Mr. Earley who joined the Company on March 1, 1994. The amounts shown in Column
(c) Salary, include both the base salary and the lump sum award, if any.
With respect to the lump sum award granted to Mr. Lobbia in 1994, the
Committee took into account the factors discussed above. Mr. Lobbia's base
salary for 1993 was below the median of the Comparative Market. Mr. Lobbia's
base salary remained at $ for 1994 and he received a lump sum award of
$ for a total of $ which was below the median of the
Comparative Market.
SHAREHOLDER VALUE IMPROVEMENT PLAN ("SVIP")
All non-union represented employes of the Company, including executive
officers, are eligible for the Company's SVIP. The measures for the SVIP are
common for all participants. Each measure is assigned a weight to indicate its
relative importance. Each measure has three levels, the attainment of which
results in different levels of awards, and a fourth level, which results in no
payout for that measure. The maximum award levels available to employes increase
with increasing levels of responsibility to put a greater percentage of
compensation at risk for those more senior employes. In the case of Mr. Lobbia,
the award which could be earned ranged from 0 percent to 40 percent of base
salary. The other executive officers could earn awards ranging from 0 percent to
30 percent of base salary. For 1994, the SVIP measures were changed to more
directly measure improvements in shareholder value. There are two categories of
SVIP measures, the current year shareholder value measure and the customer value
measure. The current year shareholder value measure is the total shareholder
return (measured by stock price and dividends) compared to the 48 DJEU
companies. For an award to be made under this measure, the total shareholder
return must be positive and above the median of the DJEU companies. If the total
shareholder return is below the median but at least 10 percent, an award is made
at Level 3. This measure is weighted at 50 percent.
The customer satisfaction measures in the aggregate are also weighted at 50
percent. These measures, which support long-term shareholder value, include
residential customer satisfaction (based on a survey by an outside entity),
industrial safety; operation, maintenance and capital expenditures; and the cost
of producing fossil generation and purchasing power for sale to our customers.
In aggregate, the performance in each of the
11
<PAGE> 20
five measures resulted in a 1994 SVIP award to Mr. Lobbia of $ or 6.5
percent of his 1994 salary; to Mr. Earley of $ or 5 percent of his 1994
salary; to Mr. Garberding of $ or 5 percent of his 1994 salary; to Mr.
Agosti of $ or 5 percent of his 1994 salary; and to Mr. Gipson of
$ or 5 percent of his 1994 salary.
The awards earned in 1994 were paid in cash. For 1992 and 1993, one-half of
the total award for executive officers and other members of management was paid
in cash. Payment of the remaining one-half of the total was deferred. A record
of this amount is maintained in an unfunded, unsecured account on behalf of the
participant for three years. The amount appreciates or depreciates based on the
market value of the Company's Common Stock plus imputed dividends. The value of
the deferred award will be distributed as a cash payment after the end of three
years.
The amounts awarded under the 1992, 1993 and 1994 SVIP programs for the
five named officers are shown on the Summary Compensation Table in Column D
"Bonus".
ORGANIZATION AND COMPENSATION COMMITTEE:
Wendell W. Anderson, Jr., Chairman
Terence E. Adderley, Vice Chairman
David Bing
Eugene A. Miller
Dean E. Richardson
Alan E. Schwartz
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION($) ($)
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION IN 1994 YEAR SALARY BONUS(1) COMPENSATION(3)
- ---------------------------------------------------- ---- -------- -------- ---------------
(A) (B) (C) (D) (I)
<S> <C> <C> <C> <C>
John E. Lobbia...................................... 1994
Chairman of the Board and 1993
Chief Executive Officer 1992
Anthony F. Earley, Jr............................... 1994
President and Chief Operating Officer(2)
Larry G. Garberding................................. 1994
Executive Vice President and 1993
Chief Financial Officer 1992
Frank E. Agosti..................................... 1994
Senior Vice President -- Power Supply 1993
1992
Douglas R. Gipson................................... 1994
Senior Vice President -- Nuclear Generation 1993
1992
</TABLE>
- -------------------------
(1) Includes cash and deferred awards under SVIP for the years shown.
(2) Mr. Earley joined the Company on March 1, 1994.
(3) Includes contributions by the Company to the Employes' Savings Plan ("ESP").
Under the ESP, which is a qualified, defined contribution plan, the Company
makes matching contributions periodically on behalf of the participants in
the amount of 50 percent of each such participant's contributions. These
matching contributions are limited to 4 percent of a participant's salary,
up to $150,000 for 1994. Prior to April, 1994, the matching contributions
were limited to 3 percent of a participant's salary. For 1994, Messrs.
Lobbia, Earley, Garberding, Agosti, and Gipson's, Company matching ESP
contributions were $ , $ , $ , $ , and
$ , respectively.
12
<PAGE> 21
Also includes amounts matched by the Company pursuant to the Savings
Reparation Plan ("SRP") which provides that up to 10 percent of compensation in
excess of $150,000 may be deferred. Matching contributions are limited to 4
percent of the salary in excess of this amount and the value of the account will
appreciate or depreciate based on the market value of the Company's Common Stock
plus imputed dividends. Prior to July, 1994, the matching contributions were
limited to 3 percent of a participant's salary. Assets in the SRP are paid to
participants upon termination of employment. For 1994, Messrs. Lobbia,
Garberding, Agosti and Gipson's matching SRP contributions were $ ;
$ ; $ and $ , respectively. Mr. Earley did not
qualify for this plan in 1994.
Also includes deferred awards of $ , $ and $ for
the years 1992, 1993 and 1994, respectively, for Mr. Agosti under the Key
Employe Deferred Compensation Plan ("KEDCP") a defined contribution plan, which
is one of two supplemental retirement plans, for specified employes. Under the
terms of the KEDCP, Mr. Agosti is eligible to receive an annual deferred
compensation award of not in excess of 1 percent of regular compensation
(including employe contributions to the ESP and the SRP, but not including
incentive awards). KEDCP awards are payable for 15 years after retirement and
reflect the 1992, 1993 and 1994 awards of 1 percent for each of the 15 years
subsequent to a participant's retirement.
PENSION PLANS TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF BENEFIT SERVICE
FINAL --------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35 40 45
- ---------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- -------------------------
Note: The above includes benefits payable directly by the Company when total
annual benefits exceed the benefits payable under the Retirement Plan and
covered compensation exceeds $150,000. The amounts displayed above for
five years of benefit service do not include a benefit from the Management
Supplemental Benefit Plan since the plan has a ten-year service
requirement.
Compensation used to calculate the benefits in the Pension Plans Table
utilized only salaries shown in the Salary column of the Summary Compensation
Table. The plans require certain years of service before benefits under the
plans vest with the individual. Under all plans, Messrs. Lobbia, Earley,
Garberding, Agosti, and Gipson have 31, 1, 5, 37, and 7 actual years of service,
respectively. Messrs. Earley, Garberding and Gipson have 15, 25 and 14 years,
respectively, of additional awarded service for the purpose of calculating
benefits under the Management Supplemental Benefit Plan (MSBP). Mr. Earley's
eligibility for the additional awarded service is subject to his meeting the
eligibility requirements of the MSBP. Mr. Garberding's eligibility for the
additional awarded service is subject to his remaining with the Company a
specified number of years. The benefits are calculated based upon age, years of
service (actual and awarded), final average compensation, management position at
retirement and payment option selected. Such benefits are not subject to any
deductions for Social Security benefits or other offset amounts.
EMPLOYMENT CONTRACTS
The Company has employment contracts with Messrs. Earley and Garberding.
Mr. Earley received a lump sum upon joining the Company, which is included in
Column (c) Salary, in the Compensation Table. Under certain circumstances, if
Mr. Earley leaves the Company, he would be allowed a six-month paid leave of
absence and would receive a lump sum equal to his annual salary. The contract
also provides retirement benefits calculated based upon the Retirement Plan as
if he had become vested under the Retirement Plan. Mr. Garberding's contract
provides certain benefits for retiree health and life insurance and dependent
life insurance available to all employes who satisfy certain length of service
requirements, which length of service requirements Mr. Garberding cannot achieve
due to mandatory retirement.
13
<PAGE> 22
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
DOW JONES 48
MEASUREMENT PERIOD DETROIT ELECTRIC
(FISCAL YEAR COVERED) EDISON UTILITIES S&P 500
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 116.93 102.01 98.90
1991 153.01 132.22 126.42
1992 153.07 141.28 136.05
1993 148.66 157.77 149.76
1994 142.48 138.34 151.74
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Comerica Bank, of which Eugene A. Miller is Chairman and Chief Executive
Officer, engaged in banking business with the Company during 1994.
The law firm of Honigman Miller Schwartz and Cohn, of which Alan E.
Schwartz is a Partner, was retained by the Company during 1994 for professional
services.
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<PAGE> 23
ITEM 2. CORPORATE RESTRUCTURING PROPOSAL
INTRODUCTION
The management and the Board of Directors of Detroit Edison unanimously
believe it is in the best interest of Detroit Edison and its shareholders to
change the corporate structure of Detroit Edison so that it will become a
separate subsidiary of a new parent holding company, with the present holders of
Detroit Edison Common Stock becoming the holders of the common stock of the new
parent.
To carry out such restructuring, Detroit Edison has caused to be
incorporated a new Michigan corporation, Holding Company, which has a nominal
amount of stock outstanding and no present business or properties of its own.
All of the currently outstanding shares of Holding Company Common Stock are
presently owned by Detroit Edison.
Detroit Edison and Holding Company have approved the Exchange Agreement
under which, subject to shareholder and regulatory approvals and the
satisfaction or waiver of certain conditions, Detroit Edison will become a
subsidiary of Holding Company through the exchange of the outstanding shares of
Detroit Edison Common Stock on a share-for-share basis for Holding Company
Common Stock. A copy of the Exchange Agreement, in substantially the form in
which it will be executed upon receipt of all necessary approvals, is attached
to this Prospectus and Proxy Statement as Exhibit A and is incorporated herein
by reference.
It is intended that the restructuring will not have any adverse Federal
income tax consequences to the current holders of Detroit Edison Common Stock,
Detroit Edison Preferred Stock or Detroit Edison Preference Stock. See "Certain
Federal Income Tax Consequences."
VOTE REQUIRED
Under Michigan law, the affirmative votes of the holders of a majority of
the outstanding shares of Detroit Edison Common Stock are required to approve
the Exchange Agreement. Because the requirement for this proposal is a majority
of outstanding shares, broker non-votes and abstentions will have the effect of
a "no" vote. Holders of Detroit Edison Preferred Stock are entitled to receive
notice of the proposed Exchange Agreement, but are not entitled to vote on the
matter. No Detroit Edison Preference Stock is outstanding.
REASONS FOR THE RESTRUCTURING
General. The primary purpose of Detroit Edison's proposed restructuring
into a holding company system is to provide greater financial flexibility to
develop and operate new businesses in an increasingly competitive business
environment. It will also offer a mechanism for better defining and separating
the utility and non-utility businesses and for protecting the utility business
and utility customers from the risk involved in non-utility ventures.
Flexibility. As described under "Transfer of Detroit Edison Assets to
Holding Company," the current non-utility subsidiaries of Detroit Edison will be
transferred to and become subsidiaries of Holding Company after the
restructuring is completed. In addition, Holding Company may establish
additional subsidiaries to engage in new non-utility businesses. Management
expects that non-utility activities will continue to be energy-related in
markets in which management is familiar and in which it has expertise.
Initially, it is expected that the landfill gas recovery and energy-services
businesses will be expanded. Under the holding company structure, the
non-utility subsidiaries of Holding Company would have the flexibility to use
various financing techniques suitable for non-utility businesses, without any
impact on the capital structure or credit of Detroit Edison. Such non-utility
businesses could pursue business opportunities which potentially could enhance
the financial strength and operating results of Holding Company.
Financing of Detroit Edison's activities is subject to approval of the
Michigan Public Service Commission (the "MPSC") and the FERC. Financing of the
activities of non-utility subsidiaries of Holding Company will not require MPSC
or FERC approval, which will increase financing flexibility. In addition, the
capital structure of each non-utility subsidiary may be appropriately tailored
to suit its individual business.
15
<PAGE> 24
Separation. The Detroit Edison holding company system will clearly separate
its electric utility business from the non-utility businesses of other Holding
Company subsidiaries. Operating management of Detroit Edison will continue to
maintain its focus on meeting its public utility responsibilities and meeting
its mission "to increase shareholder value by providing superior customer
value." The separation of utility and non-utility activities will (i) facilitate
the allocation of expenses, (ii) protect Detroit Edison from any adverse effects
of non-utility operations, (iii) facilitate the regulation of the Detroit Edison
utility operations by the MPSC, FERC and NRC and (iv) permit the Detroit Edison
capital structure to be managed efficiently.
Competition. The demand for electricity provided by Detroit Edison and
other utility companies is becoming increasingly affected adversely by
competition from non-utility entities which seek to provide energy services to
users of large quantities of electricity, such as educational, health care and
governmental institutions, as well as industrial, commercial and wholesale
customers. Consequently, Detroit Edison proposes to create a holding company
which could create subsidiaries to compete with non-utility businesses,
including unregulated subsidiaries of other public utility holding companies, to
provide unregulated energy and other services and products to Detroit Edison
customers and others. Some of these activities could reduce energy costs for
large users of electricity and thereby make it less attractive for them to
obtain electricity from other sources, or to switch from using electricity to
natural gas or another form of energy.
Existing Utility Business. The Detroit Edison electric utility business is
expected to constitute the predominant part of Holding Company's earning power
for the foreseeable future. Detroit Edison operations will continue to be
subject to the jurisdiction of the MPSC, FERC and NRC; operations will be
conducted with the same assets and the same management. The management and Board
of Directors of Detroit Edison believe that the restructuring will have no
adverse effect on Detroit Edison, its customers or the holders of Detroit Edison
Preferred Stock, Detroit Edison first mortgage bonds and other debt securities,
or Detroit Edison Common Stock, which will be exchanged for Holding Company
Common Stock in the Exchange.
CERTAIN CONSIDERATIONS
Detroit Edison currently has a number of direct or indirect non-utility
subsidiaries engaged in real estate development, engineering services, energy
services and production, landfill gas production and other energy-related
services. It is anticipated that Detroit Edison will transfer these
subsidiaries, which are not regulated by state or federal agencies that regulate
public utilities, to Holding Company sometime after the Exchange. Detroit Edison
currently intends to retain certain other subsidiaries, including a subsidiary
which operates a coal transshipment facility.
It is the current intention of Holding Company for the non-utility
subsidiaries to engage only in energy-related businesses which will not be
regulated by state or federal agencies which regulate public utilities. Such
businesses may encounter competitive and other factors not previously
experienced by Detroit Edison, and may have different, and perhaps greater,
investment risks than those involved in the regulated electric utility business
of Detroit Edison. There can be no assurance that such businesses will be
successful or, if unsuccessful, that they will not have a direct or indirect
adverse effect on Holding Company. Any losses incurred by such businesses will
not be recoverable in utility rates of Detroit Edison.
The unregulated businesses of the non-utility subsidiaries are expected for
the foreseeable future to comprise an immaterial amount of the consolidated
assets, and to provide an immaterial amount of the consolidated revenues, of
Holding Company because Detroit Edison currently has approximately $11 billion
of assets and more than $3.5 billion of annual revenues.
Holding Company will obtain funds to invest in non-utility subsidiaries
from dividends Holding Company receives on its Detroit Edison Common Stock,
borrowings by Holding Company or the non-utility subsidiaries and any dividends
it may in the future receive from any earnings of non-utility subsidiaries,
although there can be no assurance that non-utility subsidiaries will have any
earnings or pay any dividends to Holding Company in the foreseeable future.
16
<PAGE> 25
EXCHANGE AGREEMENT
The Exchange Agreement has been unanimously approved by the Boards of
Directors of Detroit Edison and Holding Company subject to its approval by the
holders of the outstanding Detroit Edison Common Stock as described under "Vote
Required." In the Exchange,
(1) each share of Detroit Edison Common Stock outstanding immediately
prior to the effective time of the Exchange will be exchanged for one new
share of Holding Company Common Stock;
(2) each outstanding share of Detroit Edison Preferred Stock will
remain outstanding and unchanged (see "Treatment of Preferred and
Preference Stock");
(3) Holding Company shall become the owner and holder of each share of
Detroit Edison Common Stock outstanding immediately prior to the effective
time of the Exchange; and
(4) the shares of Holding Company Common Stock presently held by
Detroit Edison will be cancelled.
As a result, Detroit Edison will become a subsidiary of Holding Company, and all
of the Holding Company Common Stock outstanding immediately after the Exchange
will be owned by the holders of Detroit Edison Common Stock outstanding
immediately prior to the Exchange. See Exhibit A.
The Detroit Edison Preferred Stock, general and refunding mortgage bonds,
and other debt of Detroit Edison will be unchanged and will continue to be
outstanding securities and obligations of Detroit Edison after the Exchange. The
Detroit Edison general and refunding mortgage bonds will continue to be secured
by a mortgage lien on all properties of Detroit Edison which are currently
subject to such lien. The Detroit Edison Restated Articles of Incorporation (the
"Detroit Edison Articles") as then in effect will not be changed as a result of
the Exchange.
REQUIRED REGULATORY APPROVALS
Federal Power Act. The FERC has held that the transfer of common stock of a
public utility company, such as Detroit Edison, from its existing shareholders
to a holding company in a transaction such as the Exchange constitutes a
transfer of the "ownership and control" of the facilities of such utility which
is subject to FERC jurisdiction under the Federal Power Act ("FPA"), and is thus
a "disposition of facilities" subject to FERC review and approval under Section
203 of the FPA. Detroit Edison has applied for such approval.
Atomic Energy Act. A provision in the Atomic Energy Act requires NRC
consent for the transfer of control of NRC licenses. The NRC Staff has in the
past asserted that this provision applies to the creation of a holding company
by an NRC licensed utility company in a transaction such as the Exchange.
Detroit Edison holds NRC licenses, including an operating license for its
nuclear generating station, and has applied for NRC approval under the Atomic
Energy Act of the transfer of control of such licenses in the Exchange.
Public Utility Holding Company Act of 1935. Detroit Edison is currently not
subject to the Holding Company Act because it is not a "public utility holding
company" as defined in that act. As a result of the Exchange, Holding Company
will become such a public utility holding company under the Holding Company Act.
Holding Company, however, expects to be exempt from all provisions of the
Holding Company Act (except with respect to any future acquisitions of voting
securities of other electric or gas utility companies), pursuant to the
exemption provided by Section 3(a)(1) thereof. The basis for such exemption is
that Holding Company and Detroit Edison are each organized and carry on their
business substantially in Michigan, and that neither Detroit Edison nor Holding
Company will derive any material part of its income from a utility company
organized outside of Michigan. Holding Company will seek such Section 3(a)(1)
exemption pursuant to annual filings made pursuant to SEC Regulation 250.2 under
the Holding Company Act. See "Regulation of Holding Company."
Michigan Public Utilities Acts. No prior MPSC approval of the Exchange is
required under the Michigan Electric Transmission Act or the Michigan Public
Utilities Securities Act. The MPSC will continue to have jurisdiction over
Detroit Edison's rates, charges and conditions of service.
17
<PAGE> 26
Conditions. The Exchange is conditioned on the receipt of orders
satisfactory to Detroit Edison and Holding Company from the FERC and the NRC in
response to the applications described above and receipt of any other necessary
regulatory approvals.
TRANSFER OF DETROIT EDISON ASSETS TO HOLDING COMPANY
Detroit Edison intends to transfer to Holding Company, after the Exchange,
the stock of the non-utility subsidiaries as a dividend on the Detroit Edison
Common Stock held by Holding Company.
Except for dividends or other distributions with respect to Detroit Edison
Common Stock held by Holding Company, it is expected that Detroit Edison will
not transfer at less than fair consideration any of its assets to Holding
Company or any Holding Company subsidiaries. In general, under current law,
transactions between Detroit Edison and any of its affiliates, including Holding
Company, do not require the prior approval of the MPSC. Detroit Edison will
develop accounting and other procedures to the extent determined to be necessary
or appropriate to insure separation of utility and non-utility businesses.
DIVIDEND POLICY
Holding Company does not now, nor will it after the Exchange, conduct
directly any business operations from which it will derive any revenues. Holding
Company plans to obtain funds for its own operations from dividends paid to
Holding Company on the stock of its subsidiaries, and from sales of securities
or debt incurred by Holding Company. Dividends on Holding Company Common Stock
will initially depend upon the earnings, financial condition and capital
requirements of Detroit Edison, and its ability to pay dividends on the Detroit
Edison Common Stock owned by Holding Company. In addition, payment of dividends
on the Detroit Edison Stock will continue to be subject to the rights of holders
of Detroit Edison Preferred Stock and Detroit Edison Preference Stock with
respect to dividends. The Detroit Edison Articles and mortgage indenture contain
covenants which could, in the future, affect Detroit Edison's ability to pay
cash dividends on, or acquire, Detroit Edison Common Stock. Such covenants will
not be altered by the restructuring. As of December 31, 1994, none of the
covenants operated to restrict Detroit Edison's Common Stock equity for payment
of dividends, distributions, purchases or other acquisitions in respect of
Detroit Edison Common Stock.
It is currently contemplated that, subject to the rights, if any, of
holders, if any, of the authorized preferred stock of Holding Company, Holding
Company will pay quarterly dividends on Holding Company Common Stock at least
equal to the rate, and on approximately the same schedule as, dividends have
most recently been declared on Detroit Edison Common Stock. The quarterly
dividend most recently declared by the Detroit Edison Board of Directors on
Detroit Edison Common Stock was $ per share payable April 15, 1995, to
holders of record of such stock on March , 1995. The amount of dividends on
Detroit Edison Common Stock following the Exchange is expected to be greater
than the amount of dividends on Holding Company Common Stock to the extent
Holding Company needs funds to pay its expenses and to invest in its
subsidiaries.
TREATMENT OF PREFERRED AND PREFERENCE STOCK
Except as described under this caption, the Exchange and restructuring will
not result in any change in the outstanding shares of Detroit Edison Preferred
Stock or Detroit Edison Preference Stock. No Preference Stock is outstanding.
The decision to have the Detroit Edison Preferred Stock continue as securities
of Detroit Edison is based upon, among other factors, a desire not to alter or
potentially alter the nature of the investment represented by such stock, as
well as the need of Detroit Edison not to foreclose future issuances of
Preferred Stock and Preference Stock to help meet its capital requirements. The
electric utility operations of Detroit Edison presently constitute and are
expected to continue to constitute, the predominant part of the consolidated
assets and earning power of Holding Company. Accordingly, it is believed that
the investment ratings of the Detroit Edison Preferred Stock will not be
affected by the Exchange, and that such shares will retain their qualification
for legal investment for certain investors by remaining as capital stock of
Detroit
18
<PAGE> 27
Edison. Detroit Edison Preferred Stock will continue to rank senior to Detroit
Edison Common Stock as to dividends and as to assets of Detroit Edison upon any
liquidation.
The restructuring is not expected to affect adversely the holders of
Detroit Edison Preferred Stock. However, the assets or earnings of the Holding
Company subsidiaries (other than Detroit Edison) will not be of any potential
benefit to the holders of such stock if the restructuring is consummated. See
"Transfer of Detroit Edison Assets to Holding Company."
After the Exchange, Detroit Edison will continue to be subject to the
informational requirements of the 1934 Act. However, holders of Detroit Edison
Preferred Stock and Detroit Edison Preference Stock, subject to requirements of
any securities exchange on which such stock is listed, will not be entitled to
receive annual reports, proxy statements or information statements except in
those limited circumstances in which such shares are entitled to vote as a class
on matters presented to shareholders under the Detroit Edison Articles and the
Michigan Business Corporation Act. Holding Company will hold sufficient voting
power to approve actions required to be taken by the combined vote of Detroit
Edison Common Stock, Preferred Stock and Preference Stock.
As of , 1995, there were outstanding shares of 5 1/2%
Preferred Stock which, as of such date, were convertible at the option of their
holders into an aggregate of shares of Detroit Edison Common Stock. Under
the Detroit Edison Articles, the Exchange would not result in the 5 1/2%
Preferred Stock being convertible into Holding Company Common Stock and Detroit
Edison has determined, for the reasons stated in the first paragraph under this
caption, that it would not be appropriate to provide for conversion into Holding
Company Common Stock.
The 5 1/2% Preferred Stock may be called for optional redemption at any
time upon 30 days notice as provided in the Detroit Edison Articles at a price
of $100 per share plus an amount equal to dividends accrued, if any, to the date
of redemption. The last reported trading price per share of the 5 1/2% Preferred
Stock, as reported on the New York Stock Exchange on , 1995, was
$ .
Detroit Edison currently intends to, but will not be required to, redeem
all outstanding 5 1/2% Preferred Stock prior to the effective time of the
Exchange. If the restructuring plan is abandoned or cannot be consummated for
any reason, Detroit Edison intends not to redeem the 5 1/2% Preferred Stock.
Under the Detroit Edison Articles, Detroit Edison is required to give holders of
the 5 1/2% Preferred Stock notice of the Exchange at least 20 days prior to the
effective time of the Exchange.
In the event the 5 1/2% Preferred Stock is not redeemed prior to the
effective time of the Exchange it will, as described above, continue to be
convertible into shares of Detroit Edison Common Stock after the Exchange.
Immediately after the Exchange, Holding Company will own all the then
outstanding shares of Detroit Edison Common Stock. Following the Exchange the
Detroit Edison Common Stock will no longer be listed or traded on any stock
exchange and there will be no other public market for any shares of Detroit
Edison Common Stock into which the 5 1/2% Preferred Stock would be converted
after the Exchange.
The minority interest in Detroit Edison Common Stock which would be created
by the conversion of shares of the 5 1/2% Preferred Stock into shares of Detroit
Edison Common Stock after the effective time of the Exchange, would require
Detroit Edison to pay to the holders of such shares of Detroit Edison Common
Stock dividends at the same times and in the same amounts as Detroit Edison pays
dividends to Holding Company on its shares of Detroit Edison Common Stock. The
amount of dividends on Detroit Edison Common Stock following the Exchange is
expected to be greater than the amount of dividends on Holding Company Common
Stock to the extent Holding Company needs funds to pay its expenses and to
invest in its subsidiaries.
Shares of Detroit Edison Common Stock issued upon conversion of shares of
the 5 1/2% Preferred Stock prior to the effective time of the Exchange will be
exchanged in the Exchange for shares of Holding Company Common Stock, which will
be listed and traded on the New York and Chicago Stock Exchanges.
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<PAGE> 28
AMENDMENT OR TERMINATION
By mutual consent of their respective Boards of Directors, Detroit Edison
and Holding Company may amend any of the terms of the Exchange Agreement at any
time before or after its approval by their respective shareholders, but not
after the time that the Certificate of Share Exchange (the "Certificate") is
filed with the Corporation and Securities Bureau of the Michigan Department of
Commerce (the "Bureau"), but no such amendment may, in the sole judgment of the
Board of Directors of Detroit Edison, materially and adversely affect the rights
of the Detroit Edison shareholders.
The Exchange Agreement may be terminated and the Exchange abandoned at any
time before or after the shareholders of Detroit Edison and Holding Company have
approved the Exchange Agreement, but not after the time that the Certificate is
filed with the Bureau, if the Board of Directors of Detroit Edison determines in
its sole judgement that consummation of the Exchange would, for any reason, be
inadvisable or not in the best interests of Detroit Edison or its shareholders.
STATUTORY APPRAISAL RIGHTS INAPPLICABLE
Pursuant to Sections 703a and 762 of the Michigan Business Corporation Act
("Michigan Business Corporation Act"), a shareholder is generally granted the
right to dissent from a share exchange if shareholder approval is required by
statute for the share exchange, and such shareholder is entitled to vote on the
share exchange. Section 762 of the Michigan Business Corporation Act, however,
provides that dissenters' appraisal rights do not apply to holders of shares
which, as of the applicable record date, are listed on a national securities
exchange or held of record by at least 2,000 persons. Because the Detroit Edison
Common Stock is listed on the New York and Chicago Stock Exchanges, holders of
Detroit Edison Common Stock are not entitled to dissent from the Exchange or to
receive dissenters' appraisal rights in connection with the Exchange.
EFFECTIVENESS OF THE RESTRUCTURING
After the Detroit Edison shareholders have approved the Exchange Agreement,
satisfactory orders of the FERC and the NRC have been received, and all other
conditions to the Exchange (including receipt of any other necessary regulatory
approval) have been satisfied or waived, Detroit Edison and Holding Company will
execute the Exchange Agreement and thereafter file the Certificate with the
Bureau. The Exchange will thereafter become effective on the date that the
Certificate is filed or on a later date which may be specified therein. Detroit
Edison cannot predict when all regulatory approvals will be in place, but
expects that the Exchange will occur in 1995.
Immediately prior to the effective time, Detroit Edison as sole shareholder
of Holding Company will (i) elect as directors of Holding Company all then
incumbent directors of Detroit Edison not already serving as such directors and
(ii) approve articles of amendment to the Articles of Incorporation of Holding
Company (the "Holding Company Articles") providing for a change in the corporate
name of Holding Company. The permanent name of Holding Company has not been
selected.
EXCHANGE OF STOCK CERTIFICATES
If the Exchange is effected, it will not be necessary for holders of
Detroit Edison Common Stock to exchange their existing stock certificates for
certificates for Holding Company Common Stock. The certificates which presently
represent outstanding shares of Detroit Edison Common Stock will automatically
represent shares of Holding Company Common Stock. New certificates bearing the
name of Holding Company will be issued after the Exchange if, and as,
certificates representing shares of Detroit Edison Common Stock outstanding
immediately prior to the Exchange are presented for exchange or transfer.
DIVIDEND REINVESTMENT PLAN
Detroit Edison Common Stock held in Detroit Edison's Dividend Reinvestment
Plan (including uncertificated whole and fractional shares) will be
automatically converted into shares of Holding Company
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<PAGE> 29
Common Stock at the effective time of the Exchange. Holding Company will
establish a dividend reinvestment plan providing for participation and other
features at least as favorable as the Detroit Edison Dividend Reinvestment Plan.
All participants in the Detroit Edison Dividend Reinvestment Plan at the
effective time of the Exchange will automatically become participants in the
Holding Company dividend reinvestment plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Exchange Agreement provides that the proposed restructuring will not
occur unless Detroit Edison receives either a ruling from the Internal Revenue
Service or an opinion of counsel, satisfactory to the Board of Directors, with
respect to the Federal income tax consequences of the Exchange. Detroit Edison
does not expect to apply for such a ruling because it has received an opinion
from its counsel, Jones, Day, Reavis & Pogue, regarding certain Federal income
tax consequences of the Exchange, to the effect that, based on certain
assumptions and factual representations:
(1) no gain or loss will be recognized by holders of Detroit Edison
Common Stock upon the exchange of their Detroit Edison Common Stock solely
for Holding Company Common Stock in the Exchange;
(2) no income, gain or loss will be recognized by the holders of
Detroit Edison Preferred Stock on account of the Exchange, except for
holders of the 5 1/2% Preferred Stock, to the extent that such 5 1/2%
Preferred Stock is redeemed by the Company on or prior to the effective
time of the Exchange;
(3) the basis of the Holding Company Common Stock received by former
holders of Detroit Edison Common Stock solely in exchange for their Detroit
Edison Common Stock in the Exchange in the aggregate will equal the basis
of their Detroit Edison Common Stock exchanged therefor, and the holding
period for such Holding Company Common Stock will include the holding
period for the Detroit Edison Common Stock exchanged therefor to the extent
that such Detroit Edison Common Stock was held as a capital asset by such
holders at the effective time of the Exchange;
(4) no gain or loss will be recognized by Holding Company or Detroit
Edison on account of the Exchange or the issuance of Holding Company Common
Stock to the former holders of Detroit Edison Common Stock in the Exchange;
and
(5) the consummation of the Exchange will not result in the
termination of the existence of the affiliated group of corporations of
which Detroit Edison has been the common parent, and the Company will be
included in such affiliated group of corporations of which Holding Company
will become the new common parent.
The foregoing discussion does not cover the tax consequences of the
Exchange under state, local or foreign income or other tax laws. Shareholders of
Detroit Edison are urged to consult with their own tax advisors with respect to
the effects of such laws.
LISTING OF HOLDING COMPANY COMMON STOCK
Holding Company will apply to have its Common Stock listed on the New York
and Chicago Stock Exchanges. It is expected that such listings will become
effective at the effective time of the Exchange, subject to the rules of the New
York and Chicago Stock Exchanges. Information concerning the stock exchange
ticker symbol and quotation listings in newspapers will be announced to
shareholders when available. Holding Company reserves the right to terminate its
listing on any exchange in the future, upon notice to shareholders, in
compliance with its listing agreements.
REGULATION OF HOLDING COMPANY
Following the Exchange, Holding Company, as the owner of the Detroit Edison
Common Stock, will be a holding company under the Holding Company Act. However,
Holding Company will be exempt from all provisions of the Holding Company Act
except Section 9(a)(2) thereof, pursuant to annual filings of the
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<PAGE> 30
statement prescribed for such exemption by SEC Regulation 250.2 of the Holding
Company Act, as described under "Required Regulatory Approvals-Public Utility
Holding Company Act of 1935." Section 9(a)(2) of the Holding Company Act
requires prior SEC approval of the direct or indirect acquisition by Holding
Company of five percent or more of the voting securities of any other electric
or gas utility company. There are also limits on the extent to which Holding
Company and its non-utility subsidiaries can enter into businesses which are not
"functionally related" to the electric utility business without raising
questions about Holding Company's exempt status. SEC policies regarding the
scope of permissible non-utility activities of a public utility holding company
are subject to change but guidelines established in prior decisions of the SEC
would require Holding Company to remain engaged primarily and predominantly in
the electric utility business and to limit the size of its activities outside of
such business relative to Holding Company as a whole.
Holding Company has no present intention of becoming a registered holding
company subject to regulation by the SEC under the Holding Company Act.
MANAGEMENT
The directors of Detroit Edison will also become the directors of Holding
Company prior to the effective time of the Exchange, and they will serve as the
directors of both companies for the foreseeable future, subject to re-nomination
and re-election by shareholders. The division of directors into classes, with
varying numbers of directors being elected for three-year terms, will also apply
to Holding Company, and the directors of each company will be in the same class
and for corresponding terms of office. The approval by Detroit Edison Common
Stock shareholders of the Exchange will be considered also to constitute
ratification of the election of such persons as the directors of Holding
Company. Until the Exchange becomes effective, Mr. Lobbia, Mr. Earley and Mr.
Garberding will be the only directors of Holding Company.
The current officers of Holding Company are also officers of Detroit
Edison. The Holding Company officers are:
<TABLE>
<S> <C> <C>
Chairman of the Board and Chief Executive
John E. Lobbia -- Officer
Anthony F. Earley, Jr. -- President and Chief Operating Officer
Executive Vice President and Chief Financial
Larry G. Garberding -- Officer
Leslie L. Loomans -- Vice President and Treasurer
Christopher C. Nern -- Vice President and General Counsel
Susan M. Beale -- Corporate Secretary
Elaine M. Godfrey -- Assistant Corporate Secretary
</TABLE>
HOLDING COMPANY CAPITAL STOCK
Authorized Stock. The authorized capital stock of Holding Company consists
of 400 million shares of Common Stock, without par value, and 5 million shares
of Preferred Stock, without par value ("Holding Company Preferred Stock"), the
provisions of which are included in the Holding Company Articles attached to
this Prospectus and Proxy Statement as Exhibit B. Reference is made to Exhibit B
for the complete terms of the Holding Company Articles. See "Comparative
Shareholders' Rights" below.
Common Stock. Holders of Holding Company Common Stock are entitled to
receive (a) dividends when, as and if declared by its Board of Directors, and
(b) all of the assets of Holding Company available for distribution on a
pro-rata basis upon its liquidation, dissolution or winding up, after the
payment of all debts and other obligations and subject in each case to the
preferential rights, if any, of the holders of Holding Company Preferred Stock.
No holder of Holding Company Common Stock has any preemptive or preferential
right to subscribe for any additional issue of Holding Company stock of any
class. The Holding Company Common Stock issued in the Exchange will be validly
issued, fully paid and nonassessable.
Preferred Stock. The authorized Holding Company Preferred Stock may be
issued in one or more series, from time to time as the Board of Directors of
Holding Company may determine. Each series of Holding Company Preferred Stock
will bear a distinctive designation, will be issued in such number of shares and
will have such relative rights, preferences and limitations as are prescribed by
a resolution of the Board of
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<PAGE> 31
Directors. Such resolutions, when filed, will constitute amendments to the
Holding Company Articles to the extent provided by law. No holder of Holding
Company Preferred Stock will have any preemptive or preferential right to
subscribe for any additional issue of Holding Company stock of any class.
COMPARATIVE SHAREHOLDERS' RIGHTS
Detroit Edison and Holding Company are both Michigan corporations. When the
Exchange becomes effective, holders of Detroit Edison Common Stock will become
holders of Holding Company Common Stock, and their rights will be governed by
the Holding Company Articles and By-Laws instead of the Detroit Edison Articles
and By-Laws. The Holding Company Articles have been prepared in accordance with
the Michigan Business Corporation Act and give the Holding Company broad
corporate powers to engage in any lawful activity for which a corporation may be
formed under the laws of the State of Michigan. The Holding Company Articles and
By-Laws and Detroit Edison Articles and By-Laws are substantially similar. A
copy of Holding Company Articles is attached as Exhibit B to this Prospectus and
Proxy Statement and the Holding Company By-Laws have been filed as an exhibit to
the Registration Statement and are incorporated herein by reference. The Detroit
Edison Articles and By-Laws have been filed as an exhibit to the 1993 Form 10-K
and are incorporated herein by reference.
Certain differences between the rights of holders of Holding Company Common
Stock and those of holders of Detroit Edison Common Stock are summarized below.
Such summary is qualified in its entirety by reference to the information
included in the exhibits hereto or in such materials incorporated by reference.
Authorized Shares. The Holding Company Articles and the Detroit Edison
Articles each authorize the issuance of 400 million shares of common stock. As
of , 1995 there were shares of Detroit Edison Common
Stock issued and outstanding, and shares of Detroit Edison Common Stock
reserved for issuance upon conversion of the 5 1/2% Preferred Stock. The
additional authorized but unissued shares of Holding Company Common Stock could
be used for stock splits or for acquisitions.
In addition to the presently outstanding shares of Detroit Edison Preferred
Stock, as of , 1995, there were and authorized
but unissued shares of Detroit Edison Preferred Stock and Detroit Edison
Preference Stock, respectively, which may be issued in series having such rights
and preferences as may be designated by the Detroit Edison Board of Directors.
There are no restrictions upon the issuance of any of such authorized shares
except for any actions required by Michigan law to be taken by the Detroit
Edison Board of Directors.
The number of authorized shares of Holding Company Preferred Stock is less
than the combined authorized shares of Detroit Edison Preferred Stock and
Detroit Edison Preference Stock. It is not anticipated that any of the Holding
Company Preferred Stock will be issued in the foreseeable future. Management
believes that the ability to issue Holding Company Preferred Stock will provide
important flexibility to Holding Company. It is anticipated that Holding Company
Preferred Stock will be issued only in connection with Holding Company's normal,
traditional financing requirements.
Under the Holding Company Articles and the Detroit Edison Articles, the
respective Boards are authorized to issue preferred stock in series and to
determine the rights and preferences of the series, to the extent not set forth
in the respective Articles. The voting rights and certain preferences of Detroit
Edison Preferred Stock are determined in the Detroit Edison Articles. The
Holding Company Articles do not establish voting rights or preferences of
Holding Company Preferred Stock. The Holding Company Board may determine whether
or not any series will have voting rights and, if so, the extent thereof,
provided that no share of Holding Company Preferred Stock of any series may be
entitled to more than one vote per share. The Board is also given full authority
to determine the preferences of the Holding Company Preferred Stock.
It is not the intention of the Board of Directors to discourage legitimate
offers to enhance shareholder value. It must be recognized, however, that an
effect of the existence of unissued Holding Company Common Stock or Preferred
Stock may be to enable the Holding Company Board of Directors to render more
difficult or discourage such an attempt. Such shares might be issued by the
Board of Directors without shareholder approval in transactions that might
prevent or render more difficult or costly the completion of the takeover
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<PAGE> 32
transaction, as by diluting voting or other rights of the proposed acquirer. In
this regard, the Holding Company Articles (as well as the Detroit Edison
Articles) grant the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued Preferred Stock, one or more series
of which could be issued entitling holders to vote separately as a class on any
proposed merger or consolidation, to convert Preferred Stock into a large number
of shares of Common Stock or other securities, to demand redemption at a
specified price under prescribed circumstances related to a change of control,
or to exercise other rights designed to impede a takeover. The Holding Company
Preferred Stock is limited in the number of votes per share which may be granted
by the Board of Directors.
Voting Rights. Holders of Holding Company Common Stock will be entitled to
one vote per share, and will have the right to cumulative voting in the election
of directors. To the extent shares of Holding Company Preferred Stock are
created with voting rights in the election of directors, such shares will have
cumulative voting rights for the election of directors. Other voting rights, if
any, of Preferred Stock will be established by the Holding Company Board of
Directors with respect to each series. All shares of Detroit Edison Common Stock
and Preferred Stock are entitled to one vote per share, with cumulative voting
rights for the election of directors. Detroit Edison Preferred Stock is
generally not entitled to vote but only has limited voting rights as required by
law and as set out in the Detroit Edison Articles, which rights generally arise
only in the event of certain defaults in payment of Preferred Stock dividends
and the requisite approval of certain matters affecting the Detroit Edison
Preferred Stock.
Classified Board and Other Provisions. The By-Laws of Holding Company and
Detroit Edison will be substantially the same immediately prior to the Exchange.
The Detroit Edison By-Laws provide, and the Holding Company By-Laws will,
immediately prior to the Exchange, provide (i) for the Board to determine the
number of directors; (ii) for the division of the Board into three classes with
directors in each class being elected for a three-year term; and (iii) that the
classified Board provision can only be amended or repealed by a vote of the
holders of a majority of the Common Stock of the respective company. See "Item
1. Election of Directors" and "Management" above. Other provisions may be
amended, repealed or adopted by a vote of the holders of a majority of shares at
the time entitled to vote in the election of directors or by a vote of a
majority of directors then in office. The By-Laws of Holding Company and Detroit
Edison each provide that the Stacey, Bennett, and Randall Shareholder Equity Act
(Chapter 7B of the Michigan Business Corporation Act) (the "Control Share Act")
shall not apply to any control share acquisitions (as defined in the Control
Share Act). That provision of the respective By-Laws may not be amended, altered
or repealed with respect to any control share acquisition of shares of the
respective company effected pursuant to a tender offer or other transaction
commenced prior to the date of such amendment, alteration or repeal.
Indemnification. The Holding Company Articles and the Detroit Edison
Articles each provide that officers and directors of the respective company and
certain other persons shall be indemnified by the respective company to the full
extent permitted by applicable law. Holding Company and Detroit Edison may enter
into agreements with such persons to provide greater or different
indemnifications. Any repeal or modification of the indemnification provisions
may not adversely affect any right or protection existing under the respective
Articles immediately prior to such repeal or modification.
Limitation of Liability. The Holding Company Articles and the Detroit
Edison Articles each provide that to the full extent permitted by applicable
law, no director shall be personally liable to the respective company or its
shareholders for or in respect to any acts or omissions in the performance of
his or her duties as a director. Any repeal or modification of the liability
limitation provisions may not adversely affect any right or protection of a
director existing under the respective Articles immediately prior to such repeal
or modification.
Purpose Clause. The corporate purposes for which Detroit Edison may engage
in business are those related to electric, steam and certain other utility
businesses and related activities. Holding Company is authorized by its
Articles, as permitted by the Michigan Business Corporation Act, to engage in
any and all lawful businesses.
Par Value. The shares of Detroit Edison Common Stock and Preferred Stock
have designated par values, whereas Holding Company Common Stock and Preferred
Stock are without par value. A designated par value is not required under the
Michigan Business Corporation Act and in modern corporate practice par value
does
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<PAGE> 33
not serve any useful purpose. It is anticipated that the absence of par value in
the Holding Company stock will not affect the market value of such stock.
STOCK PLANS
If the Exchange is consummated, the Savings and Investment Plans will be
amended to provide, and the Long-Term Incentive Plan (the "Incentive Plan")
(assuming approval thereof by holders of Detroit Edison Common Stock) will
provide, that Holding Company Common Stock will be delivered instead of Detroit
Edison Common Stock pursuant to such plans. Shares of Detroit Edison Common
Stock then held under those plans will be exchanged in the Exchange for Holding
Company Common Stock. By approving the Exchange Agreement, the Detroit Edison
shareholders will be considered also to have ratified the amendments to the
Savings and Investment Plans to provide for the delivery of Holding Company
Common Stock thereunder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Detroit Edison Common Stock is Detroit
Edison. The transfer agent and registrar for Holding Company Common Stock will
be Detroit Edison.
DETROIT EDISON COMMON STOCK MARKET PRICES AND DIVIDENDS
Detroit Edison Common Stock is listed and principally traded on the New
York and Chicago Stock Exchanges. The table below sets forth the dividends paid
and the high and low sales prices of Detroit Edison Common Stock for the periods
indicated as reported in The Wall Street Journal as New York Stock Exchange
Composite Transactions.
<TABLE>
<CAPTION>
PRICE RANGE
DIVIDENDS -------------
PAID HIGH LOW
--------- ---- ----
<S> <C> <C> <C>
1993
First Quarter..................................... $ 0.495 37 1/8 32
Second Quarter.................................... $ 0.515 36 3/4 33 1/8
Third Quarter..................................... $ 0.515 36 33 3/4
Fourth Quarter.................................... $ 0.515 34 3/4 29 7/8
1994
First Quarter..................................... $ 0.515 30 1/4 26
Second Quarter.................................... $ 0.515 27 1/4 24 1/4
Third Quarter..................................... $ 0.515 27 1/2 24 1/4
Fourth Quarter.................................... $ 0.515 27 1/2 24 3/4
1995
First Quarter (through March , 1995)
</TABLE>
The last closing price of the Detroit Edison Common Stock on February ,
1995 was $ . The closing price of Detroit Edison Common Stock on December
2, 1994 (the trading day next preceding the public announcement by Detroit
Edison of its intention to proceed with the restructuring) was $26.70.
LEGAL OPINIONS
Certain legal matters relating to the issuance of Holding Company Common
Stock in the Exchange will be passed upon by Christopher C. Nern, Esq., Vice
President and General Counsel of Detroit Edison and Holding Company, and by
Jones, Day, Reavis & Pogue, Chicago, Illinois, who will rely on Mr. Nern's
opinion with respect to matters governed by Michigan law. Mr. Nern owned 3,001
shares of Detroit Edison Common Stock as of December 31, 1994.
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<PAGE> 34
EXPERTS
The consolidated financial statements incorporated in this Prospectus and
Proxy Statement by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of the
Company for the three- and twelve-month periods ended March 31, 1994, the
three-, six- and twelve-month periods ended June 30, 1994, and the three-,
nine-, and twelve-month periods ended September 30, 1994, incorporated by
reference in this Prospectus and Proxy Statement, Price Waterhouse LLP reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports
dated May 10, 1994, August 8, 1994 and November 7, 1994, incorporated by
reference herein, state that they did not audit and they do not express an
opinion on that unaudited consolidated financial information. Price Waterhouse
LLP has not carried out any significant or additional audit tests beyond those
which would have been necessary if their reports had not been included.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
Price Waterhouse LLP is not subject to the liability provisions of section 11 of
the Securities Act of 1933 for their report on the unaudited consolidated
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by Price Waterhouse LLP within the
meaning of sections 7 and 11 of the Act.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
EXCHANGE AGREEMENT.
ITEM 3. APPROVAL OF LONG-TERM INCENTIVE PLAN
INTRODUCTION
On January 23, 1995, the Board of Directors of Detroit Edison adopted a new
employe incentive plan, The Detroit Edison Company Long-Term Incentive Plan (the
"Incentive Plan"), subject to approval by Detroit Edison's shareholders. If
approved, the Incentive Plan will expand Detroit Edison's flexibility to
structure compensation incentives for Detroit Edison officers and other key
employes by rewarding long-term growth and profitability in the emerging
competitive environment. Accordingly, certain key employes may be granted Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance Shares and
Performance Units as described below. Non-employe directors will also receive
awards of Detroit Edison Common Stock. While it puts more pay at risk, ownership
of stock assists in the attraction and retention of qualified employes and
directors and provides them with additional incentives to devote their best
efforts to pursue and sustain Detroit Edison's financial success through the
achievement of corporate goals.
As described below under Effect of Approval of Exchange, if the Exchange is
approved and becomes effective, the Incentive Plan will provide for certain
changes in the operation of the Incentive Plan described below under "Effect of
Approval of Exchange Agreement."
VOTE REQUIRED
As a matter of Michigan corporation law, plans and proposals relating to
compensation generally may be adopted by the Board of Directors and given effect
without a vote of shareholders. However, because employe-directors of Detroit
Edison and Detroit Edison officers would be eligible to receive awards under the
Incentive Plan, and because its operation contemplates the issuance of Detroit
Edison stock, the rules of the New York Stock Exchange require such approval. In
addition, shareholder approval of the Incentive Plan is one of the requirements
of Rule 16b-3 (compliance with which exempts certain transactions involving
directors and officers from provisions of Section 16(b) of the Exchange Act
which otherwise would operate to penalize such transactions in some cases and
thereby partially frustrate the purposes of the Incentive Plan) and is required
by the Code with respect to Incentive Stock Options, as described below.
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<PAGE> 35
Assuming the presence of a quorum, approval of the Incentive Plan will
require the affirmative vote of the holders of a majority of the shares of
Detroit Edison Common Stock present in person or by proxy and entitled to vote
on the Incentive Plan at the Annual Meeting. Any abstention from voting on the
proposal of the shares so present and entitled to vote will have the same effect
as shares voted against the proposal. However, any shares subject to so-called
"broker non-votes" will not be considered present for purposes of voting on the
proposal and, accordingly, broker non-votes will not factor into the
determination of whether or not the proposal is carried.
The Board of Directors believes that the approval of the Plan is in the
best interests of Detroit Edison and the shareholders because the Incentive Plan
will enable Detroit Edison to provide competitive equity incentives to officers
and other key salaried employes to enhance the profitability of Detroit Edison
and increase shareholder value.
SUMMARY OF PLAN FEATURES
General. The Incentive Plan contemplates the grant from time to time to
selected eligible employes of stock-related awards of four general types: (1)
options to purchase shares of Detroit Edison Common Stock ("Options"); (2)
rights to receive, upon exercise, the appreciation in fair market value of
shares of Detroit Edison Common Stock ("Stock Appreciation Rights" or "SARs");
(3) outright grants of shares of Detroit Edison Common Stock, subject to
transfer restrictions and risk of forfeiture for a specified restriction period
("Restricted Stock"); and (4) rights to receive (a) shares of Detroit Edison
Common Stock or in lieu of all or any portion of such shares their fair market
value ("Performance Shares") or (b) a specified dollar amount or in lieu of all
or any portion of such amount, shares of Detroit Edison Common Stock having the
same fair market value ("Performance Units"), both conditional upon the
attainment during a specified performance period of specified Performance
Measures (as described below). Options meeting the requirements of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and intended to
be afforded the Federal income tax treatment of Section 422 options ("Incentive
Stock Options" or "ISOs"), as well as other Options ("Nonqualified Stock
Options" or "NQSOs"), may be awarded under the Incentive Plan. SARs granted
under the Incentive Plan may be awarded either in tandem with Options ("Tandem
SARs") or standing alone ("Freestanding SARs"). In addition, the Incentive Plan
provides for annual non-discretionary grants of Detroit Edison Common Stock to
non-employe directors.
The full text of the Incentive Plan is annexed to this Prospectus and Proxy
Statement as Exhibit C. The discussion which follows provides additional
information concerning the Incentive Plan features highlighted above, as well as
certain other noteworthy features. Since such discussion necessarily is in the
nature of a summary and does not cover all aspects of the Incentive Plan,
shareholders may wish to review Exhibit C in its entirety as they deliberate
upon the proposal to approve the Incentive Plan.
Shares Available for Award and Limits on SARs. Shares used for awards under
the Incentive Plan may be authorized but unissued shares or may be authorized,
issued, and outstanding shares acquired by Detroit Edison in the name of an
award recipient (or a permissible successor thereof) for purposes of granting or
settling such award or may be a combination of the foregoing. Subject to
adjustment as provided in the Incentive Plan, the number of shares of Detroit
Edison Common Stock that may be (i) issued or transferred upon the exercise of
Options or Stock Appreciation Rights, (ii) awarded as Restricted Stock and
released from substantial risk of forfeiture thereof, or (iii) issued or
transferred in payment of Performance Shares or Performance Units which have
been earned, shall not in the aggregate exceed 7,200,000 shares.
Upon the payment of any exercise price by the transfer to Detroit Edison of
Detroit Edison Common Stock or upon related satisfaction of tax withholding
obligations or any other payment made or benefit realized under the Incentive
Plan by the transfer or relinquishment of Detroit Edison Common Stock, there
shall be deemed to have been issued or transferred only the net number of shares
actually issued or transferred by Detroit Edison less the number of shares so
transferred or relinquished. However, the number of shares actually issued or
transferred by Detroit Edison upon the exercise of Incentive Stock Options shall
not exceed 7,200,000, subject to adjustment as provided for in the Incentive
Plan.
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<PAGE> 36
Upon the payment in cash of a benefit provided by any award under the
Incentive Plan, any shares of Detroit Edison Common Stock that were covered by
such award shall again be available for issuance or transfer under the Incentive
Plan.
The number of Performance Units (which each have a face amount of $1.00)
granted under the Incentive Plan shall not in the aggregate exceed 25,000,000.
Performance Units that are granted under the Incentive Plan and are paid in
shares of Detroit Edison Common Stock or are not earned by an employe at the end
of a performance period are available for future grants of Performance Units.
No employe shall be granted Options for more than 300,000 shares of Detroit
Edison Common Stock or Stock Appreciation Rights for more than 300,000 shares of
Detroit Edison Common Stock during any five consecutive calendar years, subject
to adjustment pursuant to the Incentive Plan. No employe shall receive awards of
Restricted Stock, Performance Shares and Performance Units having an aggregate
value as of their respective dates of grant in excess of $750,000 in any
calendar year or in excess of $3,500,000 during any five consecutive calendar
years.
Administration and Eligibility. The Incentive Plan will be administered by
the Organization and Compensation Committee of the Board, or such other Board
Committee as may be designated from time to time by the Board (the "Committee").
All the members of the Committee must be non-employe directors and otherwise
"disinterested persons," as that term is used in Rule 16b-3 of the Securities
and Exchange Commission ("Rule 16b-3") or any successor provision in effect at a
relevant time.
All key employes of Detroit Edison or any of its subsidiaries (other than
employes covered by a collective bargaining agreement which does not provide for
Incentive Plan coverage) and non-employe directors of its subsidiaries who are
not also non-employe directors of Detroit Edison would be eligible to receive an
award under the Incentive Plan, but the Committee would have exclusive authority
to determine, in its sole discretion, those eligible employes to whom awards
would be granted at any time, as well as the type, size, and other terms and
conditions of each granted award, subject only to the parameters set forth in
the Incentive Plan. The Committee may make grants to employes under any or a
combination of all of the various categories of awards that are authorized under
the Incentive Plan.
Non-employe directors of Detroit Edison are eligible only for
non-discretionary grants of Detroit Edison Common Stock. The Committee has no
discretion with respect to the award of Detroit Edison Common Stock to
non-employe directors.
Performance Measures. Performance Measures are criteria and objectives
determined by the Committee which (1) in the case of Performance Shares or
Units, the attainment of which during the applicable performance period would be
a pre-condition to settlement of such award and (2) in the case of Restricted
Stock, the failure to attain which would cause forfeiture of such award and/or
which if met during the otherwise applicable restriction period would cause an
early termination of the restriction period. Performance Measures applicable to
any award to an employe who is, or is determined by the Committee likely to
become, a "covered employe" within the meaning of 162(m)(3) of the Code shall be
limited to criteria and objectives related to (1) shareholder value growth based
on stock price and dividends, (2) customer price, (3) customer satisfaction, and
(4) growth based on increasing sales or profitability of one or more business
units; provided, however, that the Committee may impose any other subjective or
objective criteria it may approve from time to time for the purpose of reducing
the amount otherwise payable upon settlement of Performance Shares or
Performance Units or for the purpose of increasing the number of shares of
Restricted Stock that would otherwise be forfeited during the applicable
Restriction Period. Except in the case of such a covered employe, if the
Committee determines that a change in the business, operations, corporate
structure or capital structure of Detroit Edison or any of its subsidiaries, or
the manner in which it conducts its business, or other events or circumstances
render the Performance Measures to be unsuitable, the Committee may modify such
Performance Measures, in whole or in part, as the Committee deems appropriate
and equitable.
Options. The Committee may grant Options that entitle the optionee to
purchase shares of Detroit Edison Common Stock at a price equal to or greater
than the fair market value on the date of grant. Any Options granted must be
evidenced by a written agreement. The market value of a share of Detroit Edison
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<PAGE> 37
Common Stock was $ on March , 1995, which was the closing price of
Detroit Edison on the New York Stock Exchange on that date. The option price is
payable at the time of exercise (i) in cash or cash equivalent, (ii) by the
transfer to Detroit Edison of nonforfeitable, unrestricted shares of Detroit
Edison Common Stock that are already owned by the optionee, (iii) with any other
legal consideration the Committee may deem appropriate or (iv) by any
combination of the foregoing methods of payment.
Any grant of an Option may provide for deferred payment of the exercise
price from the proceeds of sale through a broker of some or all of the shares of
Detroit Edison Common Stock to which the exercise relates. Payment of the
exercise price of any Nonqualified Stock Option may also be made in whole or in
part in the form of shares of Restricted Stock or other shares of Detroit Edison
Common Stock that are subject to risk of forfeiture or restriction on transfer.
When paid for with such consideration, unless otherwise determined by the
Committee on or after the date of the grant, shares of Detroit Edison Common
Stock received by the optionee upon the exercise of the NQSO are subject to the
same risks of forfeiture or restrictions on transfer as applied to the
consideration surrendered by the optionee. However, such risks of forfeiture and
restriction on transfer shall apply only to the same number of shares Detroit
Edison Common Stock received by the optionee as applied to the forfeitable or
restricted Detroit Edison Common Stock surrendered by the optionee. The
Committee has the authority to specify at the time Options are granted that the
shares of Detroit Edison Common Stock will not be accepted in payment of the
option price until they have been owned by the optionee for a specified period;
however, the Incentive Plan does not require any such holding period and would
permit immediate sequential exchanges of Common Shares at the time of exercise
of Option Rights.
No Option may be exercised more than ten years from the date of grant. A
grant may provide for the early exercise or termination of the Options in the
event of a change in control of Detroit Edison or other similar transaction or
event. Successive grants may be made to the same optionee regardless of whether
Options previously granted to him or her remain unexercised.
When an Option to which a Tandem SAR has been granted is exercised, the
number of shares of Detroit Edison Common Stock with respect to which the SAR
shall be exercisable shall be reduced by the number of shares with respect to
which the Option has been exercised.
Stock Appreciation Rights. Any SARs granted under the Incentive Plan must
be evidenced by a written agreement -- in the case of Freestanding SARs,
specifying the number of SARs granted, the term of the SARs (which may not
exceed ten years from the date of grant), and the time or times at which the
SARs will first become exercisable; in the case of Tandem SARs, specifying the
Option and the number of shares subject thereto to which the SAR relates and the
term of the SAR (which may not exceed that of the related Option). Freestanding
SARs may (but need not) be made immediately exercisable. A Tandem SAR generally
will be exercisable during its term only when and to the extent the related
Option is exercisable. During the lifetime of the grantee of either type of SAR,
the SAR would be exercisable only by the grantee or the grantee's legal
representative.
For each Freestanding SAR subsequently exercised, the holder would become
entitled to receive the excess of fair market value of a share of Detroit Edison
Common Stock on the date of exercise over its fair market value on the date the
SAR was granted. Exercise of a Tandem SAR would entitle the holder to receive
the excess of the aggregate fair market value on the exercise date of the number
of optioned shares of Detroit Edison Common Stock with respect to which the SAR
is being exercised over their aggregate fair market value on the date the
related Option was granted. Exercise of a Tandem SAR would have the effect of
reducing the number of shares covered by the related Option by the number with
respect to which the SAR is exercised, and exercise of the related Option would
have the equivalent effect upon a Tandem SAR. Exercised SARs may be settled in
cash, whole shares of Detroit Edison Common Stock (valued at date of exercise),
or a combination of cash and such shares, unless the applicable SAR agreement
further limits the form of settlement. If the form of settlement is not
specified in the SAR agreement, the holder, at the time of exercise, may request
the form he or she wishes to receive, but the Committee will have the ultimate
authority, in its discretion, to approve or disapprove any such request. In the
absence of such a request, the Committee also would determine the form of
settlement.
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<PAGE> 38
Restricted Stock. A grant of Restricted Stock involves the immediate
transfer by Detroit Edison to an employe of ownership of a specific number of
shares of Detroit Edison Common Stock that are subject to a risk of forfeiture
in consideration of the performance of services. During the applicable
restriction period, the employe-recipient of Restricted Stock would have all the
voting, dividend, and other rights of a record holder of Detroit Edison Common
Stock, except that the shares would be nontransferable, and that any non-cash
dividends or other distributions paid upon the shares would be held by Detroit
Edison and would be subject to transfer restrictions and risk of forfeiture to
the same extent as the shares themselves. The transfer may be made without
additional consideration or in consideration of a payment by the employe equal
to or less than its fair market value. The general terms and conditions of any
award of Restricted Stock must be set forth in a written agreement, specifying
the number of shares subject to the award and the restriction period(s)
established by the Committee with respect to such shares, which must be at least
three years from the date of grant, except in the case of awards that are
subject to Performance Measures (in which case the restriction period shall be
at least one year). At the time of the grant, the Committee may provide for
forfeiture of shares covered thereby if specified Performance Measures are not
attained during a restriction period and/or for early termination of a
restriction period.
Restricted Stock must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Committee. An example would be a provision that the Restricted Stock would
be forfeited if the participant ceased to serve Detroit Edison as an officer or
other key salaried employe during a specified period of years. In order to
enforce these forfeiture provisions, the transferability of Restricted Stock
will be prohibited or restricted in a manner and to the extent prescribed by the
Committee for the period during which the forfeiture provisions are to continue.
The Committee may provide for a shorter period during which the forfeiture
provisions are to apply in the event of a change in control of the Detroit
Edison or other similar transaction or event.
Performance Share and Performance Unit Awards. A Performance Share is the
equivalent of one share of Detroit Edison Common Stock and a Performance Unit is
the equivalent of $1.00. Any such grant shall be evidenced by a written
agreement. An employe will be given one or more Performance Measures to meet
within a specified performance period. The performance period may be subject to
earlier termination in the event of a change in control of the Detroit Edison or
other similar transaction or event. If by the end of the performance period the
employe has achieved the specified Performance Measures, the employe will be
deemed to have fully earned the Performance Shares or Performance Units. To the
extent earned, the Performance Shares or Performance Units will be paid to the
employe at the time and in the manner determined by the Committee in cash,
shares of Detroit Edison Common Stock or any combination thereof.
Non-discretionary Awards to Non-employe Directors. On the date of the
Annual Meeting and on the date of each annual meeting of Detroit Edison Common
Stock shareholders thereafter, each non-employe director of Detroit Edison shall
receive automatically an award of 300 shares of Detroit Edison Common Stock if
he or she is elected at such meeting or continues to serve immediately after
such meeting as a non-employe director. The shares of Detroit Edison Common
Stock so awarded shall not be subject to any restriction under the Incentive
Plan (other than any that may be required by securities laws and stock exchange
requirements).
Tax Withholding. Unless otherwise provided in the applicable agreement
concerning an award, the Incentive Plan would permit award recipients to satisfy
tax withholding requirements in connection with the exercise, vesting or
settlement of an award (1) entirely in cash; (2) subject to Committee approval,
by delivery to Detroit Edison of a number of shares of Detroit Edison Common
Stock which have an aggregate fair market value as of the tax withholding date
sufficient to satisfy all withholding requirements; or (3) subject to Committee
approval, authorizing Detroit Edison to withhold shares otherwise issuable
pursuant to the award sufficient to satisfy all such requirements; or (4) by a
combination of the foregoing methods. Detroit Edison and the Employe may also
make similar arrangements with respect to the payment of taxes with respect to
which withholding is not required.
Right of First Refusal. Detroit Edison is authorized under the Incentive
Plan to reserve a right of first refusal to purchase any shares issued under the
Incentive Plan at their fair market value, determined as of the
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<PAGE> 39
day immediately preceding the date on which Detroit Edison notifies the holder
of its intention to exercise such right.
Transferability. No option, or other "derivative security" within the
meaning of Rule 16b-3 under the Exchange Act is transferable by an employe
except by will or the laws of descent and distribution. Options may not be
exercised during an employe's lifetime except by the employe, or in the event of
an employe's incapacity by the employe's guardian or legal representative acting
in a fiduciary capacity on behalf of the employe under state law and court
supervision; however, the Committee, in its sole discretion, may provide for the
transferability of specific awards so long as such provision will not disqualify
the exemption for other awards under Rule 16b-3.
Duration, Amendment, and Termination. The Incentive Plan is intended to be
of indefinite duration. However, the provisions of the Code currently applicable
to Incentive Stock Options would not permit the grant of ISOs under the
Incentive Plan after the tenth anniversary of its effective date. By the terms
of the Incentive Plan, except as noted below, the Committee may terminate,
modify, or amend it in any manner.
Shareholder approval is not required for any amendment, either by the
Incentive Plan itself, or by applicable Michigan corporation law, except that
the Incentive Plan provides that under no circumstances, without shareholder
approval, may the Incentive Plan be amended or modified to permit the exercise
of an option at a per share exercise price less than the fair market value of a
share of Detroit Edison Common Stock on the date the option was granted, to
increase (except through adjustments as provided in the Incentive Plan) the
number of shares subject to the Incentive Plan under Section 3 of the Incentive
Plan, or otherwise cause any award under the Incentive Plan to cease to qualify
under Rule 16b-3 or for the performance based exception to Section 162(m) of the
Code.
New Plan Benefits. To date, no awards of any kind have been granted under
the Incentive Plan, and no executive officer, other officer or other employe has
been selected to receive any such award in the future.
The rules of the Securities and Exchange Commission require disclosure of
the awards individuals will receive pursuant to such a plan if such awards are
determinable. Since awards of Options, SARs, Restricted Stock, Performance
Shares and Performance Units will be made by the Committee in its discretion
under the Incentive Plan, it is not possible to determine the amounts of such
awards that will be made. However, the Incentive Plan also provides for
automatic annual awards of Detroit Edison Common Stock to non-employe directors.
Accordingly, assuming the election of the three director nominees at the Annual
Meeting, 3,000 shares of Detroit Edison Common Stock will be received on the
date of the Annual Meeting by the 10 non-employe directors. Corresponding awards
will be made to non-employe directors in future years.
MPSC Approval. Although the Incentive Plan would become effective upon its
approval by the shareholders, Detroit Edison may not lawfully issue any shares
of Detroit Edison Common Stock under the Incentive Plan without the prior
approval of the MPSC, nor may it contract to issue any such shares pursuant to
the exercise of Options, except subject to MPSC approval. Upon the effective
time of the Exchange, the issuance of Holding Company Common Stock pursuant to
the Incentive Plan will not be subject to MPSC approval. Accordingly, Detroit
Edison does not expect to seek approval from the MPSC for the issuance of the
Detroit Edison Common Stock. In the event the Exchange is not consummated, or
prior to the Exchange pending MPSC approval of share issuances by Detroit Edison
under the Incentive Plan, awards under the Incentive Plan (assuming it is
approved by the shareholders) would be confined to Performance Share and
Performance Unit Awards and SARs, which may be settled in cash, or awards which
are settled through open market purchases of Detroit Edison Common Stock
directly on behalf of or in the name of participants.
FEDERAL INCOME TAX CONSEQUENCES OF INCENTIVE PLAN
The following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Plan based on Federal income tax
laws in effect on January 1, 1995. This summary is not intended to be exhaustive
and does not describe state or local tax consequences.
Nonqualified Stock Options. In general: (i) no income will be recognized by
an optionee at the time a NQSO is granted; (ii) at the time of exercise of a
NQSO, ordinary income will be recognized by the optionee
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<PAGE> 40
in an amount equal to the difference between the option price paid for the
shares and the fair market value of the shares if they are nonrestricted on the
date of exercise; and (iii) at the time of sale of shares acquired pursuant to
the exercise of a NQSO, any appreciation (or depreciation) in the value of the
shares after the date of exercise will be treated as either short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. If Common
Shares are issued to an optionee pursuant to the exercise of an Incentive Stock
Option and no disqualifying disposition of the shares is made by the optionee
within two years after the date of grant or within one year after the transfer
of the shares to the optionee, then upon the sale of the shares any amount
realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares acquired upon the exercise of an Incentive Stock Option are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of disposition
in an amount equal to any excess of the fair market value of the shares at the
time of exercise (or, if less, the amount realized on the disposition of the
shares if a sale or exchange) over the option price paid for the shares. Any
further gain (or loss) realized by the optionee generally will be taxed as
short-term or long-term capital gain (or loss) depending on the holding period.
Stock Appreciation Rights. No income will be recognized by a holder in
connection with the grant of a Tandem SAR or a Freestanding SAR. When the SAR is
exercised, the recipient normally will be required to include as taxable
ordinary income in the year of exercise an amount equal to the amount of cash
received and the fair market value of any nonrestricted shares of Detroit Edison
Common Stock received on the exercise.
Restricted Stock. A recipient of Restricted Stock generally will be subject
to tax at ordinary income rates on the fair market value of the shares of
Restricted Stock (reduced by any amount paid by the recipient for such shares)
at such time as the shares are no longer subject to a risk of forfeiture or
restrictions on transfer for purposes of Section 83 of the Code. However, a
recipient who so elects under Section 83(b) of the Code within 30 days of the
date of transfer of the shares will have taxable ordinary income on the date of
transfer of the shares equal to the excess of the fair market value of the
shares (determined without regard to the risk of forfeiture or restrictions on
transfer) over any purchase price paid for the shares. If a Section 83(b)
election has not been made, any dividends received with respect to shares of
Restricted Stock that are subject at that time to a risk of forfeiture or
restrictions on transfer generally will be treated as compensation that is
taxable as ordinary income to the recipient.
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Detroit Edison Common Stock
received.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock that is received as the result of a grant
of an award could subject an officer to suit under Section 16(b) of the Exchange
Act, the tax consequences to the officer or director may differ from the tax
consequences described above. In these circumstances, unless a special election
has been made, the principal difference usually will be to postpone valuation
and taxation of the stock received so long as the sale of the stock received
could subject the officer or director to suit under Section 16(b) of the
Exchange Act, but not longer than six months.
A non-employe director who receives shares of Detroit Edison Common Stock
that are not subject to any risk of forfeiture will recognize ordinary income
upon the receipt of such shares equal to the fair market value of the shares of
Detroit Edison Common Stock received.
Tax Consequences to Detroit Edison or Subsidiary. To the extent that an
employe recognizes ordinary income in the circumstances described above, Detroit
Edison or the subsidiary for which the employe performs services will be
entitled to a corresponding deduction provided that, among other things, the
income meets the test of reasonableness, is an ordinary and necessary business
expense, is not an "excess parachute
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<PAGE> 41
payment" within the meaning of Section 280G of the Code and is not disallowed by
the $1 million limitation on certain executive compensation.
EFFECT OF APPROVAL OF EXCHANGE AGREEMENT
The Incentive Plan provides that if the Exchange is consummated, the shares
of Detroit Edison Common Stock issuable pursuant to the Incentive Plan will be
shares of Holding Company Common Stock and all references to Detroit Edison in
the Incentive Plan (and, accordingly, in the foregoing summary) will be deemed
to be references to Holding Company. Notwithstanding the foregoing, references
to Detroit Edison under the caption "MPSC Approval" will not apply to Holding
Company. Approval of the Exchange Agreement will be deemed an approval of these
provisions of the Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
INCENTIVE PLAN.
ITEM 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the holders of Detroit Edison Common Stock, the
Detroit Edison Board of Directors, upon recommendation of its Audit Committee,
has appointed Deloitte & Touche LLP as independent accountants of Detroit Edison
for the year 1995. Assuming the presence of a quorum, approval of this proposal
will require the affirmative vote of the holders of a majority of the shares of
Detroit Edison Common Stock present in person or by proxy. Any abstention from
voting on the proposal will have the same effect as shares voted against the
proposal. However, any shares subject to so-called "broker non-votes" will not
be considered present for purposes of voting on the proposal and, accordingly,
broker non-votes will not factor into the determination of whether or not the
proposal is carried. Approval of this proposal will be considered ratification
of the appointment of Deloitte & Touche LLP as independent accountants of
Holding Company as of the effective time of the Exchange.
In prior years, Price Waterhouse LLP served as independent accountants of
Detroit Edison. After a review of proposals from several accounting firms and an
evaluation of Detroit Edison's needs and the capabilities of the candidates, the
Audit Committee of Detroit Edison's Board of Directors determined that Deloitte
& Touche LLP should be appointed as independent accountants.
During the Company's two fiscal years ending December 31, 1994 and the
subsequent interim period from January 1, 1995 through the date hereof, there
have been no disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to its satisfaction, would have caused Price
Waterhouse LLP to make reference thereto in its report on the financial
statements for such years. None of Price Waterhouse LLP's reports on the
financial statements for the past two years contained an adverse opinion or a
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles.
Representatives of Deloitte & Touche LLP and Price Waterhouse LLP will be
present at the Annual Meeting and will be afforded an opportunity to make a
statement, if they desire, and to respond to appropriate questions from holders
of Detroit Edison Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
APPOINTMENT OF INDEPENDENT ACCOUNTANTS.
* * *
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<PAGE> 42
TRANSACTION OF OTHER BUSINESS AND OTHER INFORMATION
AS TO OTHER BUSINESS WHICH MAY COME BEFORE THE MEETING
Management of Detroit Edison does not intend to bring any other business
before the meeting for action. However, if any other business should be
presented for action, it is the intention of the persons named on the enclosed
proxy card to vote in accordance with their judgment on such business.
SHAREHOLDER PROPOSALS
Shareholder proposals to be considered for inclusion in the proxy statement
for the 1996 annual meeting must be received by the Corporate Secretary of
Detroit Edison (or Holding Company if the Exchange is consummated prior thereto)
at its principal business address no later than 5:00 p.m. on November 17, 1995.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, Detroit Edison's directors
and its executive officers are required to report ownership of Detroit Edison
Common Stock and any changes in that ownership to the SEC. Specific due dates
for these reports have been established and Detroit Edison is required to
disclose in this Proxy Statement any failure to file by these dates during 1994.
During 1994, all of the filing requirements were satisfied. In making these
disclosures, Detroit Edison has relied on written representations of its
directors and executive officers and copies of the reports that they have filed
with the SEC.
OTHER INFORMATION
Detroit Edison will bear the cost of solicitation of proxies, which will be
principally by mail. Proxies may also be solicited by directors, officers and
employes of Detroit Edison, personally, by telephone or by electronic or
facsimile transmission. In addition, Morrow & Co., Inc. of New York, New York,
has been retained to assist in the solicitation of proxies for the Annual
Meeting by the means described above at an estimated cost (excluding expenses)
to Detroit Edison of approximately $20,000.
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<PAGE> 43
EXHIBIT A
AGREEMENT AND PLAN OF EXCHANGE1
THIS AGREEMENT AND PLAN OF EXCHANGE (this "Agreement"), dated as of
, , is between THE DETROIT EDISON COMPANY, a Michigan
corporation (the "Company"), the company whose shares will be acquired pursuant
to the Exchange described herein, and DTE HOLDINGS, INC., a Michigan corporation
("Holding Company"), the acquiring company. The Company and Holding Company are
hereinafter referred to, collectively, as the "Companies."
WITNESSETH:
WHEREAS, the authorized capital of the Company is $4,740,748,400,
consisting of (a) 400,000,000 shares of Common Stock, $10 par value per share
("Company Common Stock"), of which shares are issued and outstanding, (b)
shares of Preferred Stock, $100 par value ("Company Preferred Stock"), of
which shares are issued and outstanding in [six] series and (c)
30,000,000 shares of Preference Stock, $1 par value ("Company Preference
Stock"), of which [no] shares are issued and outstanding;
WHEREAS, Holding Company is a wholly-owned subsidiary of the Company with
authorized capital stock consisting of (a) 400,000,000 shares of Common Stock,
without par value ("Holding Company Common Stock"), of which shares are
issued and outstanding and owned of record by the Company and (b) 5,000,000
shares of Preferred Stock, without par value ("Holding Company Preferred
Stock"), of which no shares are issued and outstanding;
WHEREAS, the Boards of Directors of the respective Companies deem it
desirable and in the best interests of the Companies and their shareholders that
Holding Company acquire each share of Company Common Stock issued and
outstanding at the Effective Time (as hereinafter defined) and that each such
share of Company Common Stock be exchanged for a share of Holding Company Common
Stock with the result that Holding Company becomes the owner of all outstanding
Company Common Stock and that each holder of Company Common Stock becomes the
owner of an equal number of shares of Holding Company Common Stock, all on the
terms and conditions hereinafter set forth;
WHEREAS, the execution and delivery of this Agreement by the Company and
Holding Company and the Exchange and the related transactions have been
approved, to the extent required, by orders, authorizations or approvals of the
Federal Energy Regulatory Commission under the Federal Power Act and the Nuclear
Regulatory Commission under the Atomic Energy Act;
WHEREAS, the Board of Directors of the Company and Holding Company have
recommended that their respective shareholders approve the Exchange and this
Agreement and this Agreement has been adopted by the requisite vote of the
holders of Company Common Stock and by the requisite vote of the shareholder of
Holding Company pursuant to the Michigan Business Corporation Act (the "Act").
NOW, THEREFORE, in consideration of the premises, and of the agreements,
covenants and conditions hereinafter contained, and subject to satisfaction of
the conditions herein contained, the parties hereto agree with respect to the
acquisition and exchange provided for herein (the "Exchange") that at the
Effective Time each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time will
- ---------------
1This document will be executed after, and assumes that, all necessary
regulatory and shareholder approvals have been obtained.
A-1
<PAGE> 44
be exchanged for one share of Holding Company Common Stock, and that the terms
and conditions of the Exchange and the method of carrying the same into effect
are as follows:
ARTICLE I
Subject to the satisfaction of the conditions and obligations of the
parties hereto, the Exchange will be effective at 12:01 A.M., Detroit, Michigan
time, on , and upon the filing with the Corporation and
Securities Bureau of the Michigan Department of Commerce (the "Michigan Bureau")
of a Certificate of Share Exchange ("Certificate") with respect to the Exchange
or at such later time as may be stated in the Certificate (the time at which the
Exchange becomes effective being referred to herein as the "Effective Time").
ARTICLE II
At the Effective Time:
(1) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be acquired by Holding
Company and shall be exchanged for one share of Holding Company Common
Stock, which shall thereupon be fully paid and non-assessable;
(2) Holding Company shall become the owner and holder of each issued
and outstanding share of Company Common Stock so exchanged;
(3) each share of Holding Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be cancelled and shall
thereupon constitute an authorized and unissued share of Holding Company
Common Stock; and
(4) the former owners of Company Common Stock shall be entitled only
to receive shares of Holding Company Common Stock as provided herein.
Shares of Company Preferred Stock and shares of Company Preference Stock
shall not be exchanged or otherwise affected in connection with the Exchange.
Each share of Company Preferred Stock issued and outstanding immediately prior
to the Effective Time shall continue to be issued and outstanding following the
Exchange and shall continue to be a share of Company Preferred Stock of the
applicable series designation. Pursuant to the Company's Restated Articles of
Incorporation it may elect to redeem its Convertible Cumulative Preferred Stock,
5 1/2% Series, on or prior to the Effective Time. Any shares of any series of
Company Preferred Stock which pursuant to their terms are convertible into
shares of Company Common Stock, including such Convertible Cumulative Preferred
Stock, 5 1/2% Series, if not redeemed, will continue to be convertible into
shares of Company Common Stock pursuant to their current terms.
ARTICLE III
The consummation of the Exchange is subject to the following conditions
precedent:
(1) the satisfaction of the respective obligations of the parties
hereto in accordance with the terms and conditions herein contained;
(2) the execution and filing of an appropriate Certificate with the
Michigan Bureau pursuant to the Act;
(3) the approval for listing upon official notice of issuance, by the
New York Stock Exchange and the Chicago Stock Exchange, of Holding Company
Common Stock to be issued in accordance with this Agreement;
(4) the receipt and continued effectiveness of such orders,
authorizations, approvals or waivers from all jurisdictive regulatory
bodies, boards or agencies, in addition to the orders or approvals referred
to in
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<PAGE> 45
the fourth Whereas clause hereof, which are required in connection with the
Exchange and related transactions; and
(5) receipt of either an opinion of counsel or a ruling from the
Internal Revenue Service, in either case acceptable to the Board of
Directors of the Company, as to the Federal income tax consequences of the
Exchange.
ARTICLE IV
This Agreement may be amended, modified or supplemented, or compliance with
any provision or condition hereof may be waived, at any time, by the mutual
consent of the Boards of Directors of the Company and of Holding Company at any
time prior to the time the Certificate is filed with the Michigan Bureau;
provided, however, that no such amendment, modification, supplement or waiver
shall be made or effected if such amendment, modification, supplement or waiver
would, in the sole judgment of the Board of Directors of the Company, materially
and adversely affect the shareholders of the Company.
This Agreement may be terminated and the Exchange and related transactions
abandoned at any time prior to the time the Certificate is filed with the
Michigan Bureau, if the Board of Directors of the Company determines, in its
sole judgment, that consummation of the Exchange would for any reason be
inadvisable or not in the best interests of the Company or its shareholders.
ARTICLE V
This Agreement has been submitted to the holders of Company Common Stock
and to the sole holder of Holding Company Common Stock for approval as provided
by the Act. The affirmative vote of the holders of a majority of the outstanding
Company Common Stock was received constituting the adoption of this Agreement.
The affirmative vote of the holder of all of the outstanding shares of Holding
Company Common Stock was received constituting the adoption of this Agreement.
ARTICLE VI
Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Company Common Stock may, but
shall not be required to, surrender the same to Holding Company for cancellation
and reissuance of a new certificate or certificates in such holder's name or for
cancellation and transfer, and each such holder or transferee will be entitled
to receive a certificate or certificates representing the same number of shares
of Holding Company Common Stock as the shares of Company Common Stock previously
represented by the certificate or certificates surrendered. Until so surrendered
or presented for transfer, each outstanding certificate which, immediately prior
to the Effective Time, represents Company Common Stock shall be deemed and
treated for all corporate purposes to represent the ownership of the same number
of shares of Holding Company Common Stock as though such surrender or transfer
and exchange had taken place. The holders of Company Common Stock at the
Effective Time shall have no right to have their shares of Company Common Stock
transferred on the stock transfer books of the Company, and such stock transfer
books shall be deemed to be closed for this purpose at the Effective Time.
ARTICLE VII
Prior to or as of the Effective Time, each director of the Company who is
not then also a director of Holding Company shall become a director of Holding
Company. Each director of the Company as of the Effective Time shall also remain
a director of the Company.
ARTICLE VIII
At the Effective Time, Holding Company shall adopt a dividend reinvestment
plan ("Holding Company DRIP") substantially similar to the Company's Dividend
Reinvestment Plan ("Company DRIP") in effect
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<PAGE> 46
immediately prior to the Effective Time and the Company DRIP shall be
discontinued. At the Effective Time, all shares of Company Common Stock held
under the Company DRIP (including fractional and uncertificated shares) shall be
exchanged for shares (including fractional and uncertificated shares) of Holding
Company Common Stock and shall be held pursuant to the Holding Company DRIP. At
the Effective Time, Holding Company shall adopt, become subject to and/or agree
to issue Holding Company Common Stock in connection with, each Savings and
Investment Plan of the Company and the Company's Long-Term Incentive Plan.
IN WITNESS WHEREOF, each of the Company and Holding Company, pursuant to
authorization and approval given by its Board of Directors, has caused this
Agreement to be executed by its Chairman and Chief Executive Officer and its
corporate seal to be affixed hereto and attested by its Secretary as of the date
first above written.
THE DETROIT EDISON COMPANY
By:
------------------------------------
Chairman and Chief Executive
Officer
ATTEST:
- ------------------------------------------------------
Corporate Secretary
DTE HOLDINGS, INC.
By:
------------------------------------
Chairman and Chief Executive
Officer
ATTEST:
- ------------------------------------------------------
Corporate Secretary
A-4
<PAGE> 47
EXHIBIT B
ARTICLES OF INCORPORATION
OF
DTE HOLDINGS, INC.
ARTICLE I
The name of the corporation is DTE HOLDINGS, INC.
ARTICLE II
The purposes for which the corporation (the "Company") is formed are to
engage in any activity within the purposes for which corporations may be formed
under the Michigan Business Corporation Act (the "Act").
ARTICLE III
The location and post office address of the principal office of the Company
at the time of filing these Articles is 2000 Second Avenue, Detroit, Wayne
County, Michigan 48226 and it is hereby designated as the location and post
office address of the registered office of the Company in Michigan under these
Articles.
ARTICLE IV
The name of the Company's resident agent in Michigan at the time of filing
these Articles is Susan M. Beale and she is hereby designated as the resident
agent of the Company in Michigan under these Articles.
ARTICLE V
A. The aggregate number of shares which the Company is authorized to issue
is Four Hundred Five Million (405,000,000) shares, divided into and consisting
of (a) Four Hundred Million (400,000,000) shares of Common Stock, without par
value, and (b) Five Million (5,000,000) shares of Preferred Stock, without par
value, issuable in one or more series as hereinafter provided.
B. The statement of the designation, numbers, relative rights, preferences
and limitations of the shares of each class of stock of the Company, to the
extent that such designations, numbers, relative rights, preferences and
limitations have been determined, is as follows:
(1) The authorized Preferred Stock may be issued, in one or more
series, from time to time as the Board of Directors may determine. Each
series of Preferred Stock shall bear a distinctive designation, shall be
issued in such number of shares and shall have such relative voting,
distribution, dividend, liquidation and other rights, preferences and
limitations as shall be prescribed, and the Board of Directors is expressly
authorized to fix such terms, by a resolution of the Board of Directors.
Such resolutions, when filed, shall constitute amendments to these Articles
of Incorporation to the extent provided by the Act.
(2) At all times each shareholder of the Company of any class who at
the time possesses voting power for any purpose shall, for such purpose, be
entitled to one vote for each share of such stock standing in such
shareholder's name on the books of the Company, provided that in all
elections of directors every shareholder entitled to vote for the election
of directors shall have the right to vote the number of shares of stock
owned by such shareholder for each of as many persons as are to be elected
directors by shareholders of his class, or to cumulate all the votes such
shareholder could cast for election of directors and cast them all for one
candidate or distribute them among candidates for whom such shareholder is
entitled to vote, as such shareholder shall think fit.
B-1
<PAGE> 48
(3) No shareholder shall have any preemptive or preferential right to
subscribe for or purchase any part of any new or additional issue of stock
of any class whatsoever, or of securities convertible into any stock of any
class whatsoever, or of securities carrying options, warrants or other
rights to purchase stock of any class whatsoever, whether now or hereafter
authorized and whether issued for cash or other consideration or by way of
dividend or otherwise, or to have any other preemptive or preferential
right as now or hereafter defined by the laws of the State of Michigan.
ARTICLE VI
To the full extent permitted by the Act or any other applicable laws
presently or hereafter in effect, no director of the Company shall be personally
liable to the Company or its shareholders for or with respect to any acts or
omissions in the performance of his or her duties as a director of the Company.
Any repeal or modification of this Article VI shall not adversely affect any
right or protection of a director of the Company existing hereunder immediately
prior to such repeal or modification.
ARTICLE VII
Each person who is or was or had agreed to become a director or officer of
the Company, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors as an employee or agent of the
Company or as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including the heirs,
executors, administrators or estate of such person), shall be indemnified by the
Company to the full extent permitted by the Act or any other applicable laws as
presently or hereafter in effect. Without limiting the generality or the effect
of the foregoing, the Company may enter into one or more agreements with any
person which provide for indemnification greater or different than that provided
in this Article. Any repeal or modification of this Article VII shall not
adversely affect any right or protection existing hereunder immediately prior to
such repeal or modification.
ARTICLE VIII
The term of the corporate existence of the Company is perpetual.
ARTICLE IX
The name and address of the sole incorporator is as follows:
Susan M. Beale
2000 Second Avenue
Detroit, Michigan 48226
Dated this 26th day of January, 1995.
/s/ SUSAN M. BEALE
--------------------------------------
Susan M. Beale
Sole Incorporator
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<PAGE> 49
EXHIBIT C
THE DETROIT EDISON COMPANY
LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of this Long-Term Incentive Plan is to more closely align the
interests of key employees of The Detroit Edison Company, its Subsidiaries and
any successor corporation with those of shareholders by rewarding long term
growth and profitability. In the emerging competitive environment, placing more
pay at risk will foster the desired results by providing key employees
additional incentives to devote their best efforts to pursue and sustain the
Company's financial success through the achievement of corporate goals. In
addition, ownership of stock assists in the attraction and retention of
qualified employees and Directors. Accordingly, certain key employees may be
granted Stock Options, Stock Appreciation Rights, Restricted Stock, Performance
Shares and Performance Units. Nonemployee Directors will also receive Awards of
Common Stock.
SECTION 2. DEFINITIONS.
A. "Agreement" shall mean a written Agreement, in a form approved by the
Committee, which sets forth the terms and conditions of an Award. Agreements
shall be subject to the express terms and conditions set forth herein, and to
such other terms and conditions not inconsistent with the Plan as the Committee
shall deem appropriate.
B. "Award" shall mean an Option (which may be designated as a Nonqualified
Stock Option or an Incentive Stock Option), a Stock Appreciation Right (which
may be designated as a Freestanding SAR or a Tandem SAR), Restricted Stock,
Performance Shares or Performance Units, in each case granted under this Plan.
Each such Award shall be evidenced by an Agreement. The term shall also include
non-discretionary awards of Common Stock to Nonemployee Directors pursuant to
Section 10 of the Plan.
C. "Board" shall mean the Board of Directors of the Company.
D. "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
E. "Committee" shall mean the Organization and Compensation Committee of
the Board, or such other Board Committee as may be designated from time to time
by the Board. All Directors serving on the Committee at any given time shall be
"disinterested persons" as that term is used in Rule 16b-3, and the number of
Directors serving on the Committee at any given time shall be no less than the
number then required by Rule 16b-3.
F. "Common Stock" shall mean shares of common stock of the Company, subject
to adjustment as provided in Section 13.
G. "Company" shall mean The Detroit Edison Company, a Michigan corporation,
and any successor corporation.
H. "Date of Grant" means the date specified by the Committee pursuant to
Section 4 hereof on which a grant of Options, SAR's, Restricted Stock,
Performance Shares or Performance Units shall become effective, which shall not
be earlier than the date on which the Committee takes action with respect
thereto.
I. "Employee" shall mean (i) an employee of the Company or a Subsidiary,
whether or not an officer thereof, and shall include any such employee who is
also a Director of the Company or a Subsidiary, and (ii) a director of a
Subsidiary who is not a Nonemployee Director.
J. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
K. "Exercise Price" shall mean, with respect to each share of Common Stock
subject to an Option, the price fixed by the Committee at which such share may
be purchased pursuant to the exercise of such Option.
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L. "Fair Market Value" shall mean the fair market value of the Common Stock
determined by the Committee by whatever method or means the members, in the good
faith exercise of their discretion, at that time shall deem appropriate.
M. "Freestanding SAR" shall mean a right, granted pursuant to this Plan
without reference or relationship to any Option, of an Employee to receive cash,
shares of Common Stock, or a combination thereof, as the case may be, having an
aggregate value equal to the excess of the Fair Market Value of one share of
Common Stock on the date of exercise of such SAR over the Fair Market Value of
one such share on the Date of Grant of such SAR.
N. "Incentive Stock Option" or "ISO" shall mean an Option that meets the
requirements of Section 422 of the Code, or any successor provision, and that is
intended by the Committee to constitute an ISO. Any ISO granted hereunder must
be granted within ten years from the date of adoption of the Plan by the Board.
If for any reason an Option (or any portion thereof) intended by the Committee
to be an ISO nevertheless does not so qualify as an ISO under the Code, either
at the time of grant or subsequently, such failure to qualify shall not
invalidate the Option (or any portion thereof) and instead the nonqualified
portion (or, if necessary, the entire Option) shall be deemed to have been
granted as a Nonqualified Stock Option irrespective of the manner in which it is
designated in the Option Agreement.
O. "Nonemployee Director" shall mean a Director of the Company who is not
an employee of the Company or any Subsidiary.
P. "Nonqualified Stock Option" or "NQSO" shall mean an Option that is not
an ISO.
Q. "Option" shall mean the right, granted pursuant to this Plan, of a
holder to purchase shares of Common Stock at an Exercise Price and upon terms to
be specified by the Committee. The term shall include a Nonqualified Stock
Option or an Incentive Stock Option.
R. "Optionee" means the person so designated in an Agreement evidencing an
outstanding Option.
S. "Performance Measures" shall mean (1) in the case of Performance Shares
or Performance Units, those criteria and objectives determined by the Committee
the attainment of which during the applicable Performance Period would be a
pre-condition to settlement of such Award, and (2) in the case of Restricted
Stock, those Committee-determined criteria and objectives (if any) which, if not
met during the applicable Restriction Period, would cause a forfeiture of such
Award and/or which, if met during the otherwise applicable Restriction Period,
would cause an early termination of the Restriction Period. The Performance
Measures applicable to any Award to an Employee who is, or is determined by the
Committee to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision) shall be limited to
criteria and objectives related to: (i) shareholder value growth based on stock
price and dividends, (ii) customer price, (iii) customer satisfaction and (iv)
growth based on increasing sales or profitability of one or more business units;
provided, however, that the Committee may impose any other subjective or
objective criteria it may approve from time to time for the purpose of reducing
the amount otherwise payable upon settlement of Performance Shares or
Performance Units or for the purpose of increasing the number of shares of
Restricted Stock that would otherwise be forfeited during the applicable
Restriction Period. Except in the case of such a covered employee, if the
Committee determines that a change in the business, operations, corporate
structure or capital structure of the Company or a Subsidiary, or the manner in
which it conducts its business, or other events or circumstances render the
Performance Measures to be unsuitable, the Committee may modify such Performance
Measures, in whole or in part, as the Committee deems appropriate and equitable.
T. "Performance Period" shall mean the period designated by the Committee
during which the Performance Measures applicable to Performance Shares or
Performance Units shall be measured. The Performance Period shall be established
on the Date of Grant of such Performance Shares or Performance Units, and shall
not be less than one year in duration. The duration of Performance Periods may
vary.
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U. "Performance Shares" shall mean the right, contingent upon attainment of
Performance Measures within a Performance Period, to receive a specified number
of shares of Common Stock, which may be Restricted Stock, or, in lieu of all or
any portion of such shares, their Fair Market Value in cash.
V. "Performance Units" shall mean the right, contingent upon attainment of
Performance Measures within a Performance Period, to receive a specified dollar
amount or, in lieu of all or any portion of such amount, shares of Common Stock
having the same Fair Market Value or the same number of shares of Restricted
Stock. Each Performance Unit shall have a face amount of $1.00.
W. "Plan" shall mean the Long-Term Incentive Plan set forth in this
instrument, as amended from time to time.
X. "Reorganization" shall mean the corporate reorganization of The Detroit
Edison Company pursuant to resolutions adopted by the Board of Directors of The
Detroit Edison Company on December 5, 1994 and January 23, 1995 (as such
resolutions may be amended or supplemented from time to time) whereby it is
proposed that a corporation ("Holding Company") will become the parent holding
company of The Detroit Edison Company.
Y. "Restriction Period" shall mean the period designated by the Committee
during which Restricted Stock shall be subject to a substantial risk of
forfeiture and may not be sold, exchanged, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of, except as otherwise
provided in the Plan.
Z. "Restricted Stock" shall mean any shares of Common Stock issued pursuant
to the Plan subject to a substantial risk of forfeiture pursuant to Section 83
of the Code and to the restriction that they may not be sold, exchanged,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of, except as otherwise provided in the Plan, prior to termination of a
Restriction Period. Restricted Stock shall constitute issued and outstanding
shares of Common Stock for all corporate purposes.
AA. "Rule 16b-3" means Rule 16b-3 as promulgated and amended from time to
time by the Securities and Exchange Commission under the Exchange Act (or any
successor rule) as in effect with respect to the Company at a given time.
BB. "Stock Appreciation Right" or "SAR" shall mean any Freestanding SAR or
Tandem SAR.
CC. "Subsidiary" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; provided, however, for purposes of
determining whether any person may receive a grant of ISO's, "Subsidiary" means
any corporation in which the Company owns or controls directly or indirectly
more than 50 percent of the total combined voting power represented by all
classes of stock issued by such corporation at the time of the grant.
DD. "Tandem SAR" shall mean a right, granted under this Plan, pursuant to
which a holder may elect to surrender an Option, or any portion thereof, which
is then exercisable, and receive in exchange therefor shares of Common Stock,
cash, or a combination thereof, as the case may be, with an aggregate value
equal to the excess of the Fair Market Value of one share of Common Stock at the
time of exercise over the per share Exercise Price specified in such Option,
multiplied by the number of shares of Common Stock covered by such Option, or
portion thereof, which is so surrendered.
EE. "Tax Withholding Date" shall mean the date the withholding tax
obligation first arises with respect to an Award.
SECTION 3. LIMITS ON AVAILABLE SHARES AND FREESTANDING SAR'S
A. Shares of Common Stock used for an Award under the Plan may be either
authorized but unissued shares or authorized, issued and outstanding shares
acquired by or on behalf of the Company in the name of an Award recipient (or
permissible successor thereof) for purposes of granting or settling such Award,
or may be a combination of the foregoing. Subject to adjustment as provided in
Section 13 of the Plan, the aggregate maximum number of shares which may be (i)
issued or transferred upon the exercise of Options or SAR's,
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(ii) awarded as Restricted Stock and released from substantial risk of
forfeiture thereof or (iii) issued or transferred in payment of Performance
Shares or Performance Units which have been earned is 7,200,000.
B. Upon the full or partial payment of any Exercise Price by the transfer
to the Company of Common Stock or upon satisfaction of tax withholding
obligations in connection with any such exercise or any other payment made or
benefit realized under the Plan by the transfer or relinquishment of Common
Stock, there shall be deemed to have been issued or transferred under the Plan
only the net number of shares of Common Stock actually issued or transferred by
the Company less the number of shares of Common Stock so transferred or
relinquished; provided, however, that the number of shares of Common Stock
actually issued or transferred by the Company upon the exercise of Incentive
Stock Options shall not exceed the number of shares of Common Stock first
specified above in Section 3(A), subject to adjustment as therein provided.
C. Upon payment in cash of the benefit provided by any Award granted under
the Plan, any shares of Common Stock that were covered by that Award shall again
be available for issuance or transfer hereunder.
D. The number of Performance Units (which each have a face amount of $1.00)
that may be granted under this Plan shall not in the aggregate exceed
25,000,000. Performance Units that are granted under this Plan and are paid in
shares of Common Stock or are not earned by the Employee at the end of the
Performance Period shall be available for future grants of Performance Units
hereunder.
E. Notwithstanding any other provision of the Plan to the contrary, no
Employee shall be granted Options for more than 300,000 shares of Common Stock
or Stock Appreciation Rights for more than 300,000 shares of Common Stock during
any period of five consecutive calendar years, subject to adjustment as provided
in Section 13 of this Plan.
F. Notwithstanding any other provision of the Plan to the contrary, in no
event shall any Employee receive awards of Restricted Stock, Performance Shares
and Performance Units having an aggregate value as of their respective Dates of
Grant in excess of $750,000 in any calendar year or in excess of $3,500,000 in
any period of five consecutive calendar years.
SECTION 4. ADMINISTRATION.
The Plan shall be administered by the Committee. In addition to any implied
powers and duties that may be needed to carry out the provisions of the Plan,
the Committee shall have all the powers vested in it by the terms of the Plan,
including exclusive authority to grant Awards to Employees under the Plan, to
select the Employees to receive such Awards, to determine the type, size and
terms of the Awards to be made to each Employee selected (which Awards need not
be uniform), to determine the time when Awards to Employees will be granted, and
to prescribe the form of the Agreements embodying Awards made under the Plan.
Any Award made to an Employee may provide for acceleration of the period of
exercisability, lapse or alteration of the Restriction Period, or modification
of any Performance Measure in the event of a change in control of the Company or
any Subsidiary or other similar transaction or event. The Committee shall be
authorized to interpret the Plan and the Awards granted under the Plan, to
establish, amend and rescind any rules and regulations relating to the Plan, to
make any other determinations which it believes necessary or advisable for the
administration of the Plan, and to correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Award in the manner and to the
extent the Committee deems desirable to carry it into effect.
All Committee determinations shall be final, conclusive and binding on the
Company, any Subsidiary, any Employee, any Nonemployee Director, beneficiary,
legal representative, and any other interested parties. The Committee may
authorize any one or more of their number, or any officer of the Company, to
execute and deliver documents on behalf of the Committee. No member of the
Committee shall be liable for any such action taken or determination made in
good faith.
SECTION 5. ELIGIBILITY.
All key Employees are eligible for selection by the Committee to receive an
Award, except Employees covered by a collective bargaining Agreement with the
Company or a Subsidiary which does not provide for
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coverage under this Plan. Nonemployee Directors shall be eligible only for
non-discretionary Awards under Section 10 of the Plan.
SECTION 6. STOCK OPTIONS.
A. Terms and Conditions.
1. Type of Option. The Committee may make Awards of ISO's and NQSO's.
Each Option Award shall specify whether the pertinent Option is intended as
a Nonqualified Stock Option or an Incentive Stock Option.
2. Number of Shares Covered. Each Option Award shall specify the
number of shares of Common Stock subject to the pertinent Option.
3. Exercise Period. Each Option Award shall specify the period (or
periods) not in excess of 10 years during which the pertinent Option (or
portions thereof) may be exercised, and the Option Agreement shall provide
that the Option (or such portion) shall expire at the end of such period
(or periods), and may be subject to earlier termination in the event of a
change in control of the Company or any Subsidiary or other similar
transaction or event, as provided in the Option Agreement.
4. Exercise Price. The Exercise Price shall be determined by the
Committee at the time any Option is granted, and shall be set forth in the
Option Agreement. In no event shall the Exercise Price per share of any
Option be less than 100% of the Fair Market Value per share on the Date of
Grant.
5. Manner of Exercise. The specified number of shares with respect to
which an Option is exercised shall, subject to applicable tax withholding,
be issued following receipt by the Company of (i) written notice of such
exercise from the Optionee (in such form as the Committee shall have
specified in the Option Agreement or otherwise) of an Option delivered to
the Corporate Secretary or the Vice President and Treasurer of the Company,
and (ii) payment, as provided herein, of the Exercise Price.
6. Payment for Shares. (a) The Exercise Price shall be payable, in
whole or in part, in (i) cash in the form of currency or check or other
cash equivalent acceptable to the Company, (ii) nonforfeitable,
unrestricted shares of Common Stock which are already owned by the Optionee
and have a value at the time of exercise that is equal to the Option Price,
(iii) any other legal consideration that the Committee may deem
appropriate, including without limitation any form of consideration
authorized under Section 6(A)(6)(b) below, on such basis as the Committee
may determine in accordance with the Plan and (iv) any combination of the
foregoing.
(b) Any grant of a Nonqualified Stock Option may provide that payment
of the Exercise Price may also be made in whole or in part in the form of
shares of Restricted Stock or other Common Stock that are subject to risk
of forfeiture or restrictions on transfer. Unless otherwise determined by
the Committee on or after the Date of Grant, whenever any Exercise Price is
paid in whole or in part by means of any of the forms of consideration
specified in this paragraph, the Common Stock received by the Optionee upon
the exercise of the Nonqualified Option shall be subject to the same risks
of forfeiture or restrictions on transfer as those that applied to the
consideration surrendered by the Optionee; provided, however, that such
risks of forfeiture and restrictions on transfer shall apply only to the
same number of shares of Common Stock received by the Optionee as applied
to the forfeitable or restricted Common Stock surrendered by the Optionee.
(c) Any grant may provide for deferred payment of the Exercise Price
from the proceeds of sale through a broker of some or all of the shares of
Common Stock to which the exercise relates.
B. Effect of Exercise of Option on Tandem SAR.
Upon the exercise of an Option with respect to which a Tandem SAR has been
granted, the number of shares of Common Stock with respect to which the SAR
shall be exercisable shall be reduced by the number of shares with respect to
which the Option has been exercised.
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SECTION 7. STOCK APPRECIATION RIGHTS.
A. Terms and Conditions.
1. Type of SAR. Each SAR Award shall specify whether it relates to a
Tandem SAR or to Freestanding SAR's.
2. Number of Optioned Shares or Freestanding SAR's. In the case of
any Tandem SAR, the SAR Award shall specify the Option and the number of
shares of Common Stock subject thereto to which the SAR relates. Any SAR
Award relating to Freestanding SAR's shall specify the number of such SAR's
to which it relates.
3. Exercise Period. Each SAR Award shall specify the period during
which the pertinent SAR(s) may be exercised and the SAR Agreement shall
provide that the SAR(s) shall expire at the end of each period (or periods)
and may be subject to earlier termination in the event of a change in
control of the Company or any Subsidiary or other similar transaction or
event, as provided in the SAR Agreement. For a Freestanding SAR, such
expiration date shall be no later than ten years from the Date of Grant
thereof. For Tandem SAR's, such expiration date(s) shall be no later than
the date(s) of expiration of the related Option, and a Tandem SAR shall be
exercisable during its term only when and to the extent the related Option
is exercisable. A Freestanding SAR shall be exercisable only during the
period of the grantee's employment with the Company or a Subsidiary and for
such post-termination exercise period as would apply under the Option
Agreement had the Freestanding SAR Award to the grantee instead been an
Award of NQSO's.
4. Manner of Exercise. A SAR granted under the Plan shall be
exercised by the holder by delivery to the Corporate Secretary or the Vice
President and Treasurer of the Company of written notice of exercise in
such form as shall have been specified in the SAR Agreement or otherwise.
5. Payment to Holder. If the form of consideration to be received
upon exercise of the SAR is not specified in the SAR Agreement, upon the
exercise thereof, the holder may request the form of consideration he or
she wishes to receive in satisfaction of such SAR, which may be in shares
of Common Stock (valued at Fair Market Value on the date of exercise of the
SAR), or in cash, or partly in cash and partly in shares of Common Stock,
as the holder shall request; provided, however, that the Committee, in its
sole discretion, may consent to or disapprove any request of the Employee
to receive cash in full or partial settlement of such SAR. Payment shall be
subject to applicable tax withholding.
B. Effect of Exercise of Tandem SAR on Related Option.
Upon the exercise of a Tandem SAR, the number of shares covered by the
related Option shall be reduced by the number of shares of Common Stock with
respect to which such SAR is exercised.
SECTION 8. RESTRICTED STOCK.
A. Terms and Conditions.
The Committee may make Awards of Restricted Stock to Employees without
additional consideration or may offer to sell Restricted Stock to Employees at a
price that is equal to or less than its Fair Market Value. The terms and
conditions of any such Restricted Stock Award shall be as determined by the
Committee and shall be set forth in the Restricted Stock Agreement. The
Restricted Stock Agreement shall specify the number of shares of Common Stock
subject to the Award and the applicable Restriction Period or Periods. Any such
Agreement may provide for forfeiture of shares covered thereby if specified
Performance Measures are not attained during a Restriction Period and/or for
termination of any Restriction Period upon attainment of Performance Measures,
but in no event may any such Agreement permit termination of any Restriction
Period earlier than three years after the Date of Grant of the pertinent Award
except in the case of Awards that are subject to Performance Measures (in which
case the Restriction Period shall be at least one year) or in the case of death,
disability, retirement or in the event of a change in control of the Company or
any Subsidiary or other similar circumstance in accordance with the provisions
of the Restricted Stock Agreement.
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B. Certificates Evidencing Ownership of Restricted Stock.
During the Restriction Period, a certificate representing the Restricted
Stock shall be registered in the recipient's name and bear a restrictive legend
to the effect that ownership of such Restricted Stock, and the enjoyment of all
rights appurtenant thereto, are subject to the restrictions, terms, and
conditions provided in the Plan and the applicable Agreement.
Certificates representing Restricted Stock together with stock powers or
other instruments of assignment, each endorsed in blank, which will permit
transfer to the Company of all or any portion of the Restricted Stock evidenced
by such certificate in the event it is forfeited, shall be deposited by the
recipient with the Company. Upon the termination of an applicable Restriction
Period, and subject to remittance of applicable withholding tax, a certificate
or certificates evidencing ownership of the number of shares of Common Stock
theretofore evidenced by the certificate representing Restricted Stock, free of
restrictive legend (other than any relating to a right of first refusal of the
Company or required by any applicable securities laws), shall be issued to the
Employee, his or her beneficiary(ies), or legal representative, promptly after
the expiration of the Restriction Period.
C. Rights With Respect to Shares During Restriction Period.
Subject to the terms and conditions of the Restricted Stock Agreement, the
Employee, as the owner of the Common Stock issued as Restricted Stock, shall
have all rights of a shareholder including, but not limited to, voting rights,
the right to receive cash or stock dividends thereon, and the right to
participate in any capital adjustment of the Company. Any distributions with
respect to shares of Restricted Stock other than in the form of cash shall be
held by the Company, and shall be subject to the same restrictions as the shares
with respect to which such distributions were made. Any grant or sale may
require that any or all dividends or other distributions paid on the shares of
Restricted Stock during the Restriction Period shall be automatically
sequestered and may be reinvested on an immediate or deferred basis in
additional shares of Common Stock, which may be subject to the same restrictions
as the underlying Award or such other restrictions as the Committee may
determine.
SECTION 9. PERFORMANCE SHARES AND PERFORMANCE UNITS.
A. Terms and Conditions.
The Committee may make Awards of Performance Shares and Performance Units.
The terms and conditions of any Performance Share Award or a Performance Unit
Award shall be set forth in the applicable Agreement. Such Agreement shall
specify the number of Performance Shares or Performance Units subject to the
Award, the Performance Period(s), which may be subject to earlier termination in
the event of a change in control of the Company or any Subsidiary or other
similar transaction or event, and the Performance Measures applicable to the
Award.
B. Payment.
Following the end of a Performance Period applicable to a granted Award,
the Committee shall determine the extent (if any) to which Performance Measures
established for the Award were attained and, accordingly, the number, if any, of
shares of Common Stock or the amount of cash that shall then become payable to
the holder of the Award. If the Performance Shares or Performance Units are to
be paid to the Employee in the form of shares of Restricted Stock, the recipient
must execute a Restricted Stock Agreement as a condition of the issuance of such
shares in his or her name.
SECTION 10. NON-DISCRETIONARY AWARDS TO NONEMPLOYEE DIRECTORS.
On the date of the 1995 annual meeting of Common Stock shareholders of the
Company and on the date of each annual meeting of Common Stock shareholders of
the Company thereafter, each Nonemployee Director shall receive automatically an
Award of 300 shares of Common Stock if he or she is elected at such meeting or
continuing to serve immediately after such meeting as a Nonemployee Director.
The shares of Common Stock awarded pursuant to this Section 10 shall not be
subject to any restriction under the Plan (other than any that may be required
pursuant to Section 16(N)).
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SECTION 11. WITHHOLDING TAXES.
The Company shall, if required by applicable law, withhold or cause to be
withheld, Federal, state and/or local taxes in connection with the exercise,
vesting or settlement of an Award. Unless otherwise provided in the applicable
Agreement, each Employee may satisfy any such tax withholding obligation by any
of the following means, or by a combination of such means: (i) a cash payment,
(ii) subject to Committee approval, by delivery to the Company of a number of
shares of Common Stock having a Fair Market Value, as of the Tax Withholding
Date, sufficient to satisfy the amount of the withholding tax obligation arising
from an exercise, vesting or settlement of an Award, (iii) subject to Committee
approval, by authorizing the Company to withhold from the shares of Common Stock
otherwise issuable to the Employee pursuant to the exercise or vesting of an
Award, a number of shares having a Fair Market Value, as of the Tax Withholding
Date, which will satisfy the amount of the withholding tax obligation, or (iv)
by a combination of such methods of payment. If the amount requested is not
paid, the Company may refuse to satisfy the Award. The Company and the Employee
may also make similar arrangements with respect to the payment of any taxes with
respect to which withholding is not required.
SECTION 12. TRANSFERABILITY.
A. No Option or other derivative security (as that term is defined in Rule
16b-3) granted under the Plan may be transferred by an Employee except by will
or the laws of descent and distribution. Options and Stock Appreciation Rights
granted under the Plan may not be exercised during an Employee's lifetime except
by the Employee or, in the event of the Employee's legal incapacity, by the
employee's guardian or legal representative acting in a fiduciary capacity on
behalf of the Employee under state law and court supervision. Notwithstanding
the foregoing, the Committee, in its sole discretion, may provide for the
transferability of particular Awards under the Plan so long as such provisions
will not disqualify the exemption for other Awards under Rule 16b-3.
B. Any grant made under the Plan may provide that all or any part of the
shares of Common Stock that are to be issued or transferred by the Company upon
the exercise of Options or Stock Appreciation Rights or in payment of
Performance Shares or Performance Units, or that are no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 8 of this Plan, shall be subject to further restrictions upon transfer.
SECTION 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of any change in the outstanding Common Stock by reason of any
stock split, stock dividend, recapitalization, merger, consolidation,
reorganization, combination, or exchange of shares, split-up, split-off,
spin-off, spin-away, liquidation or other similar change in capitalization, or
any distribution to common stock shareholders of the Company other than normal
cash dividends, the number or kind of shares that may be issued, transferred or
awarded under the Plan pursuant to Section 3, and the number or kind of shares
subject to any outstanding Award, shall be automatically adjusted, and the
Committee shall be authorized to make such other equitable adjustment of any
Award or shares issuable pursuant thereto, or in any Performance Measures
related to any Award, so that the proportionate interest of the Employee shall
be maintained as before the occurrence of such event. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding Awards under the Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all Awards so replaced. The Committee
shall also make or provide for such adjustments in the maximum numbers of shares
of Common Stock which may be issued or transferred upon the exercise of Options
or SARs or awarded as Restricted Stock or issued or transferred in payment of
Performance shares or Performance Units, as specified in Section 3(A) of the
Plan, the maximum numbers of shares of Common Stock specified in Section 3(E) of
the Plan and the number of shares to be awarded automatically pursuant to
Section 10 of the Plan as the Committee may in good faith determine to be
appropriate in order to reflect any transaction or event described in this
Section 13. Any such adjustment shall be conclusive and binding for all purposes
of the Plan. If the Reorganization is consummated, (i) the "Common Stock" shall
mean thereafter the common stock of Holding Company for which The Detroit Edison
Company common stock is exchanged in the Reorganization, subject to adjustment
pursuant to this Section 13; (ii) "Company" shall thereafter refer
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to Holding Company and any successor corporation, and (iii) "Board" and
"Committee" shall thereafter refer to the board of directors and applicable
committee of Holding Company.
SECTION 14. AMENDMENT AND TERMINATION.
The Committee may at any time terminate, modify or amend the Plan in such
respects as it shall deem advisable. However, under no circumstances, without
approval of the Common Stock shareholders, may the Plan be amended or modified
to permit the exercise of an Option at an Exercise Price of less than the Fair
Market Value of a share of Common Stock on the Date of Grant, to increase the
number of shares of stock which may be the subject of Awards under the Plan
under Section 3 (except pursuant to adjustments under Section 13), or otherwise
cause any Award under the Plan to cease to qualify under Rule 16b-3 or for the
performance based exception to Section 162(m) of the Code. The termination or
any modification or amendment of the Plan shall not, without the consent of the
Employee, adversely affect his or her rights under an Award granted prior
thereto.
SECTION 15. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND APPROVED LEAVES OF
ABSENCE.
Notwithstanding any other provision of the Plan to the contrary, in the
event of termination of employment by reason of death, disability, normal
retirement, early retirement with the consent of the Company, termination of
employment to enter public service with the consent of the Company or leave of
absence approved by the Company, or in the event of hardship or other special
circumstances, of an Employee who holds an Option or Stock Appreciation Right
that is not immediately and fully exercisable, any shares of Restricted Stock as
to which the substantial risk of forfeiture or the prohibition or restriction on
transfer has not lapsed, any Performance Shares or Performance Units that have
not been fully earned, or any Common Shares that are subject to any transfer
restriction pursuant to Section 8 of this Plan, the Committee may take any
action that it deems to be equitable under the circumstances or in the best
interests of the Company or any Subsidiary, including without limitation waiving
or modifying any limitation or requirement with respect to any Award under this
Plan.
SECTION 16. MISCELLANEOUS PROVISIONS.
A. Except as provided in Section 10, no Employee or other person shall have
any claim or right to be granted an Award under the Plan.
B. Grant of any Option, SAR or Performance Shares or Performance Units
shall not confer upon the grantee any rights of a shareholder with respect to
any shares subject to such Award.
C. The Plan, the grant, exercise, vesting and/or settlement of Awards
thereunder, and the obligations of the Company to satisfy Awards shall be
subject to all applicable Federal and state laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required, and
the Committee may impose any additional restrictions with respect to Awards in
order to comply with any legal requirements applicable to Awards or to qualify
for any exemption it may deem appropriate.
D. Any expenses of the Plan shall be borne by the Company.
E. By accepting an Award under the Plan, each Employee and his or her legal
representative or beneficiary shall be conclusively deemed to have indicated his
or her acceptance and ratification of, and consent to, any action taken under
the Plan by the Company, the Board or the Committee.
F. Nothing in the Plan, or in any Agreement entered into pursuant to the
Plan, shall confer on an Employee any right to continue in the employ of the
Company or any Subsidiary, or in any way affect the right of the Company or any
Subsidiary to terminate the Employee's employment without prior notice at any
time for any reason or for no reason.
G. Participation in the Plan shall not affect an Employee's eligibility to
participate in any other benefit or incentive plan of the Company or any
Subsidiary. Awards under the Plan shall not be considered earnings for
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purposes of the Employee Savings Plan, any Company-sponsored or
Subsidiary-sponsored Retirement Plan, insurance or other employee benefit
programs.
H. With respect to shares acquired upon the exercise of Options or Stock
Appreciation Rights and with respect to shares acquired by an individual under a
Restricted Stock Award, Performance Share or Performance Unit Award, or
otherwise under the Plan, the Company may reserve a "right of first refusal" to
purchase from the holder thereof any such shares at Fair Market Value. If such
right is reserved, the holder, prior to any disposition of such shares of Common
Stock, shall be required to first notify the Corporate Secretary or Vice
President and Treasurer of the Company or such other officer as may be
designated by the Committee, in writing in such form as the Committee may
prescribe, of his or her intention to dispose of any such shares, and the
Company will advise the holder within five days whether it intends to purchase
or cause to be purchased such shares, for this purpose. Fair Market Value shall
be determined as of the date next preceding the date that the Company notifies
the holder of its intention to purchase or cause to be purchased such shares.
The Committee will designate an officer to decide whether to accept or reject
such right of first refusal. If the Company does not exercise its right to
purchase or cause to be purchased the shares within such period, the holder may
freely dispose of the shares following expiration of such period.
I. A breach by the Employee, his or her beneficiary(ies), or legal
representative, of any restrictions, terms or conditions provided in the Plan,
the Agreement, or otherwise established by the Committee with respect to any
Award will, unless waived in whole or in part by the Committee, cause a
forfeiture of such Award.
J. The Committee shall not, without the further approval of the Common
Stock shareholders of the Company, authorize the amendment of any outstanding
Option to reduce the Exercise Price or authorize the amendment of any
outstanding Stock Appreciation Right to reduce the base price. Furthermore, no
Option or Stock Appreciation Right shall be cancelled and replaced with Awards
having a lower Exercise Price or base price without the further approval of the
Common Stock shareholders of the Company.
K. The Plan shall be submitted to the Common Stock shareholders of the
Company for their approval on April 24, 1995, or on such other date as may be
fixed for the next annual meeting of Common Stock shareholders, and shall become
effective only upon such approval and thereafter continue until its termination
by the Compensation Committee. No Restricted Stock Awards or Awards to
Nonemployee Directors shall be granted prior to the date the Plan becomes
effective, and any other Awards that may be granted before the Plan becomes
effective shall be granted subject to and shall become effective only upon the
effectiveness of the Plan.
L. The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the State of Michigan.
M. It is the intention that the Plan at all times fully satisfy the
provisions and conditions of Rule 16b-3 applicable to a Plan of this type.
Accordingly, anything herein to the contrary notwithstanding, to the extent that
Rule 16b-3 at any given time would require that decisions concerning the
selection of Employees who are or become subject to reporting requirements of
Section 16 of the Exchange Act ("Section 16 Reporting Persons") to be granted
Awards hereunder, the timing, amounts, and other terms of such Awards, and the
form of settlement of any such Awards be made only by the Committee, all such
decisions by the Committee shall be final and conclusive and not subject to
reversal or modification by the Board. Moreover, irrespective of any rights or
discretionary power which a Section 16 Reporting Person holding a pertinent
Award otherwise would possess hereunder or under the Agreement evidencing such
Award concerning the timing of exercise of a SAR, the manner of paying the
Exercise Price for an exercised Option, a request or election concerning the
form of settlement of a SAR, or the manner of satisfying tax withholding
obligations arising with respect to any Award, the Section 16 Reporting Person
shall be entitled to exercise such rights and discretion only at such times and
manner and under such other conditions as at the time are contemplated by the
applicable provisions of Rule 16b-3 and any attempt otherwise to exercise such
rights or discretion shall be void and of no effect. The Plan is intended to
comply with and be subject to Rule 16b-3 as in effect prior to May 1, 1991. The
Committee may at any time elect that this Plan shall be subject to Rule 16b-3 as
in effect on and after May 1, 1991.
C-10
<PAGE> 59
N. Restrictions on Common Stock. The Company may impose restrictions on
any shares of Common Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, restrictions intended to achieve compliance with
the Securities Act of 1933, as amended, with the requirements of any stock
exchange upon which such shares or shares of the same class are then listed, and
with any blue sky or securities laws applicable to such shares.
O. The Committee may require or permit Employees to elect to defer the
issuance of Common Stock or the settlement of Awards in cash under such rules
and procedures as it may establish under the Plan. It also may provide that
deferred settlements include the payment or crediting of interest on the
deferral amounts, or the payment or crediting of dividend equivalents where the
deferral amounts are denominated in shares.
P. The Committee may condition the grant of any Award or combination of
Awards authorized under this Plan (other than non-discretionary Awards pursuant
to Section 10) on the surrender or deferral by an Employee of his or her right
to receive a cash bonus or other compensation otherwise payable by the Company
or a Subsidiary to the Employee.
Q. If another corporation is merged into the Company or the Company
otherwise acquires another corporation, the Committee may elect to assume under
this Plan any or all outstanding stock options or other awards granted by such
corporation under any stock option or other plan adopted by it prior to such
acquisition. Such assumptions shall be on such terms and conditions as the
Committee may determine; provided, however, that the awards as so assumed do not
contain any terms, conditions or rights that are inconsistent with the terms of
this Plan. Unless otherwise determined by the Committee, such awards shall not
be taken into account for purposes of determining the limitations contained in
Section 3 of this Plan.
C-11
<PAGE> 60
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Indemnification. Pursuant to Article VI of Holding Company's Articles
of Incorporation, directors of Holding Company will not be personally liable to
Holding Company or its shareholders in the performance of their duties to the
full extent permitted by law.
Article VII of Holding Company's Articles of Incorporation provides that
each person who is or was or had agreed to become a director or officer of
Holding Company, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors as an employe or agent of Holding
Company or as a director, officer, employe or agent of another corporation,
partnership, joint venture, trust or other enterprise (including the heirs,
executors, administrators or estate of such person), shall be indemnified by
Holding Company to the full extent permitted by the Michigan Business
Corporation Act or any other applicable laws as presently or hereafter in
effect. In addition, pursuant to the authority granted by Article VII of the
Articles of Incorporation, Holding Company intends to enter into indemnification
agreements with its officers and directors which provide for indemnification to
the maximum extent permitted by law. These agreements will set forth certain
procedures for the advancement by Holding Company of certain expenses to
indemnities.
(b) Insurance. Holding Company (with respect to indemnification liability)
and its directors and officers (in their capacities as such) are insured against
liability for wrongful acts (to the extent defined) under three insurance
policies providing aggregate coverage in the amount of $85 million.
ITEM 21. EXHIBITS.
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
2(a) Agreement and Plan of Exchange (attached to Prospectus and Proxy Statement as
Exhibit A).
3(a) Articles of Incorporation of DTE Holdings, Inc. (attached to Prospectus and Proxy
Statement as Exhibit B).
*3(b) By-Laws of DTE Holdings, Inc.
*5(a) Opinion of Christopher C. Nern, Esq., Vice President and General Counsel.
*5(b) Opinion of Jones, Day, Reavis & Pogue.
*8 Opinion of Jones, Day, Reavis & Pogue.
15 Letter re unaudited interim financial information.
*23(a) Consent of Christopher C. Nern, Esq. (included in 5(a)).
*23(b) Consent of Jones, Day, Reavis & Pogue (included in (5(b)).
23(c) Consent of Price Waterhouse LLP.
24 Powers of Attorney (included on page II-3).
99(a) Form of Proxy Card, Confidential Voting Instruction Form, and letter to
participants in Savings Plan.
*99(b) Consents of persons to be elected directors of DTE Holdings, Inc. immediately prior
to the Effective Time of the Exchange.
</TABLE>
- ---------------
* To be filed by amendment.
II-1
<PAGE> 61
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(4) To remove from registration by means of a post-effective amendment
any shares of Holding Company Common Stock which are not issued in the
Exchange.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 62
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DETROIT, STATE OF
MICHIGAN ON FEBRUARY 1, 1995.
DTE HOLDINGS, INC.
By: /s/ JOHN E. LOBBIA
------------------------------------
John E. Lobbia
Chairman of the Board and Chief
Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John E.
Lobbia, Anthony F. Earley, Jr., Larry G. Garberding, Christopher C. Nern and
Susan M. Beale, and each of them, as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with exhibits and schedules thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and perform each and every
act and thing necessary or desirable to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED, ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ JOHN E. LOBBIA Chairman of the Board, Chief February 1, 1995
- --------------------------------------------- Executive Officer and Director
(John E. Lobbia)
PRINCIPAL OPERATING OFFICER:
/s/ ANTHONY F. EARLEY, JR. President, Chief Operating February 1, 1995
- --------------------------------------------- Officer and Director
(Anthony F. Earley, Jr.)
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ LARRY G. GARBERDING Executive Vice President, February 1, 1995
- --------------------------------------------- Chief Financial Officer and
(Larry G. Garberding) Director
</TABLE>
II-3
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- -------------------------------------------------------------------------- ------
<S> <C> <C>
2(a) Agreement and Plan of Exchange (attached to Prospectus and Proxy Statement
as Exhibit A).
3(a) Articles of Incorporation of DTE Holdings, Inc. (attached to Prospectus
and Proxy Statement as Exhibit B).
*3(b) By-Laws of DTE Holdings, Inc.
*5(a) Opinion of Christopher C. Nern, Esq., Vice President and General Counsel.
*5(b) Opinion of Jones, Day, Reavis & Pogue.
*8 Opinion of Jones, Day, Reavis & Pogue.
15 Letter re unaudited interim financial information.
*23(a) Consent of Christopher C. Nern, Esq. (included in 5(a)).
*23(b) Consent of Jones, Day, Reavis & Pogue (included in (5(b)).
23(c) Consent of Price Waterhouse LLP.
24 Powers of Attorney (included on page II-3).
99(a) Form of Proxy Card, Confidential Voting Instruction Form, and letter to
participants in Savings Plan.
*99(b) Consents of persons to be elected directors of DTE Holdings, Inc.
immediately prior to the Effective Time of the Exchange.
</TABLE>
- ---------------
*To be filed by amendment.
<PAGE> 1
EXHIBIT 15
Suite 3900
200 Renaissance Center
Detroit MI 48243
PRICE WATERHOUSE LLP
February 1, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington DC 20549
Dear Sirs:
We are aware that DTE Holdings, Inc. has included our reports related to
The Detroit Edison Company dated May 10, 1994, August 8, 1994, and November 7,
1994 (issued pursuant to the provisions of Statements on Auditing Standards Nos.
42 and 71) in the Prospectus and Proxy Statement constituting part of its
Registration Statement of DTE Holdings, Inc. on Form S-4 to be filed on or about
February 1, 1995. We are also aware of our responsibilities under the Securities
Act of 1933.
Yours very truly,
PRICE WATERHOUSE LLP
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Proxy Statement constituting part of this Registration Statement on Form S-4 of
our report dated January 24, 1994 appearing on page 29 of The Detroit Edison
Company's Annual Report on Form 10-K for the year ended December 31, 1993. We
also consent to the reference to us under the heading "Item 2. Corporate
Restructuring Proposal -- Experts" in such Prospectus and Proxy Statement.
Detroit, Michigan
February 1, 1995
PRICE WATERHOUSE LLP
<PAGE> 1
Exhibit 99(A)
<TABLE>
<S> <C>
PROXY PLEASE USE AN X TO INDICATE YOUR VOTE IN BOXES BELOW.
Election of Directors: Nominees are Terence E. Adderley and Your Board of Directors Recommends a Vote
Anthony F. Earley, Jr., and (to be named). For Proposals 1, 2, 3, & 4.
-----------------------------------------------------------
- -------------------------------------------------------------- 1. Election of Directors * For Withheld
*To withhold vote from any Nominee(s), write the name(s) here: [] []
-----------------------------------------------------------
2. Exchange Agreement For Against Abstain
[] [] []
-----------------------------------------------------------
3. Long-Term Incentive Plan For Against Abstain
[] [] []
-----------------------------------------------------------
4. Independent Accountants For Against Abstain
[] [] []
-----------------------------------------------------------
The signature(s) below should correspond exactly with the
name(s) as shown on the left. Where stock is registered
jointly in the names of two or more persons, ALL should
sign. When signing as Attorney, Executor, Administrator,
Trustee, Guardian or as Corporate Officer on behalf of a
Corporation, please give full title as such.
-----------------------------------------------------------
-----------------------------------------------------------
Signature(s) Date
- ------------------------------------------------------------------------------------------------------------------------------------
Detach Here
</TABLE>
[Detroit Edison logo] 2000 2nd Avenue
Detroit, Michigan 48226
ANNUAL MEETING OF SHAREHOLDERS - APRIL 24, 1995
The Annual Meeting of Shareholders of The Detroit Edison Company will be held
on Monday, April 24, 1995 at the Detroit Edison General Office Building, 2000
2nd Avenue, Detroit, Michigan, at 10:00 a.m., Detroit time.
PROXY CARD - The top portion of this form is your Proxy Card. Please
record your vote, sign and date the Proxy Card and then detach and return the
completed Proxy Card promptly in the enclosed reply envelope. You should do so
even if you plan to attend the Annual Meeting.
<PAGE> 2
THE DETROIT EDISON COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PROXY By signing on the other side, I (we) appoint Theodore S. Leipprandt,
Patricia S. Longe, Dean E. Richardson, and any of them, as proxies to vote my
(our) shares of Common Stock at the Annual Meeting of Shareholders to be held
on Monday, April 24, 1995, and at all adjournments thereof, upon the matters
set forth on the reverse side hereof and upon such other matters as may come
before the meeting.
If you sign and return this proxy, the shares will be voted as directed. IF NO
DIRECTION IS INDICATED, THE SHARES WILL BE VOTED FOR PROPOSALS 1, 2, 3, AND 4.
If the proxy is not signed and returned, the shares cannot be voted for you.
RECORD VOTE AND SIGN ON REVERSE SIDE
-------------------------------------------------------------------------
<PAGE> 3
<TABLE>
<S> <C>
CONFIDENTIAL VOTING INSTRUCTION FORM PLEASE USE AN X TO INDICATE YOUR VOTE IN BOXES BELOW.
Election of Directors: Nominees are Terence E. Adderley and Your Board of Directors Recommends a Vote
Anthony F. Earley, Jr., and (to be named). For Proposals 1, 2, 3, & 4.
-----------------------------------------------------------
- -------------------------------------------------------------- 1. Election of Directors * For Withheld
*To withhold vote from any Nominee(s), write the name(s) here: [] []
-----------------------------------------------------------
2. Exchange Agreement For Against Abstain
[] [] []
-----------------------------------------------------------
3. Long-Term Incentive Plan For Against Abstain
[] [] []
-----------------------------------------------------------
4. Independent Accountants For Against Abstain
[] [] []
-----------------------------------------------------------
The signature(s) below should correspond exactly with the
name(s) as shown on the left.
-----------------------------------------------------------
-----------------------------------------------------------
Signature(s) Date
- ------------------------------------------------------------------------------------------------------------------------------------
Detach Here
</TABLE>
[DETROIT EDISON LETTERHEAD]
March 17, 1995
Dear Employes' Savings Plan Participant:
As a participant in the Employes' Savings Plan, you are entitled to direct
Fidelity Investments to vote on your behalf at the April 24 Annual Meeting of
Detroit Edison Common Stock Shareholders. Use the enclosed form to show how you
would like Fidelity Investments to vote.
Shareholders will be voting on four issues at the April meeting. They will
be asked to elect three members to the Company's Board of Directors, approve the
formation of a holding company, approve a Long-Term Incentive Plan and ratify
the appointment of Deloitte & Touche LLP as independent accountants.
To complete the form, simply follow the instructions on the Confidential
Voting Instruction Form.
By completing the voting form enclosed, you will be participating in an
important Company decision-making process. Please take the time to review the
instructions provided, complete the form and return it in the enclosed envelope.
Sincerely,
/s/ John E. Lobbia
Chairman of the Board
Enclosure
<PAGE> 4
CONFIDENTIAL VOTING INSTRUCTIONS
TO FIDELITY MANAGEMENT TRUST COMPANY AS TRUSTEE
UNDER THE DETROIT EDISON EMPLOYES' SAVINGS & INVESTMENT PLANS
BY SIGNING ON THE OTHER SIDE, I INSTRUCT FIDELITY MANAGEMENT TRUST CO., AS
TRUSTEE OF THE DETROIT EDISON SAVINGS & INVESTMENT PLANS TO VOTE ALL SHARES OF
DETROIT EDISON COMMON STOCK THAT ARE CREDITED TO MY ACCOUNT IN THE PLAN AS OF
FEBRUARY 24, 1995 ON THE MATTERS DESCRIBED IN THE DETROIT EDISON'S PROXY
STATEMENT DATED MARCH 17, 1995 RELATING TO THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 1995, AND AT ALL ADJOURNMENTS THEREOF, UPON THE MATTERS
SET FORTH ON THE REVERSE SIDE HEREOF AND UPON SUCH OTHER MATTERS AS MAY COME
BEFORE THE MEETING.
IF YOU SIGN AND RETURN THIS FORM BY APRIL ,1995, THE SHARES WILL BE VOTED AS
DIRECTED. IF NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED FOR PROPOSALS
1, 2, 3, & 4. IF THIS FORM IS NOT SIGNED AND RETURNED, THE SHARES CANNOT BE
VOTED FOR YOU.
ONLY THE TRUSTEE CAN VOTE YOUR SHARES, AND THE TRUSTEE ONLY VOTES SHARES FOR
WHICH THE TRUSTEE HAS RECEIVED A SIGNED VOTING INSTRUCTION FORM. YOUR SHARES
CANNOT BE VOTED IN PERSON AT THE ANNUAL MEETING. HOW YOU VOTE THESE SHARES IS
CONFIDENTIAL. THE TRUSTEE WILL NOT DISCLOSE TO THE COMPANY HOW YOU HAVE
INSTRUCTED THE TRUSTEE TO VOTE.
RECORD VOTE AND SIGN ON REVERSE SIDE
- --------------------------------------------------------------------------------
