-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GuSomxWqHKJxYHC1qYnnuomMeNSTrPsZRiBoUiZZPY5nxR2gRBZc8wZ328EHdXnn DjdnVDt641O21p4/dGzNGw== 0000950152-00-000589.txt : 20000207 0000950152-00-000589.hdr.sgml : 20000207 ACCESSION NUMBER: 0000950152-00-000589 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000426 FILED AS OF DATE: 20000204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON CORP CENTRAL INDEX KEY: 0000031277 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 340196300 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: SEC FILE NUMBER: 001-01396 FILM NUMBER: 524427 BUSINESS ADDRESS: STREET 1: EATON CTR STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2584 BUSINESS PHONE: 2165235000 MAIL ADDRESS: STREET 1: 1111 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: EATON YALE & TOWNE INC DATE OF NAME CHANGE: 19710822 PRE 14A 1 EATON CORPORATION PRE 14A 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE 14A (RULE 14a) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
EATON CORPORATION (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) XXXXXXXXXXXXXXXX (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 LOGO PROXY STATEMENT & NOTICE of MEETING 2000 ANNUAL MEETING OF SHAREHOLDERS ---------------------------------------------------------------- LOGO 3 NOTICE OF MEETING The 2000 annual meeting of Eaton Corporation shareholders will be held Wednesday, April 26, at 10:30 a.m. local time at the Company's Cutler-Hammer Headquarters, 1000 Cherrington Parkway, Moon Township, PA, for the purpose of: 1. Electing directors; 2. Adopting Amended Regulations; 3. Ratifying the appointment of independent auditors; and 4. Considering reports and such other business as may properly come before the meeting. These matters are more fully described in the following pages. The record date for the meeting has been fixed by the Board of Directors as the close of business on February 28, 2000. Shareholders of record at that time are entitled to vote at the meeting. By order of the Board of Directors EARL R. FRANKLIN SIGNATURE Earl R. Franklin Secretary March 17, 2000 Your Vote Is Important To vote your shares, please indicate your choices, sign and date the enclosed proxy card and return it in the accompanying postage-paid envelope. You will save your Company the expense of a second mailing by returning your proxy card promptly. 4 CONTENTS
PAGE ---- PROXY STATEMENT ................................ 3 Proxy Solicitation ............................. 3 Voting at the Meeting .......................... 3 Election of Directors .......................... 4 Board Committees ............................... 8 Compensation of Directors ...................... 9 Executive Compensation ......................... 10 Adoption of Amended Regulations ................ 19 Ratification of the Appointment of Independent Auditors ......................... 20 Other Business ................................. 20 Ownership of Outstanding Voting Shares.......... 20 Future Shareholder Proposals ................... 22
5 PROXY STATEMENT EATON CORPORATION Eaton Center Cleveland, Ohio 44114-2584 216-523-5000 - ---------------------------------------------- This proxy statement, the accompanying proxy form and Eaton's annual report for the year ended December 31, 1999 are scheduled to be sent to shareholders on or about March 17, 2000. PROXY SOLICITATION Eaton's Board of Directors solicits your proxy, in the form enclosed, for use at the 2000 annual meeting of shareholders and any adjournments thereof. The individuals named in the enclosed form of proxy have advised the Board of their intention to vote at the meeting in compliance with instructions on all forms of proxy tendered by shareholders and, where no contrary instruction is indicated on the proxy form, for the election of the individuals nominated to serve as directors, for amending the Amended Regulations, and for ratification of the appointment of Ernst & Young LLP as independent auditors. These matters are described in the following sections of this proxy statement. Any shareholder giving a proxy may revoke it by giving Eaton written notice before the meeting or by revoking it at the meeting. All properly executed proxies not revoked will be voted at the meeting. In addition to soliciting proxies through the mail, certain employees may solicit proxies in person or by telephone or facsimile. Eaton has retained Morrow & Co., Inc., 445 Park Avenue, New York, New York 10022, to assist in the solicitation of proxies, primarily from brokers, banks and other nominees, for a fee estimated at $7,000. Brokerage firms, nominees, custodians and fiduciaries may be asked to forward proxy soliciting material to the beneficial shareholders. All reasonable soliciting costs will be borne by Eaton. VOTING AT THE MEETING Each Eaton shareholder of record at the close of business on February 28, 2000 is entitled to one vote for each share then held. On February 28, Eaton common shares (par value, 50c each) were outstanding and entitled to vote. At the 2000 annual meeting, the inspectors of election appointed by the Board of Directors for the meeting will determine the presence of a quorum and tabulate the results of shareholder voting. As provided by Ohio law and Eaton's Amended Regulations, Eaton shareholders present in person or by proxy at the meeting will constitute a quorum. The inspectors of election intend to treat properly executed proxies marked "abstain" as "present" for these purposes. The inspectors will also treat as "present" shares held in "street name" by brokers that are voted on at least one proposal to come before the meeting. Director nominees receiving the greatest number of votes will be elected directors. Votes withheld in respect of the election of directors will not be counted in determining the outcome of the election. Adoption of all other proposals to come before the meeting will require the affirmative vote of the holders of a majority of the outstanding Eaton common shares, which requirement is consistent with the general vote requirement in Eaton's Amended Articles of Incorporation. The practical effect of this vote requirement will be that abstentions and shares held in "street name" by brokers that are not 3 6 voted in respect of those proposals will be treated the same as votes cast against those proposals. As provided by Ohio law, each shareholder is entitled to cumulative voting rights in the election of directors if any shareholder gives written notice to the President or a Vice President or the Secretary of Eaton at least 48 hours before the time fixed for the meeting, requesting cumulative voting, and if an announcement of that notice is made at the beginning of the meeting by the Chairman or Secretary, or by or on behalf of the shareholder who gave the notice. If cumulative voting is in effect with respect to an election of directors, each shareholder has the right to cumulate his or her voting power by giving one nominee that number of votes which equals the number of directors to be elected multiplied by the number of the shareholder's shares, or by distributing his or her votes on the same principle among two or more nominees, as the shareholder sees fit. If cumulative voting is in effect with respect to an election of directors, the individuals named in the proxy will vote the shares represented by the proxy cumulatively for those nominees that they may determine in their discretion, except that no votes will be cast for any nominee as to whom the shareholder giving the proxy has directed that his or her vote be withheld. 1. ELECTION OF DIRECTORS The Board of Directors is presently composed of eleven members. The terms of four directors will expire in April, 2000. One of these directors is Phyllis B. Davis. Mrs. Davis, a director since 1991, having attained the normal retirement age, will resign as director at the conclusion of the annual meeting of shareholders on April 26. The remaining three directors whose terms are expiring have been nominated for re-election. Each of the nominees was elected at the 1997 annual meeting. (See page 5.) If any of the nominees become unable or decline to serve, the individuals named in the enclosed proxy will have the authority to vote for substitutes. But Eaton's management has no reason to believe that this will occur. Following the annual meeting, the Board of Directors will be composed of ten members. Following is biographical information about each nominee and each director. 4 7 NOMINEES FOR ELECTION TO TERMS ENDING IN 2003 OR WHEN THEIR SUCCESSORS ARE ELECTED AND HAVE QUALIFIED: A. M. CUTLER PHOTO S. R. HARDIS PHOTO G. L. TOOKER PHOTO ALEXANDER M. CUTLER, 48, is STEPHEN R. HARDIS, 64, is GARY L. TOOKER, 60, is President and Chief Chairman and Chief Executive former Chairman and Chief Operating Officer of Eaton Officer of Eaton Executive Officer and a Corporation. Mr. Cutler Corporation. Mr. Hardis director of Motorola, Inc., joined Cutler-Hammer, Inc. joined Eaton in 1979 as a manufacturer of in 1975, which was Executive Vice electronics equipment. Mr. subsequently acquired by President - Finance and Tooker joined Motorola in Eaton, and became President Administration. He was 1962 and advanced to the of Eaton's Industrial Group elected Vice Chairman in position of Senior Executive in 1986 and President of the 1986 and designated Chief Vice President and Chief Controls Group in 1989. He Financial and Administrative Corporate Staff Officer in advanced to Executive Vice Officer. He became Chief 1986. He became Chief President - Operations in Executive Officer in Operating Officer in 1988, 1991, was elected Executive September, 1995 and Chairman President in 1990, Vice Vice President and Chief in January, 1996. Mr. Hardis Chairman and Chief Executive Operating Officer - Controls is a director of American Officer in December, 1993, in September, 1993 and Greetings, KeyCorp, Lexmark Chairman in 1997, and Vice assumed his present position International Group, Inc., Chairman in 1999. Mr. Tooker in September, 1995. Marsh & McLennan Companies, is a director of the DIRECTOR SINCE 1993 Nordson Corporation and Atlantic Richfield Company. Progressive Corporation. DIRECTOR SINCE 1992 DIRECTOR SINCE 1983
5 8 DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL 2002 N. C. LAUTENBACH PHOTO J. R. MILLER PHOTO F. C. MOSELEY PHOTO V. A. PELSON PHOTO NED C. LAUTENBACH, 56, is a JOHN R. MILLER, 62, is FURMAN C. MOSELEY, 65, is VICTOR A. PELSON, 62, is a partner of Clayton, Dubilier Chairman and Chief Executive Chairman of Sasquatch Senior Advisor to Warburg & Rice, Inc., an investment Officer of The Linden Group, Publishing Company. He is Dillon Read LLC, investment firm specializing in a buyout firm, and is a former President of Simpson bankers. Before joining structuring leveraged director of Cambrex Investment Company, holding Warburg Dillon Read in buyouts. Before joining Corporation and Waterlink, company for Simpson Paper April, 1996, Mr. Pelson was Clayton, Dubilier, Mr. Inc. He was President, Chief Company and Simpson Timber associated with AT&T from Lautenbach was associated Operating Officer and a Company. He was Chairman of 1959 to March, 1996, where with IBM from 1968 until his director of The Standard Oil Simpson Paper from 1969 to he held a number of retirement in 1998. At IBM, Company from 1980 to 1986. January, 1995 and retired as executive positions, he held several executive Mr. Miller was a self- President of Simpson including Group Executive positions, including Vice employed business consultant Investment in July, 1995. and President responsible President, President of IBM from 1986 to 1988, Managing Mr. Moseley is a director of for the Communications Asia Pacific, Senior Vice Director of TBN Holdings Owens Corning. Services Group, Executive President, Chairman of IBM Inc. from 1988 to 1993 and DIRECTOR SINCE 1975 Vice President and member of World Trade Corporation, served as President and the Management Executive Senior Vice President and Chief Executive Officer of Committee. At the time of Group Executive, Sales and TBN Holdings from 1993 until his retirement from AT&T, Distribution, and was a 1999, when he assumed his Mr. Pelson was Chairman of member of IBM's Corporate present position. Mr. Miller Global Operations and a Executive Committee. He is a formerly served as Chairman member of the Board of director of ChoicePoint, of the Federal Reserve Bank Directors. Mr. Pelson is a Inc., Dynatech Corporation, of Cleveland. director of Dun & Fidelity Mutual Funds, and DIRECTOR SINCE 1985 Bradstreet, Dynatech Corp., PPG Industries, Inc. United Parcel Service and DIRECTOR SINCE 1997 Carrier 1 International, S.A. DIRECTOR SINCE 1994
6 9 DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL 2001: E. GREEN PHOTO A. WILLIAM REYNOLDS PHOTO M. J. Critelli PHOTO MICHAEL J. CRITELLI, 51, is ERNIE GREEN, 61, is founder, A. WILLIAM REYNOLDS, 66, is Chairman and Chief Executive President and Chief Chief Executive of the Old Officer of Pitney Bowes Executive Officer of EGI, Mill Group, a private Inc., a provider of Inc., a manufacturer of investment firm. Mr. messaging and advanced automotive components. He is Reynolds is former Chairman business communications also President of Florida of GenCorp Inc. He was solutions. He was elected Production Engineering, Chairman of GenCorp from Vice Chairman of Pitney Inc., subsidiary of EGI. He 1987 through March, 1995 and Bowes in 1994. He was is a director of DP&L Inc., Chief Executive Officer from promoted to Vice Chairman and Pitney Bowes Inc. August, 1985 to July, 1994. and Chief Executive Officer DIRECTOR SINCE 1995 Mr. Reynolds is a director of the corporation in 1996, of Boise Cascade Corporation and Chairman and Chief and Boise Cascade Office Executive Officer in 1997. Products Corp. Mr. Critelli is a trustee of DIRECTOR SINCE 1987 the National Urban League. DIRECTOR SINCE 1998
7 10 BOARD COMMITTEES -- The Board of Directors has the following standing committees: Audit, Compensation and Organization, Corporate Responsibility and Public Policy, Executive and Finance. Audit Committee. The functions of the Audit Committee include aiding directors in fulfilling the Board's responsibility for the quality of financial reporting, meeting with the Company's director of internal audits to review the annual internal audit plan and, subsequently, the results of the audit, receiving and considering management recommendations regarding the appointment of independent auditors and recommending to the Board a firm to serve as independent auditors, meeting with the independent auditors and management to review the scope of and the plan for the annual audit and, subsequently, to review the results of the audit, reviewing any significant changes in accounting policies, reviewing the annual financial statements, reviewing significant non-audit professional services provided by the independent auditors and fees for those services and serving as the auditors' access to the Board (for both internal and independent auditors). The Audit Committee held three meetings in 1999. Present members are Messrs. Critelli, Green, Moseley and Reynolds. Compensation and Organization Committee. The functions of the Compensation and Organization Committee include recommending and attracting qualified candidates as director nominees, recommending the number of directors to serve for each ensuing year, reviewing and recommending changes in the functions and responsibilities of each of the Board's committees, reviewing proposed organization or responsibility changes at the officer level, evaluating the performance of the Chief Executive Officer and reviewing the performance evaluations of the other elected officers, reviewing succession planning for key officer positions and recommending the individual to assume the position of Chief Executive Officer if that position becomes vacant due to unforeseen circumstances. The committee is also responsible for recommending to the Board of Directors the salary of each elected officer and the retainer and attendance fees and other compensation to non-employee directors, reviewing awards to elected officers under the Executive Incentive Compensation Plan and the aggregate amount of awards under the Plan, adjusting that amount as appropriate within the terms of the Plan, establishing and subsequently determining the attainment of performance objectives under the Company's long-term incentive compensation plans, administering stock option plans and reviewing compensation and benefit plans as they relate to key employees to confirm that those plans remain equitable and competitive, as well as maintaining a program to analyze and recommend such plans for the long range, and preparing an annual report for the Company's proxy statement regarding executive compensation. The Compensation and Organization Committee held seven meetings in 1999. Present members are Mrs. Davis and Messrs. Lautenbach, Miller, Pelson and Tooker. The Compensation and Organization Committee will consider individuals for nomination to stand for election as directors who are recommended to it in writing by any Eaton shareholder. Any shareholder wishing to recommend an individual as a nominee for election at the annual meeting of shareholders to be held in 2001 should send a signed letter of recommendation, to be received before November 3, 2000, to the following address: Eaton Corporation, Eaton Center, Cleveland, Ohio 44114-2584, attention Corporate Secretary. Recommendation letters must state the reasons for the recommendation and contain the full name and address of each proposed nominee as well as a brief biographical history setting forth past and present directorships, employments, occupations and civic activities. Any such recommendation should be accompanied by a 8 11 written statement from the proposed nominee consenting to be named as a candidate and, if nominated and elected, consenting to serve as a director. Corporate Responsibility and Public Policy Committee. The function of the Corporate Responsibility and Public Policy Committee is to provide oversight regarding significant public issues of concern with respect to the Company's relationships with shareholders, employees, customers, competitors, suppliers and the communities in which the Company operates, including such areas as ethics, environmental, health and safety issues, diversity and equal employment opportunity, community relations, government relations, charitable contributions, shareholder and investor relations and the Eaton Philosophy -- Excellence through People. The Corporate Responsibility and Public Policy Committee held two meetings in 1999. Present members are Mrs. Davis and Messrs. Critelli, Green, Miller and Tooker. Executive Committee. The functions of the Executive Committee include all of the functions of the Board of Directors other than the filling of vacancies in the Board of Directors or in any of its committees. The Executive Committee acts upon matters requiring Board action during the intervals between Board meetings. It met once in 1999. Mr. Hardis is a member for the full twelve-month term; each of the non-employee directors serves a four-month term. Finance Committee. The functions of the Finance Committee include the periodic review of the Company's financial condition and the recommendation of financial policies, analyzing Company policy regarding its debt-equity relationship, reviewing and making recommendations regarding the Company's dividend policy, reviewing the Company's cash flow, proposals for long- and short-term debt financing and the risk management program, meeting with and reviewing the performance of management pension committees and any other fiduciaries appointed by the Board for pension and profit-sharing retirement plans and reviewing those plans and recommending modifications to them. The Finance Committee held two meetings in 1999. Present members are Messrs. Critelli, Green, Lautenbach, Moseley, Pelson and Reynolds. The Board of Directors held eight meetings in 1999. Two directors, Phyllis B. Davis and Furman C. Moseley attended fewer than 75% of the meetings of the Board and its committees. The average rate of attendance for all directors was 93%. COMPENSATION OF DIRECTORS -- Employee directors are not compensated for their services as directors. Non-employee directors receive an annual retainer of $40,000, an annual retainer of $5,000 for each non-employee director who serves as chairman of any standing committee of the Board, a fee of $1,500 for each Board meeting attended and for attendance at any special presentation on non-Board meeting days, and a fee of $1,000 for each Board committee and shareholder meeting attended. Non-employee directors first elected before 1996 may defer payment of their annual fees not to exceed $30,000 at a rate of interest specified in their deferred compensation agreements. The rate of interest is based upon the number of years until a director's normal retirement date and, in general, is higher than prevailing market rates. All non-employee directors may defer payment of their fees at a rate of return which varies, depending on whether the director defers the fees as retirement compensation or as short-term compensation. At least 50% of retirement compensation, or any greater portion which the director elects, is converted to share units and earns share price appreciation and dividend equivalents. The balance of retirement compensation earns 10-year Treasury note returns plus 300 basis points. Short-term 9 12 compensation earns 13-week Treasury bill returns. These arrangements provide for accelerated lump sum or installment payments upon a failure by the Company to pay or termination of service in the context of a change in control of the Company. Under the Company's 1998 Stock Plan, as approved by the shareholders, each person who on April 22, 1998 or thereafter becomes a non-employee director automatically is granted an option for 5,000 shares upon the date of his or her election. So long as each non-employee director continues to serve in that capacity, beginning in the year after the director receives his or her initial grant, he or she is automatically granted an option for a number of shares equal to the quotient resulting from dividing (i) four times the annual retainer for each non-employee director in effect on the granting date, by (ii) the closing price of an Eaton common share on the New York Stock Exchange Composite Transactions on the last business day immediately preceding the granting date. The granting date is the Tuesday immediately before the fourth Wednesday of each January. Upon leaving the Board, non-employee directors who were first elected prior to 1996 are eligible to receive an annual benefit, as described below. For Board service of at least five years, eligible directors receive an annual benefit equal to the annual retainer in effect at the time the directors leave the Board. Eligible directors having fewer than five years but more than one year of Board service at the time of their Board retirement receive a proportionately reduced annual benefit. The annual benefit is paid for the lesser of ten years or life. The present value of payments under this plan will be paid in a lump sum upon a "proposed change in control" of the Company, unless otherwise determined by a committee of the Board. Directors who are first elected in 1996 or later are not eligible to receive the annual benefit. EXECUTIVE COMPENSATION -- The following table summarizes the total compensation of the Chief Executive Officer of Eaton and the four other most highly compensated executive officers for fiscal year 1999. The table also summarizes compensation of the named executive officers for fiscal years 1998 and 1997. 10 13 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------- AWARDS PAYOUTS -------- ---------- LONG- ANNUAL COMPENSATION OTHER STOCK TERM ALL OTHER ---------------------------- ANNUAL OPTIONS INCENTIVE COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (SHARES) PAYOUTS (1) - ----------------------------------------------------------------------------------------------------------------------- S. R. Hardis 1999 $946,700 $1,345,612 $ 0 125,000 $ $777,437 Chairman and Chief 1998 866,680 1,053,531 0 60,000 1,130,481 449,931 Executive Officer 1997 790,000 1,534,680 0 250,000 973,409 748,410 A. M. Cutler 1999 $695,040 $ 914,250 $ 0 75,000 $ $ 26,944 President and Chief Operating 1998 640,040 715,479 0 36,000 793,221 26,034 Officer 1997 586,680 990,031 0 175,000 709,458 22,733 B. R. Bachman 1999 $380,040 $ 364,657 $ 0 35,000 $ $ 14,560 Senior Vice President 1998 355,020 299,495 0 17,000 0 24,788 and Group Executive -- 1997 332,040 418,044 0 90,000 225,000 18,844 Hydraulics, Semiconductor Equipment and Specialty Controls R. J. McCloskey 1999 $377,360 $ 422,234 $ 0 30,000 $ $ 16,985 Senior Vice President 1998 354,020 346,783 0 15,000 348,331 49,962 1997 330,700 437,046 0 90,000 310,938 21,887 T.W. O'Boyle 1999 $400,340 $ 441,427 $ 0 30,000 $ $ 21,489 Senior Vice President and 1998 366,000 394,072 0 15,000 348,331 25,443 Group Executive -- 1997 338,680 494,052 0 90,000 310,938 29,604 Truck Components - -----------------------------------------------------------------------------------------------------------------------
(1) All Other Compensation contains several components. The Eaton Corporation Share Purchase and Investment Plan permits an employee to contribute from 1% to 6% of his or her salary to the matching portion of the plan. Eaton makes a matching contribution which, except in special circumstances, ranges between $.25 and $1.00 for each dollar contributed by the participating employee, as determined under a formula designed to reflect Eaton's quarterly earnings per share. The amount the Company contributed during 1999 for each of the named executive officers was as follows: S. R. Hardis, $8,804; A. M. Cutler, $8,060; B. R. Bachman, $4,392; R. J. McCloskey, $2,822 and T. W. O'Boyle, $5,579. The Company maintains plans pursuant to which incentive compensation may be deferred. Earning on such deferrals which are above rates established by the Internal Revenue Service are disclosed in this table. Those earnings during 1999 for each of the named executive officers were as follows: S. R. Hardis, $735,725; A. M. Cutler, $3,405; B. R. Bachman, $0; R. J. McCloskey, $4,795; and T. W. O'Boyle, $1,733. Under a Company program, each executive officer may acquire an automobile. Under this program for 1999, the approximate cost to the Company for each of the named executive officers was as follows: S. R. Hardis, $13,020; A. M. Cutler, $10,522; B. R. Bachman, $9,486; R. J. McCloskey, $5,613; T. W. O'Boyle, $12,366. The Company provides certain executives, including the named executive officers, with the opportunity to acquire individual whole-life insurance. The annual premiums paid by the Company during 1999 for each of the named executive officers were as follows: S. R. Hardis, $19,888; A. M. Cutler, $4,957; B. R. Bachman, $682; R. J. McCloskey, $3,755; and T. W. O'Boyle, $1,811. Each executive officer is responsible for paying individual income taxes due with respect to the Company's automobile and insurance programs. 11 14 AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES -- The following table contains information concerning the exercise of stock options during fiscal year 1999 and the value of unexercised stock options at the end of fiscal year 1999 with respect to the named executive officers.
TOTAL VALUE OF TOTAL NUMBER OF UNEXERCISED, UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES HELD AT HELD AT ACQUIRED ON FISCAL YEAR END FISCAL YEAR END EXERCISE VALUE --------------------------- --------------------------- NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------------- S. R. Hardis 11,478 $681,033 287,136 310,000 $4,689,414 $300,625 A. M. Cutler 4,140 247,057 239,926 198,500 4,462,134 192,906 B. R. Bachman 0 0 64,000 97,000 429,475 94,200 R. J. McCloskey 2,540 147,409 82,460 90,000 845,397 87,188 T. W. O'Boyle 11,104 601,974 85,416 90,000 953,505 87,188 - -------------------------------------------------------------------------------------------------------
OPTION GRANTS -- The following table gives information concerning grants of stock options made during fiscal year 1999 to each of the named executive officers. No stock appreciation rights were granted during fiscal year 1999.
INDIVIDUAL GRANTS ------------------------------------------------ PERCENT OF TOTAL NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED SECURITIES GRANTED TO ANNUAL RATES OF STOCK PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM OPTIONS IN FISCAL OR BASE EXPIRATION ----------------------------------------- NAME GRANTED (#) YEAR(1) PRICE DATE 0% 5% 10% - ----------------------------------------------------------------------------------------------------------------- S. R. Hardis 125,000 5.73 $71.41 1/26/09 $0 $ 5,623,538 $ 14,192,738 A. M. Cutler 75,000 3.44 71.41 1/26/09 0 3,374,123 8,515,643 B. R. Bachman 35,000 1.60 71.41 1/26/09 0 1,574,591 3,973,967 R. J. McCloskey 30,000 1.37 71.41 1/26/09 0 1,349,649 3,406,257 T. W. O'Boyle 30,000 1.37 71.41 1/26/09 0 1,349,649 3,406,257 - ------------------- All Shareholders(2) N/A N/A N/A N/A 0 3,278,102,081 8,273,305,252 ------------- -------------
(1) Based on a total of 2,182,900 options granted to all employees. All options granted to the named executive officers were granted on January 26, 1999. As granted, one-third of the options become exercisable upon each of the first, second and third anniversary of the date of grant. (2) At the assumed annual rates of stock price appreciation of 0%, 5% and 10%, the value of all 72,865,658 shares outstanding on January 31, 2000 would increase by the amounts shown. There can be no assurance that the market price of Eaton shares will increase in the future. - -------------------------------------------------------------------------------- 12 15 LONG-TERM INCENTIVE PLAN AWARDS -- The following table gives information regarding Long-Term Incentive Plan awards made during fiscal year 1999 to each of the named executive officers.
PERFORMANCE OR OTHER NUMBER OF PERIOD ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK SHARES, UNTIL PRICE BASED PLANS UNITS OR MATURATION ---------------------------------------- NAME OTHER RIGHTS(1) OR PAYOUT THRESHOLD TARGET MAXIMUM - --------------------------------------------------------------------------------------------------- S. R. Hardis 10,200 4 years 5,100 10,200 20,400 A. M. Cutler 7,100 4 years 3,550 7,100 14,200 B. R. Bachman 3,700 4 years 1,850 3,700 7,400 R. J. McCloskey 3,700 4 years 1,850 3,700 7,400 T. W. O'Boyle 3,700 4 years 1,850 3,700 7,400 - ---------------------------------------------------------------------------------------------------
(1) These units were awarded during 1999 under the Company's long term incentive plan at a target price per unit of $70.93. The actual, final value of the units will be determined after the completion of the four-year award period based upon the achievement of corporate and individual performance goals. The corporate goals relate to cash flow return on gross capital and growth in earnings per Company common share. Any future payouts will be made in Company common shares, unless the executive has elected to defer receipt of the payment under the Company's long term deferral plan or to the extent necessary to satisfy tax withholding requirements. COMPENSATION AND ORGANIZATION COMMITTEE REPORT -- The Committee, consisting of five non-employee directors, met seven times in 1999. The Committee has adopted several fundamental compensation policies which have been endorsed by the Board of Directors. It is Committee policy that executive compensation must to a large extent be at risk, in the sense of being dependent on achieving rigorous Company, business unit and individual performance objectives that are designed to enhance shareholder value. It is also Committee policy that executive compensation must be competitive in the employment marketplace in order to allow the Company to attract, motivate and retain highly qualified executives, and that it must fairly reflect, in the judgment of the Committee, accomplishments and responsibilities within the Company. The administration of the Company's executive compensation is consistent with these policies. This is confirmed by studies of Company and industry practices conducted for the Committee at least every two years with the assistance of a nationally recognized consulting firm, the results of which are summarized for the Board of Directors. Based on the study conducted during 1999 and the consulting firm's recommendations, the Committee has established annual guidelines designed to limit the dilutive effect of the Company's stock option grants. Further, the Committee will review the Company's short-term incentive plan to confirm that its performance metrics are aligned with the Company's earnings growth objectives. Sixty-six percent of the 1999 aggregate cash compensation of the executive officers named in the compensation table was based directly on specific financial performance objectives. For 1999, the Committee established base salary at approximately the median range of compensation paid by similar companies included in the survey data bases of several nationally recognized compensation consulting firms. The Committee also established short-term and long-term incentive opportunities and stock option grants at approximately the median 13 16 range, with opportunities for larger payments if the Company achieves superior performance. SALARY -- In setting executive salaries, the Committee uses input from outside sources as noted above and management recommendations for individual adjustments. In judging performance, the Committee considers performance against annual plans, accomplishment of other objectives and the financial results of similar companies. The Company also normally considers factors such as initiative and leadership, as well as time in position, experience, knowledge and level of competitive compensation in the marketplace. Consistently effective individual performance is a threshold requirement for any salary increase. The Committee considers these same factors when preparing its recommendations for base salary adjustments for the Company's Chairman and Chief Executive Officer. The Committee's recommendations for 1999 salary adjustments were based upon these considerations and accepted by the Board of Directors. SHORT-TERM INCENTIVES -- Annual performance awards, including those paid in 1999, are based on percentages of salary range midpoints and depend on whether the Company has achieved predetermined levels of cash flow return on gross capital employed in the business ("CFR"), individual performance ratings, business unit performance (for operating managers) and Committee discretion. CFR correlates well with corporate performance and is a measure easily understood by incentive compensation plan participants. The Committee also believes that, over time, consistently high CFR provides a good statistical correlation with sustained high stock market valuation. No payments are made unless the Company achieves the predetermined CFR levels, as it did in 1999. Individual performance ratings take into account factors such as unanticipated challenges and opportunities, actual performance against profit plan, personal objectives, general economic conditions and the performance of other large industrial corporations. Individual ratings emphasize pay for performance, and may result in payments ranging from zero to 150% of the amount otherwise payable. The Committee may adjust the total amount available for payment under the plan up or down by 20%. Payments to executive officers for 1999 were made at levels generated by the plan metrics and were not affected by the exercise of this discretion. Executives may defer payment of their bonuses. Amounts deferred until retirement earn the greater of share price appreciation and dividend equivalents or 13-week Treasury bill returns. Amounts deferred for shorter periods earn Treasury bill returns. LONG-TERM INCENTIVES -- Long-term incentives are granted annually. Their value depends on whether the Company achieves aggressive performance objectives during the four years following a grant. For award periods beginning before 1998, these objectives were expressed in terms of CFR. For award periods beginning in 1998, the Committee significantly raised the performance hurdle, which is now expressed as a combination of CFR, growth in earnings per share and a discretionary assessment of individual performance. The performance objectives are established by the Committee based upon a review with management of the Company's past performance in comparison to that of its peer group companies and the Company's strategic objectives and annual business plans. For the 1996-1999 award period, the Company substantially exceeded the target objectives established for that period. Payments are made in cash for award periods beginning before 1998. For later award periods, payments will be made in Eaton shares except to the extent necessary to satisfy tax-withholding obligations. Executive officers may defer payment of their awards. At least 50% of any deferrals that will be paid after retirement are converted to share units and earn share price appreciation and dividend equivalents. The 14 17 balance earns 10-year Treasury note returns plus 300 basis points. Short-term deferrals earn 13-week Treasury bill returns. TAX DEDUCTION -- Any non-deferred annual compensation of more than $1 million for the Company's Chief Executive Officer and each of its four other most highly-compensated officers is not tax deductible unless paid pursuant to formula-driven, performance-based arrangements that preclude Committee discretion to adjust compensation after the beginning of the period in which the compensation is earned. The Committee preserves deductibility by requiring deferrals of otherwise non-deductible payments. STOCK OPTIONS -- Stock options align the interests of the Company's officers and other executives with those of its shareholders by having a significant component of their compensation tied directly to increases in shareholder value. All officers of the Company are expected to hold a multiple of from two to five times their base salary in Company shares depending on their level in the organization. Options typically have been granted annually, have an exercise price equal to the fair market value of the shares on the date of the grant and, to encourage a long-term perspective, have an exercise period of ten years. The Company does not "reprice" stock options after they have been granted and does not grant stock appreciation rights. Based upon its 1999 review of compensation practices, the Committee has adopted guidelines that limit the Company's regular total stock option grants, during any five-year period, to a maximum of 10% of the Company's outstanding shares. CHIEF EXECUTIVE OFFICER COMPENSATION -- The 1999 compensation of S.R. Hardis, the Company's Chief Executive Officer, was earned pursuant to the arrangements described above. The Committee recommended, and the Board of Directors approved, a 1999 adjustment to Mr. Hardis' base salary to reflect his overall performance in this key strategic leadership role, to position his salary competitively in the marketplace, and to reflect his time in this position. Mr. Hardis' 1999 short-term incentive payout reflected the award formula of the Company's incentive compensation plan, which was based primarily on the Company's financial performance, as measured by CFR compared to targets set by the Committee for 1999. Consistent with the plan's design, this formula-driven payout was further adjusted to reflect the Committee's evaluation of Mr. Hardis' performance. In addition to the Company's financial performance that achieved the Board approved 1999 Profit Plan, this evaluation took into account the Company's $2.1 billion acquisition of Aeroquip-Vickers, Inc., the largest acquisition in the Company's history. This complementary acquisition fundamentally repositions the Company's hydraulics businesses among the world leaders. Under Mr. Hardis' leadership, the Company has made significant progress in integrating the Aeroquip-Vickers' operations during 1999, while successfully divesting several business units on terms that created value for shareholders and restored strength to the balance sheet. This evaluation also took into account Mr. Hardis' continued focus on the Company's strategic direction, his management of succession issues and his effectiveness as the Company's principal spokesman. Mr. Hardis also earned a 1996-1999 payout from the Executive Strategic Incentive Plan, which was based on the Company's four-year CFR performance against stretch objectives established by the Committee for this period. The grants of stock options and long-term incentives were based on the factors described in earlier sections of this report. Respectfully submitted to the Company's shareholders by the Compensation and Organization Committee of the Board of Directors. John R. Miller, Chairman Phyllis B. Davis Ned C. Lautenbach Victor A. Pelson Gary L. Tooker 15 18 COMPANY STOCK PERFORMANCE -- The following graph compares the cumulative total return for Eaton common shares with the S&P 500 Index and with a group of 20 peer companies: Aeroquip-Vickers, Inc., Applied Materials, Inc., Borg-Warner Automotive, Inc., Cooper Industries, Inc., Cummins Engine Company, Inc., Dana Corporation, Detroit Diesel Corporation, Emerson Electric Co., Honeywell Inc., Hubbell Incorporated, Johnson Controls, Inc., Meritor Automotive, Inc., Navistar International Corporation, PACCAR Inc., Parker-Hannifin Corporation, Rockwell International Corporation, SPX Corporation, TRW Inc., Thomas & Betts Corporation and Varian Associates, Inc. The company expressed disappointment with its relative stock performance, especially over the past two years as the stock market has narrowed its focus almost exclusively to the "high tech" sector. It noted that, among its peers, only Applied Materials ("high tech" semiconductor equipment) and Honeywell (acquired by Allied-Signal near year-end 1999) had outperformed the S&P 500 index over the past half decade. Excluding those two firms from the index, the cumulative total return of the revised peer group dropped from $269 to $191.
EATON PEERS S&P 500 ----- ----- ------- 1994 100.00 100.00 100.00 1995 111.00 132.00 138.00 1996 147.00 158.00 169.00 1997 191.00 190.00 226.00 1998 154.00 194.00 290.00 1999 160.00 253.00 351.00
Assumes $100 invested on December 31, 1994 in Eaton common shares, the S&P 500 index and stock of the peer companies. Total return assumes that all dividends are reinvested when received. The returns of each company in the group of peer companies are weighted based on the relative stock market capitalization of those companies. 16 19 RETIREMENT PLANS -- The following table shows the annual normal retirement benefits payable to officers and other employees of the Company under the Company's retirement plans upon retirement at age 65 at the compensation levels and years of service specified. The table assumes retirement under the standard post-retirement single life annuity option. Under the standard post-retirement surviving spouse option, the participant receives a reduced pension, and a pension equal to 50% of the reduced pension is payable to his or her surviving spouse. The benefit for an employee electing that option whose spouse is three years younger would be approximately 11% less than the amounts shown in the table. PENSION PLAN TABLE
ANNUAL NORMAL RETIREMENT BENEFITS PURSUANT TO STANDARD AVERAGE FINAL SINGLE LIFE ANNUITY OPTION FOR YEARS OF CREDITED SERVICE INDICATED ANNUAL ----------------------------------------------------------------------- COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS - --------------------------------------------------------------------------------------------- $ 300,000 $ 65,165 $ 86,887 $108,609 $130,331 $152,053 $ 173,774 400,000 87,665 116,887 146,109 175,331 204,553 233,774 500,000 110,165 146,887 183,609 220,331 257,053 293,774 600,000 132,665 176,887 221,109 265,331 309,553 353,774 700,000 155,165 206,887 258,609 310,331 362,053 413,774 800,000 177,665 236,887 296,109 355,331 414,553 473,774 900,000 200,165 266,887 333,609 400,331 467,053 533,774 1,000,000 222,665 296,887 371,109 445,331 519,553 593,774 1,100,000 245,165 326,887 408,609 490,331 572,053 653,774 1,200,000 267,665 356,887 446,109 535,331 624,553 713,774 1,300,000 290,165 386,887 483,609 580,331 677,053 773,774 1,400,000 312,665 416,887 521,109 625,331 729,553 833,774 1,500,000 335,165 446,887 558,609 670,331 782,053 893,774 1,600,000 357,665 476,887 596,109 715,331 834,553 953,774 1,700,000 380,165 506,887 633,609 760,331 887,053 1,013,774 1,800,000 402,665 536,887 671,109 805,331 939,553 1,073,774 1,900,000 425,165 566,887 708,609 850,331 992,053 1,133,774
The information contained in the preceding table is based on the assumption that the retirement plans will be continued in their present form. Annual normal retirement benefits are computed at the rate of 1% of average final annual compensation up to the applicable Social Security integration level ($31,128 for 1999 retirements) plus 1 1/2% of average final annual compensation in excess of the Social Security integration level, multiplied by the employee's years of credited service. An employee's average final annual compensation is the average annual amount of his or her total compensation (which includes salary and bonus as so identified in the Summary Compensation Table on page 11) for service during the five consecutive years within the last ten years of employment for which the employee's total compensation was greatest. Years of credited service means the number of years of employment between age 21 and retirement, with a maximum of 44 years. As of January 31, 2000, the number of years of credited service for each of the individuals named in the Summary Compensation Table on page 11 was as follows: S. R. Hardis, 20.4; A. M. Cutler, 24.4; B. R. Bachman, 4.1; R. J. McCloskey, 30.8; and T. W. O'Boyle, 33.3. --------------- Certain provisions of the Internal Revenue Code, as amended, limit the annual benefits that may be paid from a tax-qualified retirement plan. As permitted under the Code, the Board of 17 20 Directors has authorized the payment from Eaton's general funds of any benefits calculated under the provisions of the applicable retirement plan which may exceed those limits. The present value of these benefits will be paid in a single installment upon a proposed change in control of the Company unless otherwise determined by the Board of Directors. --------------- The Board of Directors has adopted a plan which provides supplemental annual retirement income to certain executives who do not have the opportunity to accumulate significant credited service with Eaton, provided that they retire at age 55 or older and have at least five years of service with Eaton. The amount of the annual supplement is generally equal to the amount by which a percentage (described below) of the executive's average final annual compensation exceeds his or her earned retirement income (which includes amounts receivable pursuant to the retirement plans described above as well as retirement plans maintained by the executive's previous employers). The percentage of average final annual compensation used for this purpose depends upon an executive's age and years of service at retirement. The percentage ranges from 20% (for retirements at age 55 with less than 15 years of service) to 45% (for retirements at age 65 with 15 years or more of service). Under the plan, the present value of payments will be paid in a single installment upon a proposed change in control of the Company unless otherwise determined by the Board of Directors. Five executive officers currently are participating in the plan, including S. R. Hardis and B. R. Bachman, who are named in the Summary Compensation Table on page 11. The estimated annual benefits payable under this plan are $261,202 to Mr. Hardis, and $161,481 to Mr. Bachman, based on the assumptions that both retire at age 65 and that their base salary and target incentive compensation increase at 4% per annum. --------------- The Company has entered into agreements with its executive officers, including those named in the Summary Compensation Table on page 11, which provide for payments and benefits in the event of a termination of employment in the context of a change of control of the Company. The purpose of these agreements is to assure continued dedication, and to diminish the inevitable distraction caused by personal uncertainties and risks, in the event of a corporate change of control. The agreements provide that each officer, for three years following a change of control, will have duties, salary, bonus, fringe benefits and opportunities for savings, incentive earnings and retirement compensation no less favorable than was previously the case. If the Company were to terminate an officer's employment during this three-year period for reasons other than cause or disability, or if the officer were to terminate employment because of changed circumstances, then the officer would be entitled to receive certain amounts and benefits under these agreements. These amounts and benefits would include (i) long-term incentive compensation reflective of the portion of the award periods completed prior to termination, (ii) salary and bonus multiplied by three (or any lesser number of years and portions thereof until age 65), and (iii) continuation of medical, life insurance and other welfare benefits for two years (or any lesser number of years and portions thereof until age 65), subject to reduction for comparable benefits received in any subsequent employment. The officer would be entitled to receive an additional payment, net of taxes, to compensate for the excise tax imposed on these and other payments if they are determined to be "excess parachute payments" under the Internal Revenue Code. The agreements provide that, upon the occurrence of a proposed change of control, the Company would deposit in trust a cash amount sufficient to provide the benefits and payments to which the officers would be entitled under the 18 21 agreements upon a change of control and termination of employment. The agreements also provide that the Company would reimburse the officers for any costs incurred to enforce the agreements. --------------- Certain grantor trusts established by the Company hold approximately $36 million of marketable securities and 493,000 Company shares in order to provide for a portion of the Company's deferred compensation obligations. The trust assets, which are subject to the claims of the Company's creditors, will be used to pay those obligations in proportion to trust funding. The trusts provide for full funding upon a change in control of the Company and for accelerated lump sum or installment payments upon a failure by the Company to pay amounts due under the plans or upon a termination of employment in the context of a change in control. 2. ADOPTION OF AMENDED REGULATIONS THIS DESCRIPTION OF PROPOSED AMENDMENTS TO ARTICLE I, SECTION 8 OF THE COMPANY'S AMENDED REGULATIONS IS A SUMMARY ONLY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COPY OF PROPOSED NEW ARTICLE I, SECTION 8 INCLUDED AS EXHIBIT A TO THIS PROXY STATEMENT. SHAREHOLDERS ARE URGED TO READ EXHIBIT A IN ITS ENTIRETY. The ability of the Company's shareholders to exercise their rights as shareholders through the use of proxies is governed by Section 1701.48 of the Ohio Revised Code (the "Ohio Law") and Section 8 of Article I ("Section 8") of the Company's Amended Regulations (the "Amended Regulations"). Historically, the Ohio Law and Section 8 have required that a proxy be in the form of a writing signed by the shareholder, a photographic, photostatic or equivalent reproduction of such a writing, or a telegram or cablegram appearing to have been transmitted by the shareholder. Neither the Ohio Law nor Section 8 have contemplated or permitted other means of appointing a proxy that modern technology have made possible in recent years. In 1999, the Ohio legislature adopted amendments to Section 1701.48 of the Ohio Law that expand the permitted means of appointing a proxy to take advantage of these modern technologies. In particular, the Ohio Law was amended to provide that, in addition to other permitted means of appointing a proxy, a shareholder may also appoint a proxy through specified types of "verifiable communication" authorized by the shareholder. The Ohio Law defines verifiable communication as "any transmission that creates a record capable of authentication, including, but not limited to, a telegram, a cablegram, electronic mail, or an electronic, telephonic, or other transmission, that appears to have been transmitted" by a shareholder and that appoints a proxy. The amendments to Section 1701.48 also provide that, in addition to other types of copies of signed proxies previously permitted by the Ohio Law, facsimile transmission of a signed writing that appoints a proxy is sufficient to appoint a proxy. The current version of Section 8 in general follows the language of Section 1701.48 of the Ohio Law as it existed prior to the adoption of the amendments summarized above. Accordingly, in its present form, Section 8 does not permit shareholders to appoint proxies in the additional ways now permitted by the Ohio Law. The proposed amendments to Section 8 would, if adopted, permit the Company's shareholders to take advantage of the expanded means of appointment proxies now permitted by the Ohio Law. It is also proposed that the current Amended Regulations be changed to substitute gender-neutral language for masculine pronouns wherever appearing throughout the document. Except for the changes described above, the proposed Amended Regulations would in all 19 22 respects be identical to the existing Amended Regulations. Adoption of Amended Regulations requires the affirmative vote of the shareholders of record entitled to exercise a majority of the voting power on such proposal. The Board of Directors of the Company unanimously recommends a vote FOR the proposal to adopt Amended Regulations. 3. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS Upon the recommendation of its Audit Committee, the Board of Directors has appointed the accounting firm of Ernst & Young LLP as independent auditors to conduct the annual audit of Eaton's books and records for 2000. The submittal of this matter to the shareholders at the annual meeting is not required by law or by Eaton's Amended Regulations. The Board of Directors is nevertheless submitting it to the shareholders to ascertain their views. If this proposal is not approved at the annual meeting by the affirmative vote of holders of a majority of the outstanding shares, the Board intends to reconsider its appointment of Ernst & Young LLP as independent auditors. A representative of Ernst & Young LLP will be present at the annual meeting to answer any questions concerning the independent auditors' areas of responsibility. The Board of Directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP. 4. OTHER BUSINESS Management does not know of any other matters requiring shareholder action that may come before the meeting; but, if any are properly presented, the individuals named in the enclosed form of proxy will vote on those matters according to their best judgment. OWNERSHIP OF OUTSTANDING VOTING SHARES -- Set forth below is certain information concerning persons who are known by Eaton to have reported owning beneficially more than 5% of the Company's common shares as of the most recent practicable date. Title of Class: Common Shares
NAME AND ADDRESS OF NUMBER PERCENT BENEFICIAL OWNER OF SHARES OF CLASS - --------------------------------------------------- FMR Corporation 7,426,974 10.343% 82 Devonshire Street Boston, Massachusetts 02109 - ---------------------------------------------------
FMR Corporation has filed with the Securities and Exchange Commission a Schedule 13G dated July 10, 1999, which reports the beneficial ownership of 7,426,974 common shares by it and certain affiliated entities and individuals. As reported in the Schedule 13G, FMR Corporation and these affiliated entities and individuals have sole voting power with respect to 526,224 common shares and sole power to dispose or to direct the disposition of 7,426,974 common shares. 20 23 The following table shows the beneficial ownership, reported to the Company as of January 31, 2000, of Company common shares by each director and nominee, each executive officer named in the Summary Compensation Table on page 11 and all of those individuals and all other executive officers as a group and also sets forth the number of share units held under various deferred compensation plans. TITLE OF CLASS: COMMON SHARES
NAME OF NUMBER PERCENT TOTAL NUMBER OF BENEFICIAL OF SHARES OF DEFERRED SHARES AND OWNER OWNED(1,2) CLASS(3) SHARE UNITS(4) DEFERRED SHARE UNITS - ----------------------------------------------------------------------------------------------- B. R. Bachman 77,993(5) -- 6,354 84,347 M. J. Critelli 7,062 -- 0 7,062 A. M. Cutler 289,899(5,6) -- 46,907 336,806 P. B. Davis 10,943 -- 479 11,422 E. Green 10,122 -- 722 10,844 S. R. Hardis 386,543(5) -- 182,877 569,420 N. C. Lautenbach 9,622 -- 1,794 11,416 R. J. McCloskey 102,407(5) -- 7,472 109,879 J. R. Miller 14,122 -- 0 14,122 F. C. Moseley 23,622(6) -- 807 24,429 T. W. O'Boyle 111,036(5) -- 6,053 117,089 V. A. Pelson 11,622(6) -- 1,928 13,550 A. W. Reynolds 15,622 -- 925 16,547 G. L. Tooker 12,622(6) -- 1,063 13,685 Directors, Nominees and Executive Officers as a group of 31 2,102,239 345,315 2,447,554 - -----------------------------------------------------------------------------------------------
(1) Each person has sole voting and investment power with respect to the shares listed, unless otherwise indicated. (2) Includes shares which the person has the right to acquire within 60 days after January 31, 2000 upon the exercise of outstanding stock options as follows: S. R. Hardis, 328,386; A. M. Cutler, 264,676; B. R. Bachman, 75,950; R. J. McCloskey, 92,360; T. W. O'Boyle, 95,316; and all directors, nominees and executive officers as a group, 1,713,960 shares. (3) Each of the individuals listed holds less than 1% of outstanding common shares. (4) For descriptions of these units, see pages 9-10 and 14-15. (5) Includes shares held under the Eaton Corporation Share Purchase and Investment Plan as of January 31, 2000. Participants in the plan are entitled to direct the plan trustee's voting of shares which are not allocated to any participant's account. None of the unallocated shares are included among the shares beneficially owned by the executive officers. (6) Includes shares held jointly or in other capacities, such as by trust. 21 24 Employee benefit plans of the Company and its subsidiaries on January 31, 2000 held 7,972,985 common shares for the benefit of participating employees, or 11% of common shares outstanding. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE -- Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and officers to file reports of holdings and transactions in the Company's equity securities with the Securities and Exchange Commission and the New York Stock Exchange. The Company believes that there was compliance with all such filing requirements with respect to 1999, except that J. J. Mikelonis, a former officer of the Company, had one late report, and B. K. Rawot, Vice President and Controller, had one late report. FUTURE SHAREHOLDER PROPOSALS -- Shareholders who wish to submit proposals for inclusion in the proxy statement and for consideration at the annual meeting must do so on a timely basis. In order to be included in the proxy statement for the 2000 annual meeting, proposals must relate to proper subjects and must be received by the Corporate Secretary, Eaton Corporation, Eaton Center, Cleveland, Ohio 44114-2584, before November 16, 2000. By order of the Board of Directors /s/ E. R. FRANKLIN Earl R. Franklin Secretary March 17, 2000 EXHIBIT A PROPOSED AMENDED REGULATIONS ARTICLE I, SECTION 8 -- PROXIES A. A person who is entitled to attend a shareholders' meeting, to vote at a shareholders' meeting, or to execute consents, waivers, or releases, may be represented at the meeting or vote at the meeting, may execute consents, waivers, and releases, and may exercise any of the person's other rights, by proxy or proxies appointed by a writing signed by the person, appointed by a verifiable communication authorized by the person, or appointed by any other means or in any other form now or hereafter permitted by Ohio Revised Code Chapter 1701 or any successor statute. B. Any transmission that creates a record capable of authentication, including, but not limited to, a telegram, a cablegram, electronic mail, or an electronic, telephonic, or other transmission, that appears to have been transmitted by a person described in subsection A of this Section 8, and that appoints a proxy is a sufficient verifiable communication to appoint a proxy. A photographic, photostatic, facsimile transmission, or equivalent reproduction of a writing that is signed by a person described in subsection A of this Section 8 and that appoints a proxy is a sufficient writing to appoint a proxy. C. No appointment of a proxy is valid after the expiration of eleven months after it is made unless the writing or other form of proxy appointment specifies the date on which it is to expire or the length of time it is to continue in force. D. Unless the writing or other form of proxy appointment otherwise provides: (1) Each proxy has the power of substitution, and, if three or more proxies are appointed, a majority of them or of their substitutes may appoint one or more substitutes to act for all; 22 25 (2) If more than one proxy is appointed, then (a) with respect to voting or executing consents, waivers, or releases, or objections to consents at a shareholders' meeting, a majority of the proxies that attend the meeting, or if only one attends then that one, may exercise all the voting and consenting authority at the meeting; and if one or more attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise that authority with respect to an equal number of shares; (b) with respect to exercising any other authority, a majority may act for all; (3) A revocable appointment of a proxy is not revoked by the death or incompetency of the maker unless, before the vote is taken or the authority granted is otherwise exercised, written notice of the death or incompetency of the maker is received by the Corporation from the executor or administrator of the estate of the maker or from the fiduciary having control of the shares in respect of which the proxy was appointed; (4) The presence at a meeting of the person appointing a proxy shall not revoke the appointment. Without affecting any vote previously taken, the person appointing a proxy may revoke a revocable appointment by a later appointment received by the Corporation or by giving notice of revocation to the Corporation in writing, by a verifiable communication, by other statutorily permissible means, or in open meeting. Any signature on any instrument, or any reproduction of a signature on any photographic, photostatic, facsimile transmission or equivalent reproduction of any instrument, approved by the inspectors hereinafter provided for as genuine, or as a reproduction of a genuine signature, shall be deemed to be the signature of the shareholder whose name is signed thereon, or a reproduction of the genuine signature of such shareholder, as the case may be, and the falsity of such signature or of such reproduction shall in no manner impair the validity of such instrument or such reproduction of such instrument, or of any vote or action taken at such meeting, provided that such shareholder shall not have previously filed with the Corporation his or her authorized signature guaranteed by a reputable bank or trust company. Any record of a verifiable communication, or other statutorily permissible means of proxy appointment, approved by such inspectors as authentic shall be deemed to be authentic, and the falsity of such record shall in no manner impair the validity of such verifiable communication, or other statutorily permissible means of proxy appointment, or of any vote or action taken at such meeting. 23 26 LOGO Admission to the Annual Meeting Shareholders who plan to attend the 2000 annual meeting of shareholders may apply for admission tickets at the Registration Desk immediately prior to the meeting. Shareholders whose shares are registered in the name of a broker or bank should obtain certification of ownership to bring to the meeting. Eaton Corporation Eaton Center Cleveland, Ohio 44114-2584 ------------------------------------------------------ LOGO 27 EATON CORPORATION EATON CENTER P CLEVELAND, OHIO 44114-2584 ------------------------------------------------------------------- R Eaton Logo O The undersigned hereby appoints S. R. Hardis, J. R. Horst and E. R. Franklin as proxies, each with the power to appoint his substitute, X and hereby authorizes them to represent and to vote, as designated on the reverse side of this card, all of the Eaton common shares, Y including reinvestment shares, if any, held by the undersigned on February 28, 2000, at the annual meeting of shareholders to be held at the Company's Cutler-Hammer Headquarters, 1000 Cherrington Parkway, Moon Township, PA, on April 26, 2000, at 10:30 a.m. local time and at any adjournments thereof. Election of Directors: A. M. Cutler, S. R. Hardis, G. L. Tooker THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. WHEN PROPERLY EXECUTED, IT WILL BE VOTED FOR ITEMS #1, #2 AND #3 UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE REVERSE SIDE. PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. SEE REVERSE SIDE - -------------------------------------------------------------------------------- FOLD AND DETACH HERE 28 X PLEASE MARK YOUR 954 VOTES AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD OF DIRECTORS' NOMINEES AND "FOR" ITEMS #2 AND #3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS #1, #2 AND #3. FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1. Election of [ ] [ ] 2. Adoption of [ ] [ ] [ ] 3. Ratification of [ ] [ ] [ ] Directors Amended appointment of (see reverse) Regulations Independent Auditors For, except vote withheld from the following nominee(s): ______________________________
4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. _______________________________ _______________________________ SIGNATURE(S) DATE - -------------------------------------------------------------------------------- FOLD AND DETACH HERE EATON CORPORATION ANNUAL MEETING OF SHAREHOLDERS WEDNESDAY, APRIL 26, 2000, 10:30 A.M. CUTLER-HAMMER HEADQUARTERS 1000 CHERRINGTON PARKWAY MOON TOWNSHIP, PA 29 CONFIDENTIAL VOTING INSTRUCTIONS To Key Trust Company of Ohio, N.A., Trustee for the Eaton Corporation Share Purchase and Investment Plan ("Plan"): The undersigned, as a participant in the above Plan, hereby directs the Trustee to vote in person or by proxy in connection with (a) all common shares of Eaton Corporation credited to the undersigned's account under the Plan on the record date ("allocated shares") and (b) the proportionate number of common shares of Eaton Corporation which are not allocated to the account of any participant ("unallocated shares") as to which the undersigned is entitled to direct the voting in accordance with the Plan provisions, in each case at the annual meeting of shareholders of Eaton Corporation to be held at the Company's Cutler-Hammer Headquarters, 1000 Cherrington Parkway, Moon Township, PA, on April 26, 2000, at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby instructed to vote FOR Items #1, #2 and #3 unless contrary voting instructions are indicated on the reverse side of this card. Under the Plan, allocated shares for which the Trustee does not receive directions in the form of a signed voting instruction card are voted by the Trustee in accordance with and in the same proportion as the allocated shares for which it receives voting instructions. Unallocated shares are voted by the Trustee as directed by the participants, acting as a Named Fiduciary, who return signed voting instruction cards. (Any participant wishing to vote the unallocated shares differently from the allocated shares may do so by requesting a separate voting instruction card from Key Trust Company of Ohio, N.A. at 127 Public Square, Mail Code: OH-01-27-1402, Cleveland, Ohio 44114-1306, (216) 689-3728.) Election of Directors: A. M. Cutler, S. R. Hardis, G. L. Tooker SEE REVERSE SIDE - -------------------------------------------------------------------------------- FOLD AND DETACH HERE 30 X PLEASE MARK YOUR 2826 VOTES AS IN THIS EXAMPLE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD OF DIRECTORS' NOMINEES AND "FOR" ITEMS #2 AND #3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS #1, #2 AND #3. FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1. Election of [ ] [ ] 2. Adoption of [ ] [ ] [ ] 3. Ratification of [ ] [ ] [ ] Directors Amended appointment of (see reverse) Regulations Independent Auditors For, except vote withheld from the following nominee(s): ______________________________
4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. Please sign, date and return promptly in the enclosed envelope to protect confidentiality. ______________________________ SIGNATURE DATE --------------------------------------------------------------------------- FOLD AND DETACH HERE EATON CORPORATION ANNUAL MEETING OF SHAREHOLDERS WEDNESDAY, APRIL 26, 2000, 10:30 A.M. CUTLER-HAMMER HEADQUARTERS 1000 CHERRINGTON PARKWAY MOON TOWNSHIP, PA 31 CONFIDENTIAL VOTING INSTRUCTIONS To Key Trust Company of Ohio, N.A., Trustee for the Plans listed below ("Plans"): The undersigned, as a participant in the (a) Eaton Corporation 401(k) Savings Plan for Hourly Employees of the Airflex Division, (b) Eaton Corporation Investment Plan for Hourly Employees of the Hydraulics Division Hutchinson Plant, (c) Eaton Corporation Wauwatosa Union Plan and Trust, and/or (d) Eaton Corporation 401(k) Savings Plan and Trust ((a) through (d) being the "Group A Participants"), and/or (e) Cutler-Hammer de Puerto Rico, Inc. Retirement Savings Plan (the "Cutler-Hammer Group Participants") hereby directs the Trustee to vote in person or by proxy all common shares of Eaton Corporation credited to the undersigned's account under the Plans on the record date (the "Credited Eaton Shares") for the annual meeting of shareholders of Eaton Corporation to be held at the Company's Cutler-Hammer Headquarters, 1000 Cherrington Parkway, Moon Township, PA, on April 26, 2000, at 10:30 a.m. local time and at any adjournments thereof. The Group A Participants and the Cutler-Hammer Group Participants, by issuing their instructions on this card, confirm that they have received a copy of the Supplemental Voting Directions Statement which accompanies this card, that they are acting as a Named Fiduciary and that their vote is amended to incorporate the additional shares described on the Supplemental Voting Directions Statement. The Trustee is hereby instructed to vote FOR items #1, #2 and #3 unless contrary voting instructions are indicated on the reverse side of this card. Election of Directors: A. M. Cutler, S. R. Hardis, G. L. Tooker SEE REVERSE SIDE - -------------------------------------------------------------------------------- FOLD AND DETACH HERE 32 X PLEASE MARK YOUR 2840 VOTES AS IN THIS EXAMPLE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL OF THE BOARD OF DIRECTORS' NOMINEES AND "FOR" ITEMS #2 AND #3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS #1, #2 AND #3. FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1. Election of [ ] [ ] 2. Adoption of [ ] [ ] [ ] 3. Ratification of [ ] [ ] [ ] Directors Amended appointment of (see reverse) Regulations Independent Auditors For, except vote withheld from the following nominee(s): ______________________________
4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. Please sign, date and return promptly in the enclosed envelope to protect confidentiality. _______________________________ SIGNATURE DATE - -------------------------------------------------------------------------------- FOLD AND DETACH HERE EATON CORPORATION ANNUAL MEETING OF SHAREHOLDERS WEDNESDAY, APRIL 26, 2000, 10:30 A.M. CUTLER-HAMMER HEADQUARTERS 1000 CHERRINGTON PARKWAY MOON TOWNSHIP, PA -----END PRIVACY-ENHANCED MESSAGE-----