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SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY RULE 14A-
6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
CENTERIOR ENERGY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CENTERIOR ENERGY CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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CENTERIOR
ENERGY [LOGO]
6200 OAK TREE BLVD.
INDEPENDENCE, OHIO 44131
Robert J. Farling
Chairman, President
& Chief Executive
Officer
March 14, 1995
Dear Share Owner:
Attached is your Proxy Statement and Notice of Annual Meeting of Centerior
Energy Corporation. The annual meeting will be held TUESDAY, APRIL 25, 1995 AT
10:00 A.M., Cleveland time, at Gund Arena, 100 Gateway Plaza, Cleveland, Ohio.
On behalf of all directors, I cordially invite you to attend. We will provide
light refreshments prior to the meeting. For those of you who plan to attend the
meeting, a map and directions to Gund Arena appear on the back cover. Entrances
to Gund Arena will open at 9:00 a.m.
The matters to be acted upon at the meeting are important to you as a share
owner. Therefore, whether or not you plan to be present, we urge you to give
your prompt attention to these proposals. Please sign and date the enclosed
proxy card and return it promptly in the postage-paid envelope provided to help
us obtain the representation needed to conduct business at the meeting. We
greatly appreciate the interest shown by our share owners through the voting of
their stock and look forward to having a large representation at the 1995 annual
meeting.
Sincerely,
/s/ Robert J. Farling
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LOCAL SHARE OWNER MEETINGS
We again plan to hold evening meetings throughout the Cleveland and Toledo
service areas in May. The meetings will enable us to personally communicate with
local share owners who are unable to attend the annual meeting. The informal
atmosphere gives us an excellent opportunity to hear your thoughts and concerns
on issues affecting you. No formal business will be transacted. We will send
additional information to area share owners as we approach the meeting dates.
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CENTERIOR ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHARE OWNERS
March 14, 1995
To the Common Stock Share Owners of
Centerior Energy Corporation:
The annual meeting of the share owners of Centerior Energy Corporation will
be held at Gund Arena, 100 Gateway Plaza, Cleveland, Ohio 44115, on Tuesday,
April 25, 1995 at 10:00 a.m., Cleveland time, for the purpose of acting on the
following matters:
1. Election of 13 directors of the Company;
2. Approval of the Directors Restricted Stock Plan;
3. Approval of the Equity Compensation Plan;
4. Ratification of the appointment by the Board of Directors of Arthur
Andersen LLP as the independent accountants of the Company and its
subsidiaries for 1995;
5. Consideration of the two share owner proposals set forth in the
accompanying proxy statement, if presented to the meeting; and
6. Any other matters which may properly come before the meeting.
Owners of Common Stock of record at the close of business on February 24,
1995 are entitled to vote at the meeting.
By order of the Board of
Directors,
JANIS T. PERCIO, Secretary
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CENTERIOR ENERGY CORPORATION
PROXY STATEMENT
OF THE BOARD OF DIRECTORS
March 14, 1995
FOR ANNUAL MEETING OF SHARE OWNERS
April 25, 1995
GENERAL INFORMATION
Centerior Energy Corporation ("Company") is the parent company of The
Cleveland Electric Illuminating Company ("Cleveland Electric"), The Toledo
Edison Company ("Toledo Edison") and Centerior Service Company ("Centerior
Service"). The Company and its three subsidiaries comprise the Centerior System.
The accompanying proxy is solicited by the Board of Directors of the
Company. Any share owner giving such a proxy has the power to revoke it by
giving notice to the Company in writing or in open meeting.
It is contemplated that officers and regular employees of the Centerior
System may solicit the return of proxies by personal interview, mail, telephone
and other electronic means. Banks, brokers and nominees who hold Common Stock of
the Company ("Common Stock") in their names will be furnished proxy material
with the request that they forward it to the beneficial owners of such stock.
The Company will reimburse them for this expense. The entire cost of this
solicitation of proxies will be paid by the Company.
Share owners with impaired vision may obtain audio cassettes of this proxy
statement by writing or calling the Company's Share Owner Services Unit. Written
requests should be addressed to Centerior Energy Corporation, P.O. Box 94661,
Cleveland OH 44101-4661 Attn: Share Owner Services. Telephone requests can be
made by calling (800) 433-7794 or, in the Cleveland area, 447-2400.
Any share owner with a hearing impairment who plans to attend the annual
meeting may request that the Company provide a sign language interpreter at the
meeting. Requests for an interpreter must be received by Share Owner Services no
later than Friday, April 21, 1995.
VOTING SECURITIES
Common Stock is the only class of security entitled to vote at the meeting.
The record date for determining the shares entitled to vote is February 24,
1995. There are 148,031,503 shares of Common Stock outstanding as of that date,
each of which is entitled to one vote.
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FMR Corp., 82 Devonshire Street, Boston, MA 02109, has notified the Company
that as of December 31, 1994 it was the beneficial owner of 15,203,100 shares of
Common Stock, which is 10.3% of the shares outstanding as of February 24, 1995.
FMR has sole investment power but no voting power for these shares.
Bankers Trust New York Corporation, 280 Park Avenue, New York, NY 10017,
has notified the Company that as of December 31, 1994 it was the beneficial
owner of 10,906,737 shares of Common Stock, which is 7.4% of the shares
outstanding as of February 24, 1995. Bankers Trust has sole investment power for
these shares, sole voting power for 10,906,737 shares and no voting power for
the remaining shares.
The persons named in the proxy will vote all shares in accordance with the
instructions given by the share owners in their respective proxies returned duly
executed and received by the Company on or prior to April 25, 1995 (unless the
meeting is adjourned to a later date, in which case all proxies received on or
prior to such later date will be voted). Except to the extent your instructions
are to the contrary, your shares will be voted as the Board recommends. The
persons named in the proxy will use their discretion to vote all shares they are
entitled to vote with respect to any other matters which may properly come
before the meeting. SHARES HELD FOR PARTICIPANTS IN THE DIVIDEND REINVESTMENT
AND STOCK PURCHASE PLAN AND THE CX-IRA WILL BE VOTED BY THE RESPECTIVE CUSTODIAN
THE SAME WAY AS THE SHARE OWNERS' SHARES OF RECORD, IF ANY, ARE VOTED.
ATTENDANCE AT ANNUAL MEETING
Only share owners of record on the record date for the meeting or their
proxies are entitled to attend and participate in the meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established seven committees to facilitate the carrying out
of its respon-sibilities.
The Audit Committee recommends to the Board annually the firm of
independent accountants to be retained for the ensuing year by the Company and
its subsidiaries and reviews the results of the accountants' examination of the
financial statements of the Company and its subsidiaries and the audit practices
employed by them. The Committee oversees the establishment and administration by
management of effective internal accounting controls and an accounting system
designed to produce financial statements which present fairly the financial
position of the Company and its subsidiaries. The Committee is composed of
outside directors, that is, directors who are not now and who never have been
officers of the Company. The Committee held two meetings in 1994.
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The Capital Expenditures Committee recommends to the Board annually a
five-year construction program and an annual capital expenditures budget. The
Committee authorizes individual projects involving a commitment in excess of
$1,000,000. It also reviews expenditures made pursuant to the five-year
construction program and annual capital expenditures budget and recommends
changes to the Board. The majority of the Committee is composed of outside
directors. The Committee held four meetings in 1994.
The Environmental and Community Responsibility Committee monitors the
Company's status and compliance with environmental laws, rules and regulations
and reviews and makes recommendations to management and the Board regarding
environmental and other community responsibility programs and issues. The
Committee is composed of a majority of outside directors. The Committee held
three meetings in 1994.
The Executive and Nominating Committee was created in April 1993. The
Committee acts on behalf of the Board between meetings of the Board and has most
of the authority of the Board with certain exceptions. In addition, it
recommends to the Board candidates to be nominated for election as directors of
the Company at the annual meeting each year, persons to fill any vacancies on
the Board and changes in the size of the Board. The Committee is composed of
non-officer directors, that is, directors who are not currently officers of the
Company, and the Chairman of the Company. The Committee held one meeting in
1994. A share owner who wishes to suggest to the Committee a person to be
considered to serve as a director should submit the suggestion in writing to the
Secretary of the Company. The suggestion of the share owner must be received by
the Company not later than the December 1 preceding an annual meeting if the
share owner wants the Committee to consider including that person as a candidate
for director in the proxy statement for that annual meeting.
The Finance Committee reviews and recommends long-range financial policies
and objectives of the Centerior System and specific actions to achieve these
objectives. The Committee also reviews the investment performance of the
trustees and investment managers of the pension and employee savings plans of
the Centerior System and establishes general investment policy for the
investment of pension and savings plan assets with the concurrence of the
respective trustees of those plans. The majority of the Committee is composed of
outside directors. The Committee held four meetings in 1994.
The Human Resources Committee reviews and approves the Centerior System's
overall Compensation Plan, including the pension and employee stock plans. The
Committee recommends to the Board for approval the compensation of the Chairman
and President of the Company. It also approves, recommends or reviews management
proposals concerning the compensation and benefits of most other officers and
certain employees of the Centerior System. The Committee is composed of outside
directors. The Committee held nine meetings in 1994.
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The Nuclear Committee monitors and consults with and makes recommendations
to management and the Board regarding nuclear matters, including the operation
of all nuclear units in which the Centerior System has an ownership interest or
other output entitlement. The Committee is composed of a majority of outside
directors. The Committee held eight meetings in 1994.
The Board held ten meetings in 1994. The average attendance at the
aggregate of the total number of meetings of the Board and committees was 92%.
Each director attended at least 75% of the aggregate of the meetings of the
Board and the committees on which he or she served.
ELECTION OF DIRECTORS
On June 28, 1994, pursuant to the Regulations of the Company, the Board
increased its size to 13 members and elected William F. Conway to fill the
resulting vacancy, effective July 1, 1994.
Thirteen directors are to be elected at the annual meeting, each with a
term of office until the next annual meeting or until his or her successor is
elected and qualified. Listed below are the 13 candidates of the Board and brief
statements of their business experience during at least the last five years. The
Common Stock beneficially owned by each candidate is set forth in the table on
page 22. All of the candidates currently are members of the Board and are
expected to be able to serve, if elected. The 13 candidates receiving the most
votes will be elected directors.
The shares represented by the proxy, if returned duly executed and timely
received, will be voted for the candidates listed below, except to the extent
the proxy is marked to withhold the authority to vote. Abstentions and broker
non-votes are not counted in the election of directors and thus have no effect.
If voting is cumulative as described below, the persons authorized in the proxy
will distribute the cumulated votes represented by the proxy among those
candidates nominated at the meeting as they shall select. In the event a
candidate listed below becomes unavailable for any reason prior to the meeting,
the persons authorized in the proxy may nominate and vote for a replacement
candidate or they may vote to reduce the number of directors to the number of
candidates listed below who are available.
Under Ohio law, directors can be elected by cumulative voting (1) if a
Common Stock share owner notifies the President, a Vice President or the
Secretary of the Company in writing not less than 48 hours before the time fixed
for the holding of a meeting for the election of directors that he desires
cumulative voting and (2) upon the convening of the meeting, if an announcement
that such notice has been given is made by the chairman or secretary of the
meeting or by or on behalf of the share owner giving such notice. In cumulative
voting, each share owner has votes equal to the total number of shares of record
owned by him multiplied by the number of directors to be elected. These votes
can be cast for a single candidate or distributed in any amounts among any
number of the candidates.
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DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
RICHARD P. ANDERSON, 65, President and Chief Executive Officer 1986
since 1988 of The Andersons Management Corporation, a grain,
farm supply and retailing firm. Previously, he was Managing
Partner of The Andersons. He also is a director of First
Mississippi Corporation and N-Viro International Corporation.
(2) (3)
ALBERT C. BERSTICKER, 60, President and Chief Executive Officer 1990
since May 1991 of Ferro Corporation, a producer of specialty
chemical materials for manufactured products. Mr. Bersticker
was President and Chief Operating Officer of Ferro from April
1988 to May 1991. He has been a director of Ferro since 1978.
Mr. Bersticker also is a director of Brush Wellman Inc.,
Oglebay Norton Company and KeyCorp. (3) (4)
LEIGH CARTER, 69, President and Chief Operating Officer from 1986
August 1986 to September 1990 of The BFGoodrich Company, a
producer of chemicals, plastics and aerospace products. From
January 1980 to September 1990, he was Chairman of Tremco,
Incorporated, a wholly owned subsidiary of BFGoodrich, manufac-
turer of specialty chemical products. He was a director of
BFGoodrich from 1984 to 1991. He is a director of Adams Express
Company, Lamson & Sessions, Morrison Products, Inc., NCC Funds,
Petroleum & Resources Corporation and The Sherwin-Williams
Company. (2) (5) (6)
THOMAS A. COMMES, 52, President and Chief Operating Officer 1987
since June 1986 of The Sherwin-Williams Company, a manufac-
turer of paints and painting supplies. He has been a director
of Sherwin-Williams since April 1980. Mr. Commes also is a
director of KeyCorp. (2) (5) (6)
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DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
WILLIAM F. CONWAY, 64, President of William F. Conway & Associ- 1994
ates, Inc., a management consulting firm. Mr. Conway was Execu-
tive Vice President-Nuclear from May 1989 to August 1994 of
Arizona Public Service Company, an electric utility. (3) (4)
WAYNE R. EMBRY, 57, President and Chief Operating Officer since 1991
July 1994 of the Cleveland Cavaliers, a professional basketball
team. He was Executive Vice President and General Manager of
the Cavaliers from June 1986 to July 1994. Since January 1986,
Mr. Embry has been Chairman of M. A. L. Co., a fabricator of
hardboard, fiberglass and carpeting materials for the
automotive industry. Mr. Embry was also a marketing consultant,
from 1983 through 1992, for G. Heileman Brewing Company, a
domestic brewery. Mr. Embry is a director of M.A. Hanna
Company, Ohio Casualty Insurance and Society National Bank. (2)
(7) (8)
ROBERT J. FARLING, 58, Chairman, President and Chief Executive 1988
Officer of the Company and Centerior Service since March 1992.
Mr. Farling has also been Chairman and Chief Executive Officer
of Cleveland Electric and Toledo Edison since July 1993. He was
President and Chief Operating Officer of the Company from Octo-
ber 1988 and of Centerior Service from July 1988 to March 1992.
Mr. Farling was Chairman and Chief Executive Officer of Toledo
Edison from October 1988 to May 1990 and of Cleveland Electric
from February 1989 to May 1990. Mr. Farling has been a director
of Cleveland Electric since 1986 and of Toledo Edison since
1988. He also is a director of National City Bank. (3) (5) (6)
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DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
GEORGE H. KAULL, 63, Chairman from 1959 to January 1994 of 1987
Premix, Inc., a developer, manufacturer and fabricator of
thermoset reinforced composite materials. He was also Chief
Executive Officer of Premix from 1959 to July 1991. Mr. Kaull
has been a director of Premix since 1959. (4) (8)
RICHARD A. MILLER, 68, Chairman and Chief Executive Officer of 1986
the Company and Centerior Service from October 1988 to March
1992. He is a director of The Lubrizol Corporation and Bank
One, Cleveland, N.A. and a member of the Advisory Board of Bank
One Ohio Trust Company, N.A. (4) (5) (6) (7)
FRANK E. MOSIER, 64, Vice Chairman from August 1991 to August 1986
1993 of the Advisory Board of BP America Inc., a producer and
refiner of petroleum products. Mr. Mosier was Vice Chairman of
BP America from April 1988 to August 1991. He also is a
director of Associated Estates Realty Corporation. (4) (6) (7)
(8)
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DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
SISTER MARY MARTHE REINHARD, SND, 65, Director of Development 1986
for the Sisters of Notre Dame of Cleveland, Ohio since July
1989. (2) (3) (7)
ROBERT C. SAVAGE, 57, President and Chief Executive Officer 1990
since 1973 of Savage & Associates, Inc., an insurance,
financial planning and estate planning firm. He is a director
of Charter One Bank in Toledo and Solar Cells, Inc. (6) (7) (8)
WILLIAM J. WILLIAMS, 66, Chairman of Huntington National Bank 1986
from November 1991 to September 1993. He was Chairman and Chief
Executive Officer of Huntington National Bank from August 1986
to November 1991. Mr. Williams has been a director of
Huntington National Bank and Huntington Bancshares since Febru-
ary 1985. He is a director of Republic Engineered Steels, Inc.
and UNR Industries, Inc. (3) (5) (8)
<FN>
---------------
(1) Centerior Service, Cleveland Electric and Toledo Edison are wholly owned
subsidiaries of the Company. None of the other corporations of which the
candidates are named as a current or former director or officer is or has
been a parent, subsidiary or other affiliate of the Company.
(2) Member of the Audit Committee.
(3) Member of the Nuclear Committee.
(4) Member of the Capital Expenditures Committee.
(5) Member of the Executive and Nominating Committee.
(6) Member of the Finance Committee.
(7) Member of the Environmental and Community Responsibility Committee.
(8) Member of the Human Resources Committee.
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In 1994, directors who were not officers of the Company received $1,250 per
month as a retainer fee and $750 for each Board meeting and committee meeting
attended, except that if more than one committee meeting was attended on the
same day, the fee for each additional committee meeting was $500. The Chairmen
of the Audit, Capital Expenditures, Environmental and Community Responsibility,
Finance, Human Resources and Nuclear Committees each received an additional $100
per month as a retainer fee. Directors may elect to defer receipt of their fees.
Effective January 1, 1995, the retainer fee was reduced to $916.67 per
month and the Board and committee meeting fees were increased to $975 for each
meeting attended. If more than one committee meeting is attended on the same
day, the fee for each such additional meeting is $650. The committee chairmen
described above continue to receive an additional $100 per month as a retainer
fee. In addition, pursuant to the Directors Restricted Stock Plan, each
non-employee director was awarded 500 shares of restricted Common Stock
contingent upon share owner approval of such Plan. The Directors Restricted
Stock Plan is described below.
APPROVAL OF THE DIRECTORS RESTRICTED STOCK PLAN
On October 25, 1994, the Board placed into effect, subject to share owner
approval, the Directors Restricted Stock Plan ("Directors Plan"). At the same
time, the Board reduced its annual retainer fee so that a portion of the
directors' retainer would be in the form of Common Stock. If approval of the
Directors Plan is not obtained, the award made on January 1, 1995 will be
revoked.
The purpose of the Directors Plan is to promote the long-term interests of
the Company and its share owners by granting to non-employee directors of the
Company shares of Common Stock as a part of their annual retainer compensation
and, thereby, to (a) attract and retain highly qualified individuals to serve as
non-employee directors of the Company, (b) increase non-employee directors'
Common Stock ownership interest in the Company and (c) further align each
non-employee director's interests with those of the Company's share owners. The
following is a summary of the Directors Plan.
The Directors Plan is intended to be a self-effectuating plan and will be
administered by the Company. On January 1, 1995 and each January 1 thereafter,
as long as the Directors Plan remains in effect, each non-employee director will
automatically be granted 500 shares of restricted Common Stock. Only directors
of the Company who are not employees of the Company are eligible to participate
in the Directors Plan. Currently, 12 directors are eligible. In the future as
other non-employee directors are elected to the Board, they would automatically
become participants in the Directors Plan.
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The Common Stock awarded pursuant to the Directors Plan will be restricted
against disposition as long as the director remains on the Board. All shares of
restricted Common Stock will be deposited in the Company's Dividend Reinvestment
and Stock Purchase Plan. The dividends paid on such shares will purchase
additional shares of Common Stock which will have the same restriction and
forfeiture provisions as the shares awarded pursuant to the Directors Plan.
In the event of (a) retirement pursuant to any director retirement policy,
(b) retirement due to the director taking a position which would prohibit
continued service on the Board, (c) death, (d) disability as determined by 80%
of the Board excluding the affected director or (e) a change in control of the
Company, all restricted Common Stock will immediately vest. Upon termination for
any other reason, all restricted Common Stock awarded to that director pursuant
to the Directors Plan, including Common Stock purchased with dividends on such
stock, will be forfeited as of the date of such termination and returned to the
Company. During the restriction period, directors will have voting rights on all
shares.
A participant realizes ordinary income in an amount equal to the fair
market value of the restricted Common Stock upon vesting, unless a participant
elects to be taxed in the year the award is made. The Company is entitled to a
federal income tax deduction upon the participant's realization of ordinary
income.
A total of 100,000 shares of Common Stock is reserved for issuance under
the Directors Plan. All awards and Common Stock available under the Directors
Plan are subject to adjustments in the event of a merger, reorganization,
consolidation, stock dividend, stock split or other similar change in corporate
structure of the Company.
The Board may amend, suspend or terminate the Directors Plan at any time
except that (a) no amendment, suspension or termination that would impair the
rights of any director under any award previously granted will be made without
the consent of such director, (b) to be effective any such amendment or
termination shall comply with the Section 16(b) of the Exchange Act, including,
without limitation, share owner approval when required to ensure the receipt of
restricted Common Stock under this plan shall be exempt from Section 16(b) of
the Exchange Act and (c) the terms and provisions of the Directors Plan shall
not be amended more than once every six months, other than to conform to changes
in the Internal Revenue Code of 1986, as amended.
Share owner approval of the Directors Plan requires the affirmative vote of
a majority of the shares of Common Stock voted on the issue. Abstentions and
broker non-votes have no effect.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL WHICH IS
DESIGNATED IN THE PROXY AS ISSUE NO. 2.
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APPROVAL OF THE EQUITY COMPENSATION PLAN
On November 22, 1994, the Board placed into effect, subject to share owner
approval, the Equity Compensation Plan ("Equity Plan"). If such approval is not
received, the awards made under the Equity Plan will be revoked.
The purpose of the Equity Plan is to advance the long-term interests of the
Company by (a) motivating executive personnel by means of equity-based
incentives, (b) furthering the identity of interests of participants with those
of the share owners of the Company through the ownership and performance of
Common Stock and (c) enhancing the ability of the Company to attract and retain
management personnel upon whose judgment the successful conduct of the Company
largely depends. The Equity Plan is summarized below.
In structuring the Equity Plan, the Board sought to provide for a variety
of awards that could be flexibly administered in order to carry out the purposes
of the Equity Plan. This will permit the Company to keep pace with changing
developments in compensation programs, changes in tax laws, accounting rules,
securities regulations and other rules regarding benefit plans. This will also
help the Company be competitive with those companies that offer creative
incentives to attract and retain employees. The Equity Plan gives the Board
flexibility in creating the terms and restrictions deemed appropriate for each
award.
SHARES AVAILABLE
The maximum number of shares of Common Stock available for awards under the
Equity Plan during any year will equal the sum of (a) 0.5% of the total number
of issued and outstanding shares of Common Stock as of December 31 of the
immediately preceding year; (b) any unused portion of the limit in (a) above
from prior years during the term of the Equity Plan; and (c) any shares of
Common Stock related to awards which terminated in prior years during the term
of the Equity Plan by expiration, forfeiture, cancellation or otherwise without
the issuance of such shares or cash in lieu thereof.
ADMINISTRATION
The Equity Plan provides for administration by the Human Resources
Committee of the Board ("Committee"). No member of the Committee can participate
in the Equity Plan. Among the powers granted to the Committee are the authority
to interpret the Equity Plan, establish rules and regulations for its operation,
select employees of the Company and its subsidiaries to receive awards, and
determine the form, amount and other terms and conditions of awards. The
Committee also has the power to modify or waive restrictions on awards, to amend
awards, and to grant extensions and accelerate awards.
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ELIGIBILITY FOR PARTICIPATION
Employees of the Company and its subsidiaries are eligible to be selected
to participate in the Equity Plan. The selection of participants is within the
sole discretion of the Committee. Currently, the Committee has selected 50
employees at the department head level and above to participate in the Equity
Plan.
TYPES OF AWARDS
The Equity Plan provides for the grant of any or all of the following types
of awards: (a) stock options, including incentive stock options and
non-qualified stock options; (b) stock appreciation rights, in tandem with stock
options or freestanding; (c) restricted stock; (d) performance shares; and (e)
deferred incentive units. Awards may be granted singly, in combination, or in
tandem as determined by the Committee.
Stock Options. Under the Equity Plan, the Committee may grant awards in
the form of options to purchase shares of the Company's Common Stock. The
Committee will, with regard to each stock option, determine the number of shares
subject to the option, the manner and time of the option's exercise, and the
exercise price per share of stock subject to the option. The exercise price of
any stock option will not be less than 100 percent of the fair market value of
the Common Stock on the date the option is granted.
The exercise price of an option may, at the discretion of the Committee, be
paid by a participant in cash, shares of Common Stock owned by the participant,
a combination thereof, or such other consideration as the Committee may deem
appropriate.
Stock Appreciation Rights. The Equity Plan authorizes the Committee to
grant stock appreciation rights ("SARs") either in tandem with a stock option
("Tandem SARs") or independent of a stock option. An SAR is a right to receive
payment (either in cash, shares of Common Stock, or a combination thereof) equal
to the appreciation in market value of a stated number of shares of Common Stock
from the SAR's price to the market value on the date of its exercise.
A Tandem SAR may be granted either at the time of the grant of the related
stock option or, in the case of a non-qualified stock option, at any time
thereafter during the term of such option. Upon the exercise of a stock option
as to some or all of the shares covered by the award, the related Tandem SAR
will be canceled automatically to the extent that the number of shares subject
to the Tandem SAR exceeds the number of remaining shares subject to the related
stock option. In the same manner, the exercise of a Tandem SAR will result in
the cancellation of the related stock option.
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Stock Awards. The Equity Plan authorizes the Committee to grant awards in
the form of shares of Common Stock. Such awards will be subject to such terms,
conditions, restrictions and limitations, if any, as the Committee deems
appropriate. Any attempted sale, assignment, pledge or other transfer of
restricted Common Stock during the restriction period will result in a
forfeiture to the Company of all such shares subject to such attempted transfer.
Except as otherwise determined by the Committee, upon termination of employment
of the participant for any reason except retirement, death, permanent disability
or a change in control of the Company during the restriction period, all shares
still subject to restriction shall be forfeited by the participant to the
Company.
Performance Shares. The Equity Plan allows for the grant of performance
shares entitling the participant to receive shares of Common Stock, or the cash
equivalent, as determined by the Committee at the time the awards are made. Such
awards will be contingent upon the attainment of certain performance objectives
over a period determined by the Committee. The performance objectives to be
achieved during a performance period and the measures of whether and to what
degree such objectives have been attained will also be determined by the
Committee.
Deferred Incentive Units. Awards may also be granted in the form of
deferred incentive units which entitle the participant to receive in cash the
fair market value or the appreciation in value of an equivalent number of shares
of Common Stock on a settlement date to be determined by the Committee. The
Committee will determine all other terms, conditions, restrictions and
limitations, if any, of any award of deferred incentive units.
OTHER TERMS OF AWARDS
Awards may be paid in cash, Common Stock or a combination of Common Stock
and cash. If an award is granted in the form of restricted stock, performance
shares or deferred incentive units, the Committee may include as part of such
award an entitlement to receive dividends or dividend equivalents. Awards will
be evidenced by a written agreement containing such terms and conditions,
restrictions and/or limitations of the award.
The Equity Plan provides for adjustments of awards in the event of a
merger, consolidation, reorganization or other similar change in the corporate
structure of the Company. In the event of such a change, all outstanding stock
options and SARs shall become immediately exercisable and all other awards will
immediately vest with all performance goals deemed fully achieved.
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FEDERAL TAX TREATMENT
Under current law, the following is a brief summary of the federal income
tax consequences generally arising with respect to awards under the Equity Plan.
A participant who is granted an incentive stock option will not recognize
any taxable income at the time of the grant of the option or at the time of its
exercise. If the participant does not dispose of the shares acquired pursuant to
an incentive stock option before the later of two years from the date of grant
or one year from the date of exercise, any gain or loss realized on a subsequent
disposition of the shares will be treated as a long-term capital gain or loss,
and the Company will not be entitled to any deduction for federal income tax
purposes.
A participant who is granted a non-qualified stock option will not
recognize taxable income at the time of grant, but will recognize taxable income
at the time of exercise equal to the difference between the exercise price of
the shares and the market value of the shares on the date of exercise. The
Company will be entitled to a tax deduction for the amount of income recognized
by the participant.
A participant who is granted an SAR will not recognize any taxable income
at the time of grant, but will recognize taxable income at the time of exercise
equal to the difference between the exercise price of the shares and the market
price of the shares on the date of exercise, and the Company will be entitled to
a tax deduction for the amount of income recognized by the participant.
A participant who has been granted either deferred incentive units or
performance shares will not recognize taxable income at the time of the grant.
At the time the award is paid a participant will recognize ordinary income equal
to the amount of cash paid or the value of shares delivered, and the Company
will be entitled to a tax deduction for the same amount.
A participant who has been granted restricted Common Stock will not
recognize taxable income at the time of the grant, unless the participant makes
an election to be taxed at the time of the grant. When the restrictions lapse,
the participant will realize taxable income in an amount equal to the excess of
the fair market value of the shares at such time over the amount, if any, paid
for such shares. The Company will be entitled to a federal income tax deduction
upon the participant's realization of ordinary income.
AMENDMENT AND TERMINATION
The Board may amend the Equity Plan at any time but may not, without share
owner approval, adopt any amendment which would increase the number of shares
available for award under the Equity Plan or which would cause the Equity Plan
to lose its exemption under Rule 16b-3 under the Securities Exchange Act of
1934, as amended.
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The Equity Plan has no fixed termination date but may be terminated by the
Board at any time. Termination of the Equity Plan will not affect the status of
any awards outstanding at the date of termination.
EQUITY PLAN AWARDS
The awards made pursuant to the Equity Plan in 1994 are set forth in the
table below. If share owner approval of the Equity Plan is not received, these
awards will be revoked.
NEW PLAN BENEFITS
EQUITY COMPENSATION PLAN
RESTRICTED STOCK(1) STOCK OPTIONS(3)
----------------------- ------------------------
NUMBER NUMBER
DOLLAR OF DOLLAR OF
NAME VALUE(2) UNITS VALUE(4) UNITS
-------------------------------- ----------- ------ ----------- -------
Robert J. Farling $ 128,975 15,400 $10,400 40,000
Murray R. Edelman 49,413 5,900 5,600 20,000
Donald C. Shelton 33,500 4,000 2,312 13,600
Fred J. Lange, Jr. 30,988 3,700 3,360 12,000
Al R. Temple 22,194 2,650 2,408 8,600
All executive officers as a
group 394,672 47,125 38,164 144,500
All non-executive officers as a
group 252,086 30,100 33,712 120,400
<FN>
----------------------
(1) The Common Stock awarded is restricted against disposition for five
years. If a participant leaves the Company for reasons other than
retirement, death, disability or a change in control of the Company,
the shares will be forfeited back to the Company.
(2) Valued at the closing price of $8.375 on the grant date of November
22, 1994.
(3) The options to purchase Common Stock are 10-year incentive stock
options (except for Messrs. Farling and Shelton) with an exercise
price of $13.20 per share. The options become exercisable in equal
installments on the four succeeding anniversary dates of the grant
beginning on November 22, 1995. The closing price of the Common Stock
on February 24, 1995 was $9.75.
(4) For all participants other than Messrs. Farling and Shelton, option
values are based on the Black-Scholes pricing model using the
following assumptions: expected stock volatility .23 (based on 21
quarters of closing stock prices prior to grant), risk-free rate of
return 8.15%, dividend yield 9.6% and a 10-year term. The option
values for Mr. Farling and Mr. Shelton are based on the same
assumptions except for a risk-free rate of return of 7.97% and 7.72%,
respectively, and option terms of 7.25 years and 3.75 years,
respectively. These assumptions are not intended to be a forecast of
future performance of the Company's Common Stock.
Share owner approval of the Equity Plan requires the affirmative vote of a
majority of the shares of Common Stock voted on the issue. Abstentions and
broker non-votes have no effect.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL WHICH IS
DESIGNATED IN THE PROXY AS ISSUE NO. 3.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board has appointed
Arthur Andersen LLP as independent accountants of the Company and its
subsidiaries for 1995. Arthur Andersen has served as independent accountants of
the Company since 1986 and of Toledo Edison for many years. Although the
appointment of independent accountants is not required to be approved by the
share owners, the Board believes the share owners should participate in this
appointment through ratification. If the share owners do not ratify the
appointment, the Board will reconsider its action.
An Arthur Andersen representative will be present at the annual meeting for
the purpose of making a statement, if he desires to do so, and to respond to
questions.
Share owner ratification of the appointment of Arthur Andersen requires the
affirmative vote of a majority of the shares of Common Stock voted on the issue.
Abstentions and broker non-votes have no effect.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL, WHICH IS
DESIGNATED IN THE PROXY AS ISSUE NO. 4.
SHARE OWNER PROPOSAL TO RESTRICT DISCRETIONARY VOTING
The Company has been advised that Dr. Allen Wolff, DVM, 4241 Center Road,
Brunswick, OH 44212, owner of 1,760 shares of Common Stock, intends to present
the following proposal at the 1995 annual meeting:
"Be it resolved that the future proxies of this company, there will be
no discretionary power of voting by the named proxy-holder on any issue
where no direction has been given, including ANY ISSUE "WHICH MAY PROPERLY
COME UP AT THE MEETING"."
STATEMENT OF SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"In general, there are a number of things being done in corporate
America that need to be changed. Among them are term restrictions for
outside directors, paying of bonuses based on objective rather than
subjective parameters, elimination of golden parachutes, stock options,
payment in lieu of income tax (on excessive bonuses), elimination of
retirement for outside directors and many other things.
Many stockholder proposals have been introduced to try to control
compensation to directors and top management and to try to tie them in with
profits and dividends, but the self-perpetuating management opposes this! .
. . If one reviews the biographies of the eleven director nominations for
1994, you would see that ALL were incumbent directors,
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nine had been directors for more than seven years, and seven ten years or
more. Like our representatives in government, that's too long!
Most shareholder proposals fail because (1) the investors are not
organized and offer no alternatives, (2) management already controls a
large number of votes and then rewards itself with more shares to vote
against such proposals, (3) we are not playing on a level field; management
gets to count unmarked proxies as voting in favor of their position and
then is allowed to solicit proxies at the company's expense.
I am particularly dismayed at the statement on proxies that says (in
essence): "Proxies signed, but not specifically marked, will be voted as
management has suggested."
Management says that stockholders clearly understand how their votes
will be counted if they don't put Xs in the boxes; yet many shareholders
don't understand THAT, and it is especially true when shares are carried in
street names. They say that this process allows the stockholder not to be
burdened with making THREE OR FOUR Xs. WOW! How many shareholders even
understand what they are being asked to vote upon?
One need only review the results of voting on shareholder proposals at
the last annual meetings of First Union Real Estate, Chemical Bank, and
Rockefeller Center Properties to see how THIS DECEITFUL and UNDEMOCRATIC
WAY OF COUNTING VOTES was used. Although each of these companies honestly
revealed the results of the balloting, they still used the unmarked proxies
in defeating shareholder proposals that might otherwise have passed.
When I go to the polls and figure there is no clear choice among
candidates and leave that space "unmarked", it is not voted in favor of the
incumbent nor the incumbent's party; it is merely a non-vote."
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO THE SHARE OWNER
PROPOSAL The response of the Board of Directors in opposition to the share
owner proposal is as follows:
The Board of Directors recommends a vote AGAINST this issue.
Under Ohio law, a share owner is entitled to participate at share
owner meetings in person or by proxy. If our share owners choose to
participate at a meeting by proxy, they can direct how their votes will be
cast by either (i) marking a box for each item to be voted on and signing
the proxy card, or (ii) simply signing the proxy card. The adoption of Dr.
Wolff's proposal would take from share owners their right to participate at
share owner meetings when they return a signed, but unmarked proxy card.
This is both unfair and unnecessary.
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In addition, the adoption of this proposal could result in inequitable
share owner actions. Most of the Company's share owners are represented at
its share owner meetings through proxies, while an extremely small
percentage of shares are represented in person. Shares represented by
proxies would be counted toward the establishment of a quorum at the share
owner meeting, thereby allowing all business that could be undertaken at a
share owner meeting to proceed. However, once the items specifically listed
in the proxy statement have been concluded, the share owners present in
person at the meeting could continue to take actions. If the properly
authorized proxies are not able to vote at their discretion, actions that
affect the Company and all of its share owners could be taken by the
direction of the extremely small percentage of share owners that are
present in person at the meeting.
Historically, the Company's proxy statements and proxy cards have
provided share owners with the ability to grant a discretionary proxy in a
manner consistent with the laws of the State of Ohio. Share owners are not
required to mark their proxy cards for a matter described in the Company's
proxy statements in order to have their shares counted in voting for such
matter, so long as their proxy cards are properly signed. The federal proxy
rules promulgated by the Securities and Exchange Commission ("SEC")
explicitly recognize and permit this practice.
The Company's proxy card indicates in bold-face type how your shares
will be voted if no direction is given. That information is also contained
in the text of the Company's proxy statement. The Board of Directors
believes that share owners who take advantage of this procedure are fully
aware of how their proxy cards will be voted and do so because that
procedure provides a convenient method to indicate that the share owner
chooses to vote in accordance with the Board's recommendations. This
reflects customary procedures consistently adhered to by all other public
companies of which the Board is aware. The proposal's deviation from
customary procedures will be adverse to the proxy process itself, as well
as confusing to the overall share owner population.
Your Board of Directors further believes that our current procedures
facilitate the execution and return of proxy cards, resulting in a higher
share owner response than could be expected if share owners were required
to complete each item on the proxy card. This, in turn, helps to minimize
the time and expense incurred in connection with the solicitation of
proxies. The adoption of the proposal would also prohibit us from complying
with the wishes of our share owners because a signed, but unmarked proxy
card must be ignored. Your Board of Directors believes that our procedures,
which follow SEC rules and customary practice in the United States, are
appropriate and essential for good corporate governance.
The proposal appears to reflect the implicit assumption that share
owners are inadvertently returning properly executed but unmarked proxy
cards, unaware as to how
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they will be voted. The Board does not agree with that assumption and
believes that share owners fully understand the process as it now exists.
The proposal would not give share owners any new rights or powers. It would
take away rights and powers that make it easy for share owners to
participate in share owner meetings.
Approval of this proposal requires the affirmative vote of a majority
of the shares of Common Stock voted on the issue. Abstention and broker
non-votes have no effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL, WHICH IS DESIGNATED IN THE PROXY AS ISSUE NO. 5.
SHARE OWNER PROPOSAL TO CAP EXECUTIVE COMPENSATION
The Company has been advised that Mr. R. E. Kinsala, 218 Southill Road, San
Antonio, TX 78201-6633, owner of 937 shares of Common Stock, intends to present
the following proposal at the 1995 annual meeting:
"As it stands now, we stockholders are suffering the brunt of the
actions by Centerior Energy Executives, namely reduced dividends, and
declining stock values, makes me believe, and I'm sure my belief meets with
majority stockholder approval, that Centerior Executives should also
participate along with the Stockholders, therefore I wish to make the
following proposal for a vote by the shareholders of Centerior Energy Stock
at the next stockholders meeting. This proposal is in two parts:
Part 1. Be it proposed that due to actions by the CEO and the Board of
Directors to lower the dividend rate by a 50% reduction from $1.60 per
share to $.80 per share that the following be implemented upon approval of
the majority stockholders and remain in effect until further notice:
A. Compensation for the CEO be capped at $250,000.00 annually.
B. Compensation for all other Executives be capped at $175,000.00
annually.
C. All Executive pay raises will be held in abeyance.
D. Stock options will not be granted or exercised.
E. Bonuses to Executives, Executive Staff, and/or Board of
Directors members for any reason will not be awarded under any
condition.
Part 2:
Be it further proposed that the proposals in Part 1. be terminated
upon the dividend of Centerior Energy being returned to $1.60 a share,
annually, and the stock value being returned to $16.00 a share."
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STATEMENT OF THE SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"The reason I am submitting this proposal is that I believe we all
should share in the financial problems of the Corporation. It would not be
fair for the share holders to suffer the entire consequences and allow the
CEO and Directors to continue receiving their perks as if nothing is wrong
with the company. This way encouragement is offered to staff to rectify the
problems sooner, then we all can share in the profits."
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO THE SHARE OWNER
PROPOSAL The response of the Board of Directors in opposition to the share
owner proposal is as follows:
The Board of Directors recommends a vote AGAINST this issue.
As discussed in the "Report of the Human Resources Committee on
Executive Compensation" beginning on page 23, decisions regarding the
amount of compensation for executive officers are based on market
conditions, the performance of the Company and the individual officer, and
other relevant factors. Executive compensation is determined annually to
provide fair compensation for the quality of each officer's performance,
motivation for future performance and incentive to remain employed by the
Company. In addition, payment of a significant component of compensation is
based on the Company meeting or exceeding certain performance standards
established each year. The Board believes that a significant portion of
executive pay should be directly related to corporate performance to more
closely link the interests of executives to those of share owners. The
Equity Plan, described beginning on page 11, further links the interests of
executive and share owners through stock-based awards.
The proposed ceilings on compensation for executive officers and the
CEO are arbitrarily low and have no relation to market conditions. In the
Northern Ohio area, virtually all large publicly-held corporations are
paying one or more executive officers above these levels -- many at
substantially higher levels. Fixed arbitrary limits on compensation would
significantly impair the Board's ability to offer performance-based
incentives and set appropriate compensation levels given the scope of
responsibilities delegated to, and performance by, the Company's officers.
Furthermore, the Company would not remain competitive in attracting and
retaining capable and qualified executives, especially if it were one of a
few companies with such a limitation.
Adoption of this proposal would undermine the link the Board has
sought to establish between executive compensation and corporate
performance. Options to purchase Company Common Stock granted to executive
officers in 1994 (subject to share owner approval of the Equity Plan) have
an exercise price of $13.20. The price was set substantially above current
market value in order to provide further incentive for executive officers
to improve the Company's performance and thereby increase share owner
value.
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Without such an increase, these options will not have any value. Options
were also granted to encourage stock ownership of the Company. The
elimination of these awards would reduce the link between compensation and
Common Stock performance at the very time when the Board is trying to more
closely link the two.
The Board of Directors believes this proposal is not in the best
interest of the share owners of the Company because adoption of this
proposal would apply a rigid standard in determining executive officers'
compensation, removing the flexibility needed to establish appropriate
levels of compensation. Compensation decisions by the Human Resources
Committee of the Company's Board of Directors must be able to be made on a
case-by-case basis. Executive compensation is an essential tool employed by
the Committee to attract and retain qualified executives and encourage
excellent performance. Without flexibility in establishing appropriate
levels of compensation, such goals cannot be achieved. Capable and highly
qualified management is vital to a company's success. By placing a
below-market ceiling on compensation and eliminating stock-based incentive
awards, this proposal would not allow the Company to adequately compensate
its management and, as a result, could have an adverse impact on the
quality of management, the performance of the Company and, ultimately, on
share owner value.
Approval of this proposal requires the affirmative vote of a majority
of the shares of Common Stock voted on the issue. Abstentions and broker
non-votes have no effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL, WHICH IS DESIGNATED IN THE PROXY AS ISSUE NO. 6.
OTHER BUSINESS
The Board knows of no business to be transacted at the meeting other than
that presented above. However, if other matters do properly come before the
meeting, the accompanying proxy will be voted on such matters in accordance with
the judgment of the persons authorized in the proxy to vote them.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table shows shares of Common Stock beneficially owned as of
February 24, 1995 by each director candidate, the executive officers named in
the table under "Executive Compensation -- Compensation" and all directors and
executive officers as a group.
NUMBER OF SHARES
OF COMMON STOCK
NAME BENEFICIALLY OWNED(1)
-------------------------------------------------------------- ---------------------
Richard P. Anderson........................................... 2,071
Albert C. Bersticker.......................................... 1,509
Leigh Carter.................................................. 2,766
Thomas A. Commes.............................................. 5,509
William F. Conway............................................. 1,000
Wayne R. Embry................................................ 1,509
Robert J. Farling............................................. 36,879(2)
George H. Kaull............................................... 5,551
Richard A. Miller............................................. 12,536
Frank E. Mosier............................................... 2,230
Sister Mary Marthe Reinhard, SND.............................. 1,506(3)
Robert C. Savage.............................................. 1,509
William J. Williams........................................... 2,293
Murray R. Edelman............................................. 14,464(2)
Donald C. Shelton............................................. 5,893
Fred J. Lange, Jr. ........................................... 5,555
Al R. Temple.................................................. 3,428
All directors and executive officers as a group(4)............ 138,869(2)
<FN>
---------------
(1) Beneficially owned shares include any shares with respect to which voting or
investment power is attributed to an individual because of joint or
fiduciary ownership of the shares or relationship to the record owner, such
as a spouse, even if the individual does not consider himself or herself the
beneficial owner. Certain individuals disclaim beneficial ownership of some
of those shares.
(2) Includes the following numbers of shares which are not owned but may be
purchased within 60 days after February 24, 1995 upon exercise of options to
purchase shares of Common Stock: Mr. Farling -- 3,330; Mr. Edelman -- 5,550;
and all directors and executive officers as a group -- 11,655.
(3) Owned by Sisters of Notre Dame.
(4) All directors and executive officers as a group were considered to own
beneficially 0.1% of the Company's Common Stock and none of the Preferred
Stock of Cleveland Electric and Toledo Edison except for one officer who
owns 400 shares of Toledo Edison $2.81 Preferred Stock.
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers to file reports of ownership and changes in ownership
with respect to the securities of the Company and its subsidiaries with the SEC
and to furnish copies of these reports to the Company. Based on a review of
these reports and written representations from the Company's directors and
officers regarding the necessity of filing a report, the Company believes that
during 1994 all filing requirements were met on a timely basis except for Mr.
Miller who did not timely file a Form 3 on behalf of a family member's trust for
which he is the Trustee. Mr. Miller had previously reported beneficial ownership
of these shares and filed the Form 3 after receiving notification from the SEC
that a Form 3 was required for the trust.
EXECUTIVE COMPENSATION
REPORT OF HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
GENERAL
The Human Resources Committee, which administers the Company's compensation
program, recognizes that electric utilities operate in an increasingly
competitive environment. It further recognizes that the Company faces
significant challenges in executing its Strategic Plan to make the Company more
competitive. The key objective of that Plan is to enhance share owner value.
Therefore, in late 1994, the Committee recommended, and the Board approved, a
restructuring of the Company's executive compensation program to link executive
compensation more directly to corporate performance. Under the proposed Equity
Plan, compensation would be provided through a combination of programs, the
value of which is based on the price of Common Stock. This change, effective in
1995, is designed to provide further incentive to enhance share owner value.
As discussed above, the Committee administers the Company's compensation
program and the Board sets each executive officer's compensation based on
recommendations of the Committee. In making such recommendations, the Committee
considers: corporate and individual performance; compensation data for other
large electric utilities serving major metropolitan areas and having nuclear
generating units ("comparable utilities"); and for certain utilities of similar
size as the Company based on revenue. These companies are among the utilities
comprising the EEI Index shown on the Performance Graph on page 28. Also, the
Committee is periodically advised by compensation consultants concerning the
competitiveness of Company compensation and the design of the total compensation
package. The Company's Chief Executive Officer ("CEO") participates in the
deliberations of the Committee and the Board but does not participate in the
final determination of his own compensation.
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In addition to linking executive compensation with corporate performance,
total compensation also will continue to be based on individual performance. As
a result, executive officers' total compensation will be comprised of three
components -- base salary, annual cash incentive awards and long-term incentive
awards. The mix of these components will vary based upon each officer's impact
on corporate goals. For most executive officers, nearly 40% of total
compensation will be based on annual cash and long-term incentives which are
linked to Common Stock performance, with the remainder related to base salary.
The comparable utilities typically provide 20% of executive officer total
compensation in the form of annual and long-term incentive awards. Thus, the
Company's program places more emphasis on the link between compensation and
share owner value.
BASE SALARY
The base salary of each executive officer, except the Vice
President -- Sales and Marketing, is targeted at the median pay level for
similar positions at the comparable utilities. In 1994, the Vice
President -- Sales and Marketing was recruited from outside the electric utility
industry. His base salary was targeted at the median pay level for his position
at the general industry level. Adjustments to base salary are normally made each
year for corporate performance; individual experience, performance and
potential; scope of responsibility; and the competition for an executive both
within and outside the electric utility industry. Recommendations from the CEO
are taken into account in setting base salary for all other executive officers.
In November 1993, the Committee recommended, and the Board approved, that
base salary increases be omitted for all executive officers because of the
Company's financial results. As a result, certain officers' base salaries fell
substantially below the median pay level for similar positions at the comparable
utilities. In recognition of that, the Committee recommended, and the Board
approved, base salary increases for three executive officers effective December
5, 1994 to bring them to about 85% of the median pay level at the comparable
utilities. The Committee also recommended and the Board approved, that base
salaries of all other executive officers remain frozen. In order to prevent
further erosion in base salaries below the target median pay level, in lieu of
base salary increases for 1995, restricted Common Stock was awarded to executive
officers pursuant to the Equity Plan described beginning on page 11. The number
of shares awarded to each executive officer was determined by calculating the
discounted present value of an assumed book value of the Common Stock in 1999
equal to the dollar amount of the foregone base salary increase. The Common
Stock is restricted against disposition for a period of generally five years. If
an officer leaves the Company for reasons other than retirement, death,
disability or a change in control of the Company, the shares of restricted
Common Stock awarded will be forfeited back to the Company. These awards are
contingent upon share owner approval of the Equity Plan.
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INCENTIVE COMPENSATION
The Company's Executive Incentive Compensation Plan provides both a
short-range cash compensation component and a long-range compensation component
designed to emphasize achievement of short-term corporate and individual
performance goals and long-term goals for the Company. The long-term component
parallels an investment in Company Common Stock. The Board determines the amount
and form of the awards to be granted under the Executive Incentive Compensation
Plan based on the level of achievement of performance goals and the continued
sustainable progress toward achievement of the Company's long-term Strategic
Plan.
When incentive awards are made they may include a cash component, a
long-term component, or both. Cash awards are payable at the time an incentive
award is made. The long-term component is in the form of deferred incentive
units whose value mirrors the performance of the Company's Common Stock,
including the accrual of earnings at a rate equivalent to the dividend rate. The
long-term component vests and is paid in cash after five years except in the
event of death, disability or retirement in which case vesting occurs
immediately. If the executive leaves the Company for reasons other than death,
disability or retirement prior to the vesting date, the long-term component is
forfeited.
The Board establishes corporate and individual goals and performance
measures each year and may grant a portion of each executive officer's incentive
compensation for each of the corporate goals that is achieved. In 1994, the
Board established five corporate goals for all executive officers.
Three levels of performance were established by the Committee for each
corporate goal. In increasing levels of difficulty, the performance levels are
threshold, target and maximum, with threshold being the benchmark level of
performance. A target incentive award may be paid if a corporate goal is
achieved at the target level of performance. Target incentive awards are 25% of
base salary for Vice Presidents, 30% for Senior Vice Presidents, 35% for
Executive Vice Presidents and 50% for the CEO. The award can be more or less
than the target incentive award depending on the weighted average level of
performance for the various goals. Threshold performance is the minimum level of
performance which merits an incentive award. If a corporate goal is met at the
threshold level, the incentive award is 50% of the target level award. The
maximum level award is 50% greater than the target level award. The Committee
and the Board may consider other factors in determining incentive awards.
The Board established ten performance measures for 1994 which related to
the corporate goals established by the Company's Strategic Plan relating to
revenue, customer satisfaction, employee commitment, power production and
financial performance. Those goals were weighted 25%, 15%, 15%, 25% and 20%,
respectively. Five of the performance measures were met at the threshold level
and one performance measure was met at the maximum level. The
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30
remaining four measures were below the threshold level. In February 1995, the
Committee recommended, and the Board approved, incentive awards for executive
officers. The awards were 10.27% of base salary for Vice Presidents, 12.33% of
base salary for Senior Vice Presidents, 14.38% of base salary for the Executive
Vice President and 20.55% of base salary for the CEO. The awards for the five
executive officers named in the Summary Compensation Table were in the form of
deferred incentive units as described above. For all other executive officers,
50% of their award was deferred incentive units and 50% was cash.
In late 1994, the Committee also reviewed total compensation data (base
salary and incentive compensation) for utilities of similar size based on
revenue and determined that total compensation for executive officers was
substantially below the median of their peers in this group. The Committee
determined that the gap should be closed over a period of several years in a
manner which would relate compensation directly to Common Stock performance.
The proposed Equity Plan was designed to provide a variety of long-term
incentives which may be used to bridge this gap. In November 1994, the Committee
recommended, and the Board approved, the grant of restricted Common Stock and
stock options under the Equity Plan to executive officers. For each executive
officer, four options were granted for each share of restricted stock. The terms
of the restricted Common Stock awards are the same as those discussed under
"Base Salary" above. The stock options are 10-year incentive stock options
exercisable at a price of $13.20 per share which was about 58% greater than the
$8.375 market price of the Common Stock on the day of the grant. The number of
shares of restricted Common Stock and stock options granted was determined by
calculating the discounted present value of an assumed book value of the Common
Stock in 1999. These grants are contingent upon share owner approval of the
Equity Plan which is discussed in more detail on page 11.
CHIEF EXECUTIVE OFFICER COMPENSATION
In November 1994, the Committee reviewed data from the comparable utilities
and determined that Mr. Farling's base salary was substantially below the median
of his peers. The Committee determined that even a very substantial increase in
his base salary would keep him below the median. However, the Committee
recommended, and the Board approved, that Mr. Farling's base salary remain
unchanged and that he receive 5,400 shares of restricted Common Stock in lieu of
an increase in his 1994 base salary.
In 1994, Mr. Farling's performance for the purpose of determining his
annual incentive was measured against the Company's Strategic Plan objectives.
As described above, five of the performance measures in 1994 relating to the
Company's Strategic Plan were met at the threshold level, one at the maximum
level and four were not achieved. Therefore, Mr. Farling received deferred
incentive units in an amount of 20.55% of his base salary.
26
31
For the reasons and in the manner discussed above under "Incentive
Compensation", Mr. Farling was granted, pursuant to the Equity Plan, 10,000
shares of restricted Common Stock and 40,000 stock options exercisable at a
price of $13.20 per share.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement through June 1995 with Donald C.
Shelton, Senior Vice President -- Nuclear of Centerior Service, pursuant to
which he receives a base salary of $225,000 and is entitled to participate in
the Company's benefit plans, including the incentive plans discussed above. In
addition, he will be entitled to receive an additional incentive award of up to
30% of his annual base salary contingent upon the achievement of certain nuclear
organizational, performance and cost management goals. Mr. Shelton met 41% of
his 1994 goals and was awarded 2,752 deferred incentive units.
The Company has an employment agreement through December 1996 with Al R.
Temple, Vice President -- Sales and Marketing of Centerior Service, pursuant to
which he receives a base salary of $170,000 and is entitled to participate in
the Company's benefit plans, including the Company's incentive plans discussed
above. In addition, he was entitled to receive an additional incentive award of
up to 20% of his annual base salary contingent upon the achievement of certain
sales, marketing and revenue goals in 1994. Mr. Temple met 80% of his 1994 goals
and was awarded $27,200.
Frank E. Mosier, Chairman
Wayne R. Embry
George H. Kaull
Robert C. Savage
William J. Williams
27
32
PERFORMANCE GRAPH
The following chart shows an indexed comparison of the cumulative total
return on the Company's Common Stock, the Standard & Poor's 500 Index and the
Edison Electric Institute Index of investor-owned electric utilities at December
31 of each year, assuming that $100 was invested on December 31, 1989 in Company
Common Stock and each index. In each case, dividends have been reinvested.
FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CENTERIOR S&P 500 EEI INDEX
1989 100 100 100
1990 95.21 96.89 101.37
1991 114.61 126.42 130.64
1992 125.09 136.07 140.59
1993 91.44 149.73 156.22
1994 66.11 151.68 138.14
COMPENSATION
The following table shows compensation paid by the Centerior System to the
CEO and the executive officers of the Company or Centerior Service at December
31, 1994 who were the next four highest paid executive officers in 1994.
28
33
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION -------------------------- ALL OTHER COMPENSATION
RESTRICTED SECURITIES ----------------------------------------
NAME AND PRINCIPAL -------------------- STOCK UNDERLYING INSURANCE SAVINGS PLAN
POSITION YEAR SALARY BONUS(2) AWARD(3) OPTIONS PREMIUMS(4) MATCH(5) TOTAL
---------------------- ----- -------- ------- ----------- ---------- ----------- ------------ -------
Robert J. Farling 1994 $360,048 $ 500 $ 128,975 40,000 $19,188 $1,030 $20,218
Chairman, President 1993 360,048 0 0 0 13,250 0 13,250
and CEO of the 1992 319,363 0 0 0 12,197 3,431 15,628
Company and
Centerior Service.
Murray R. Edelman 1994 265,044 500 49,413 20,000 2,696 3,750 6,446
Executive Vice 1993 258,451 0 0 0 4,192 3,690 7,882
President of the 1992 241,210 0 0 0 3,957 3,433 7,390
Company and
Centerior Service.
Donald C. Shelton 1994 225,004 500 33,500 13,600 7,125 2,918 10,043
Senior Vice 1993 197,044 0 0 0 4,556 5,907 10,463
President -- Nuclear 1992 157,874 15,000 0 0 3,883 4,728 8,611
of
Centerior Service.
Fred J. Lange, Jr. 1994 191,404 500 30,988 12,000 3,782 4,527 8,309
Senior Vice 1993 186,698 0 0 0 5,070 5,419 10,489
President of the 1992 157,274 0 0 0 3,900 4,718 8,618
Company and
Centerior Service.
Al R. Temple (6) 1994 143,880 27,700 22,194 8,600 6,525 3,724 10,249
Vice President --
Sales and Marketing
of Centerior
Service.
<FN>
---------------
(1) Contingent upon share owner approval of the Equity Plan described beginning
on page 11.
(2) Includes for each named officer, $500 awarded to all eligible employees
pursuant to the Employee Incentive Compensation Plan. Also, Mr. Temple
received $27,200 pursuant to his employment agreement. See the table on page
30 for long-term incentive awards made in 1994.
(3) Restricted Common Stock awards are valued at the closing market price as of
the date of grant. Restricted Common Stock holdings and the value thereof
based on the closing price of the Common Stock at year-end are as follows:
Mr. Farling -- 15,400 shares ($136,675); Mr. Edelman -- 5,900 shares
($52,363); Mr. Shelton -- 4,000 shares ($35,500); Mr. Lange -- 3,700 shares
($32,838); and Mr. Temple -- 2,650 shares ($23,519). Dividends on the
restricted Common Stock are payable to the named officers.
(4) Represents the portion of premiums for life, accident, personal liability
and supplemental retirement insurance benefits the Company pays for
executive officers to the extent those premiums exceed that which is
uniformly available to salaried employees under the Company's benefit plans.
In addition, the Company provides additional compensation to certain
executive officers to purchase other employee benefits.
(5) The Company provides a 50% matching contribution to the Company's Employee
Savings Plan on a maximum of 6% of an employee's base pay.
(6) Mr. Temple joined the Company on February 28, 1994.
29
34
LONG-TERM INCENTIVE PLAN AWARDS
The following table presents information for the executive officers named
in the Summary Compensation Table relating to 1994 long-term incentive awards.
These awards are in the form of deferred incentive units based on the average of
the highest and lowest prices of the Company's Common Stock during the 52-week
period preceding the award. The award vests after five years except in the event
of death, disability or retirement in which case vesting occurs immediately. The
value of the deferred incentive units mirrors the performance of the Company's
Common Stock, including the accrual of earnings at a rate equivalent to the
dividend rate. At the time of vesting, the units are paid in cash, based on the
average of the highest and lowest prices of the Company's Common Stock during
the prior 52 weeks.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE
OR
OTHER
PERIOD
NUMBER OF UNTIL
SHARES, UNITS OR MATURATION
NAME OTHER RIGHTS OR PAYOUT
------------------ ---------------- ----------
Robert J. Farling 7,354 5 years
Murray R. Edelman 3,786 5 years
Donald C. Shelton 5,505(1) 5 years
Fred J. Lange, Jr. 2,454 5 years
Al R. Temple 1,739 5 years
<FN>
---------------
(1) One-half of the deferred incentive units were awarded pursuant to Mr.
Shelton's employment agreement and one-half were awarded pursuant to the
Company's Executive Incentive Compensation Plan.
STOCK OPTIONS
The following tables present information for the executive officers named
in the table under "Executive Compensation -- Compensation" relating to stock
options granted in 1994 and outstanding at December 31, 1994 under the Cleveland
Electric 1978 Key Employee Stock Option Plan ("1978 Plan") and the Equity
Compensation Plan. The obligations of the Cleveland Plan were assumed by the
Company when Cleveland Electric became a subsidiary. No additional options can
be granted under the 1978 Plan. No options were exercised in 1994.
30
35
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION GRANT DATE
NAME GRANTED YEAR ($/SH) DATE PRESENT VALUE(1)
------------------ ---------- ---------- -------- ---------- ----------------
Robert J. Farling 40,000 15.1% $13.20 3/4/2002 $ 10,400
Murray R. Edelman 20,000 7.6 13.20 11/22/2004 5,600
Donald C. Shelton 13,600 5.1 13.20 8/15/1998 2,312
Fred J. Lange, Jr. 12,000 4.5 13.20 11/22/2004 3,360
Al R. Temple 8,600 3.3 13.20 11/22/2004 2,408
<FN>
---------------
(1) Values based on the Black-Scholes pricing model. The assumptions used to
determine these values are described on page 15.
FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
--------------------- -------------- -----------------
Robert J. Farling 3,330/40,000 (1)
Murray R. Edelman 5,550/20,000 (1)
Donald C. Shelton 0/13,600 (1)
Fred J. Lange, Jr. 0/12,000 (1)
Al R. Temple 0/8,600 (1)
<FN>
---------------
(1) None of the outstanding options were in-the-money based on the closing price
of the Company's Common Stock on December 30, 1994 of $8.875.
PENSION BENEFITS
Centerior System employees, including officers, are covered by the
Company's pension program. The pension program is a noncontributory
fixed-benefit program which provides benefits upon retirement at or after age
55. The annual amount of the pension is based primarily upon the annualized
average straight-time salary and incentive compensation in the 60 consecutive
highest paid months ("covered compensation") and the number of years of service.
The resulting benefit is reduced by a percentage (based on the number of years
of service) of the average FICA wage base. The pension is reduced in the event
of retirement prior to age 62 and in certain cases prior to age 65. Appropriate
reductions are made if the employee elects a joint and survivor, guaranteed
years certain, lump sum or other form of pension in place of payments for life.
To the extent limits imposed by Federal law apply to reduce a pension which
otherwise would be payable under the pension program, the amount of the
reduction will be paid, as permitted by Federal law, directly by the Company.
The following
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36
table shows the annual amount of a payment-for-life pension payable to salaried
employees who retire under the pension program at or after age 62 at stated
levels of covered compensation and years of service.
PENSION PLAN TABLE
YEARS OF SERVICE
COVERED ---------------------------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35 40
------------- -------- -------- --------- --------- --------- --------- --------- ---------
$ 100,000 $ 9,892 $ 19,784 $ 29,677 $ 39,569 $ 44,961 $ 50,353 $ 52,549 $ 54,745
150,000 15,142 30,284 45,427 60,569 68,961 77,353 80,799 84,245
200,000 20,392 40,784 61,177 81,569 92,961 104,353 109,049 113,745
250,000 25,642 51,284 76,927 102,569 116,961 131,353 137,299 143,245
300,000 30,892 61,784 92,677 123,569 140,961 158,353 165,549 172,745
350,000 36,142 72,284 108,427 144,569 164,961 185,353 193,799 202,245
400,000 41,392 82,784 124,177 165,569 188,961 212,353 222,049 231,745
The following table sets forth the years of service and the covered
compensation as of year end 1994 of the executive officers named in the table
under "Executive Compensation -- Compensation".
YEARS OF COVERED
NAME SERVICE COMPENSATION
---------------------------- --------- ------------
Robert J. Farling 35 $343,057
Murray R. Edelman 33 260,195
Donald C. Shelton(1) 8 186,003
Fred J. Lange, Jr. 8 167,622
Al R. Temple 1 (2)
<FN>
----------------------
(1) Mr. Shelton's employment agreement provides that as of June 30, 1995
(or such earlier date as may be approved by the Board) the Company
will provide to Mr. Shelton or his beneficiary a pension benefit from
the pension plan, calculated as if the terms of the Company's 1993
Voluntary Transition Program were then in effect.
(2) Mr. Temple is not now vested in the pension program and is therefore
not entitled to any pension.
PROPOSALS FOR 1996 ANNUAL MEETING
Share owners who wish to submit proposals for inclusion in the Proxy
Statement and proxy of the Board for share owner action at the 1996 annual
meeting must send the proposal and supporting statement, if any, to the
Secretary of the Company so that it will be received not later than November 15,
1995.
By order of the Board of
Directors,
JANIS T. PERCIO, Secretary
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GENERAL INFORMATION
The Gateway Plaza entrance to
Gund Arena is the preferred
entrance since it is the
closest to the Gateway East
parking garage and the meeting
location. The Gund Arena
entrances at the corner of
Huron and Ontario and on East
6th St. will also be open.
Please note that the RTA
walkway from Tower City will
NOT be open.
The wing of the Gateway East
parking garage closest to
Jacobs Field will be open for
parking. The cost to park
there will be $2. Please note
that the bridge from the
garage to Gund Arena will NOT
be open.
ACCESS ROUTES
FROM THE EAST:
Take I-90/Rt. 2 west; follow signs to Downtown, staying on Rt. 2 as I-90 curves
away to left; exit at E. 9th St.; turn left on E. 9th and proceed south to the
Gateway East parking garage.
FROM THE SOUTH:
Take I-77 north; take E. 9th St. exit; follow signs to either E. 9th St. north
or Ontario St. north to the Gateway East parking garage.
FROM THE WEST OR SOUTHWEST:
Take I-90 east or I-71 north to Inner Belt merge; continue on Inner Belt (I-90)
to either the Ontario St. or E. 9th St. exit; exit right onto Ontario St. north
or E. 9th St. north to Gateway East parking garage.
38
EXHIBIT INDEX
Exhibit
-------
99(a) Form of proxy card.
99(b) Centerior Energy Corporation Directors
Restricted Stock Plan
99(c) Centerior Energy Corporation Equity
Compensation Plan