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
[X] Definitive Proxy Statement BY RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ARMCO INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $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
14-a6(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:
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Notes:
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ARMCO INC.
ONE OXFORD CENTRE
301 GRANT STREET
PITTSBURGH, PA 15219-1415
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 1998
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NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Armco
Inc. will be held at the Rivers Club, located at One Oxford Centre, 301 Grant
Street, Pittsburgh, Pennsylvania, on Friday, April 24, 1998, at 10:00 a.m.,
for the following purposes:
1. To elect directors;
2. Approval of the Amendment and Restatement of the 1993
Long-Term Incentive Plan;
3. To transact such other business as may properly come before
the meeting.
The close of business on February 27, 1998, was fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting. The proxy statement that follows contains more detailed information
as to the actions proposed to be taken.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE COMPLETE AND SIGN YOUR PROXY AND PROMPTLY RETURN IT IN THE
ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
By Order of the Board of Directors
Gary R. Hildreth, Secretary
Pittsburgh, Pennsylvania
March 13, 1998
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ARMCO INC.
ONE OXFORD CENTRE
301 GRANT STREET
PITTSBURGH, PA 15219
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 1998
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SOLICITATION AND VOTING OF PROXIES
The enclosed proxy is being solicited by the Board of Directors of Armco
Inc., an Ohio corporation (hereinafter "Armco" or the "Corporation"), with its
principal executive offices located at One Oxford Centre, 301 Grant Street,
Pittsburgh, Pennsylvania 15219-1415, for use at the annual meeting of
shareholders (the ''Meeting'') of the Corporation to be held on April 24,
1998. This proxy statement and the accompanying proxy were first sent to
shareholders of the Corporation on or about March 13, 1998.
The close of business on February 27, 1998, has been fixed as the record
date for determining shareholders entitled to notice of and to vote at the
Meeting. On that date, the Corporation had outstanding and entitled to vote
107,843,544 shares of common stock, $.01 par value (the ''common stock''),
1,697,231 shares of Class A, $2.10 Cumulative Convertible Preferred Stock (the
''$2.10 preferred stock'') and 2,700,000 shares of Class A, $3.625 Cumulative
Convertible Preferred Stock (the ''$3.625 preferred stock''). Holders of
shares of common stock, $2.10 preferred stock and $3.625 preferred stock are
each entitled to one vote for each share owned on all matters to come before
the Meeting.
Shares of common stock, $2.10 preferred stock and $3.625 preferred stock
represented by properly executed proxies will, unless such proxies have
previously been revoked, be voted at the Meeting in accordance with the
direction indicated on such proxies. Prior to its exercise, a proxy may be
revoked by a later proxy received by the Corporation or by giving notice to
the Corporation in writing or in open meeting.
With respect to the election of directors, shareholders may vote for the
election of the entire slate or may withhold their vote from the entire slate
by marking the proper box on the form of proxy, or may withhold their vote
from any one or more individual nominees by striking a line through the name
of such nominees in the form of proxy.
If no direction is given, an executed proxy will be voted FOR the
election of each of the nine persons named as nominees. If any nominee for
election as a director should be unable to serve, the proxy will be voted for
a nominee, if any, designated by the Board of Directors. Directors are
elected by a plurality of votes cast. Abstentions and broker non-votes will
have the same effect as a vote withheld in the case of the election of
directors.
The Board of Directors does not anticipate that any matters other than
those set forth herein will be brought before the Meeting. If, however, other
matters are properly presented, the persons named in the proxy will have
discretion, to the extent provided by applicable law, to vote on such matters.
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Under Ohio law, if any shareholder gives notice in writing to the
president, a vice president or the secretary of the Corporation, not less than
48 hours before the time fixed for holding the Meeting, that such shareholder
desires the voting for the election of directors to be cumulative, and if an
announcement of the giving of such notice is made upon the convening of the
Meeting by the chairman or secretary or by or on behalf of the shareholder
giving such notice, each shareholder shall have the right to cumulate his or
her voting power for the election of directors.
In the event of such an announcement, the persons named as proxies on the
enclosed proxy card will use their discretion in exercising such cumulative
voting power with respect to the shares represented thereby. Under the
cumulative voting method, each shareholder is entitled to the number of votes
equal to the number of shares held by such shareholder on the record date
multiplied by the number of directors to be elected, and all such votes may be
cast for a single nominee or distributed among the nominees as desired. The
Corporation intends that such persons named as proxies will (except as
otherwise provided by the shareholder submitting such proxy) have discretion
to cumulate votes for the election of directors so as to maximize the number
of directors elected from among the nominees proposed by the Board.
ELECTION OF DIRECTORS
As provided in Armco's Regulations, the Board of Directors has fixed the
number of directors at nine and nine persons have been nominated to serve as
directors of the Corporation until the next Annual Meeting of Shareholders and
until their successors are elected and qualified. These nominees are named in
the following table, which also sets forth information for each nominee
respecting age, principal occupation, business experience during the past five
years and certain other information. Mr. Duke, a director of the Corporation,
has elected not to be a nominee.
Dan R. Carmichael Age 53; President and Chief Executive Officer,
IVANS, Inc., a data and telecommunications
remarketer and software development company. Former
Chairman, President and CEO of Shelby Insurance
Group (also known as Anthem Casualty Insurance
Group). Also a Director of IVANS, Inc. and
Alleghany Corporation.
Paula H.J. Cholmondeley Age 50; Consultant. Formerly Vice President and
General Manager Residential Insulation of Owens
Corning, an advanced glass and composite materials
company, where Ms. Cholmondeley previously was
Corporate Vice President, and President of Owens
Corning's Miraflex(TM) Products business unit, and
former Vice President Business Development and
Global Sourcing. A Director of the Corporation
since 1996; a member of the Audit Review Committee
and Corporate Responsibility Committee.
Dorothea C. Gilliam Age 44; Vice President - Investments of Alleghany
Corporation, an insurance and financial services
holding company. Formerly Assistant Vice President
of Chicago Title & Trust Company, a title insurance
company. A Charter Financial Analyst and member of
the Association of Investment Management and
Research. Also a trustee of CT&T Funds, an open-
ended management investment company. A Director of
the Corporation since 1997; a member of the Audit
Review Committee and the Corporate Responsibility
Committee.
Charles J. Hora, Jr. Age 54; President of Lord Corporation, a diversified
manufacturer of products and systems to bond and
coat materials and to control mechanical motion and
noise.
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John C. Haley Age 68; Former Chairman of the Board of the
Corporation. Retired Chairman of the Board and
Chief Executive Officer of Business International
Corporation, a publishing, consulting and advisory
services firm. A Director of the Corporation since
1975; a member of the Compensation Committee and
Corporate Responsibility Committee.
Bruce E. Robbins Age 53; Executive Vice President of PNC Bank Corp.,
a provider of broad-based banking and financial
services. Former President and Chief Executive
Officer of PNC Bank, N.A. - Pittsburgh and former
President of PNC Bank, Ohio, N.A. A Director of the
Corporation since 1994; a member of the Compensation
Committee and Nominating Committee.
Jan H. Suwinski Age 56; Professor of Strategy and Operations
Management, Cornell University, Johnson Graduate
School of Management. Former Executive Vice
President of the Opto-Electronics Group of Corning
Incorporated, a broad-based manufacturing and
service company. Formerly Chairman of Siecor
Corporation, a provider of fiber optic cable,
hardware and equipment. Also a Director of Tellabs,
Inc.
John D. Turner Age 52; President and Chief Executive Officer of
Copperweld Corporation, a manufacturer of tubular
and bimetallic wire products. A Director of the
Corporation since 1994; a member of the Compensation
Committee and Nominating Committee. Also a Director
of C-E Minerals, Inc. and Shenango Incorporated.
James F. Will Age 59; Chairman of the Board, Chief Executive
Officer and President of the Corporation and former
Chief Operating Officer of the Corporation.
Formerly President and Chief Executive Officer of
Cyclops Industries, Inc., a producer of flat-rolled
stainless and carbon steels, tubular steel products
and special alloys. A Director of the Corporation
since 1992; a member of the Corporate Responsibility
Committee. Also a Director of Alleghany
Corporation.
Board of Directors and Committees of the Board
In 1997, the Board of Directors of the Corporation met seven times. In
addition to the committees described below, the Board of Directors has
appointed a Corporate Responsibility Committee.
The Nominating Committee met twice in 1997. This committee reviews the
qualifications of and recommends individuals for election as directors. It
advises on the optimum size and composition of the Board and reviews and
defines the responsibilities, duties and performance of the committees of the
Board. This committee also reviews and advises the Board on the Corporation's
organization and successors for key personnel. This committee will review
nominees suggested by shareholders in writing and sent to the attention of the
Secretary of the Corporation.
In accordance with the Corporation's Regulations, which were approved by
the shareholders, shareholders intending to nominate director candidates for
election at any annual meeting of shareholders must deliver written
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notice thereof to the Secretary of Armco not later than 90 days prior to the
date one year from the date of the immediately preceding annual meeting of
shareholders. Such notice, timely given by a shareholder, shall set forth
certain information concerning such shareholder and his or her nominee(s). The
presiding officer at such annual meeting may refuse to acknowledge any
nomination not made in accordance with the foregoing and any person not so
nominated shall not be eligible for election as a director. Shareholders
intending to nominate director candidates for election at the 1999 annual
meeting of shareholders must deliver written notice, including specified
information, to the Secretary of the Corporation by January 24, 1999.
The Audit Review Committee met three times in 1997. This committee is
responsible for nominating the independent auditors, working with the
independent auditors and the internal auditing staff of the Corporation and
other corporate officials, reviewing the financial statements of the
Corporation, monitoring compliance with corporate policies relating to
conflict of interest, business ethics and antitrust and reporting on the
results of the audits to the Board, as well as submitting to the Board its
recommendations relating to the financial reporting, accounting practices and
policies, and financial accounting and operation controls.
The Compensation Committee reviews, determines and recommends to the
Board the principal compensation and benefit programs, including the
compensation of executive officers of the Corporation, reviews the Board's
delegation of fiduciary responsibility relating to certain benefit plans to
the Benefit Plans Administrative Committee and to the Benefit Plans Asset
Review Committee and administers and oversees grants and awards under the
Corporation's employee stock and other incentive plans. This committee met
five times in 1997. See "EXECUTIVE COMPENSATION -- Compensation Committee
Report on Executive Compensation".
During 1997, no director attended less than 75% of the meetings of the
Board and committees on which he or she served.
Compensation of Directors
Each director, other than those who are employees of the Corporation or
its subsidiaries, is paid a retainer fee of $24,000 a year, plus travel and
other expenses incurred in connection with his or her work for the
Corporation. For each Board meeting attended, each director receives $1,000.
For each committee meeting attended, each committee member receives $800 and
the committee chairperson receives $1,000. Directors who are employees of the
Corporation do not receive any additional compensation by reason of their
membership on, or attendance at meetings of, the Board or committees thereof.
Under the 1995 Directors Stock Purchase and Deferred Compensation Plan
(the "Directors Stock Plan"), approved by the shareholders in 1995, each non-
employee director receives 25% (and may elect to receive up to 100%) of his or
her annual retainer fee in shares of common stock and the balance in cash.
Each non-employee director may also elect to defer receipt of any or all of
his or her director's fees. If a director so elects, he or she will be
credited with common stock units (representing a right to receive a share of
common stock at a future date) for any fees required to be received in shares
of common stock and for any other fees as such director may elect, with the
balance of the deferred fees being credited to a cash account. The number of
common stock units will be adjusted to reflect any dividends paid on the
common stock and the cash accounts will be credited quarterly with interest at
the prime rate. Distribution of common stock in respect of any common stock
unit credited to a director's account and of cash in any amounts credited to
his or her cash account will be made after such director ceases to be a
director of the Corporation.
Effective April 30, 1995, the Board of Directors locked and froze the
pension plan for the then non-employee directors. As a result, Mr. Haley, who
was fully vested at the maximum benefit, is entitled to receive an annual
benefit of $20,400 (the annual retainer in effect through April 30, 1995) in
each of the ten years following his retirement from the Board of Directors.
Mr. Robbins and Mr. Turner, each of whom was unvested, were credited with
hypothetical investments in 1,000 shares of common stock each (at a rate of
1,000 shares of common stock for each year of service on the Board of
Directors through April 30, 1995), in settlement of their unvested benefits
under this plan. The hypothetical investment in the common stock will be
credited as if dividends have been paid whenever a dividend is paid on the
common stock and such dividend shall be accounted for as an additional
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investment in the common stock. Payments will be made in cash after a
director ceases to be a director of the Corporation.
The Corporation provides up to $100,000 of group life insurance to any
director who is not an employee of the Corporation. The Corporation also
provides non-employee directors with $250,000 of accidental death and
dismemberment insurance. These insurance benefits terminate upon a director's
resignation or retirement from the Board. During 1997, the Corporation paid
premiums aggregating $13,686 for this coverage.
PROPOSAL TO APPROVE THE AMENDED AND RESTATED 1993 LONG-TERM INCENTIVE PLAN
The Corporation's 1993 Long-Term Incentive Plan (the "Long-Term Plan")
was adopted by the Board of Directors of the Corporation and shareholders in
1993. The Long-Term Plan provides for the issuance of up to 4,000,000 shares
of Common Stock. The Board of Directors believes that the Long-Term Plan
enhances the Corporation's ability to attract and retain key employees, as the
Long-Term Plan increases the ability of the Board of Directors to adapt the
compensation of such employees to the changing needs of the Corporation's
business and to competitive trends in executive compensation practices. The
Board of Directors also believes that in order to more clearly align the
interests of the executive officers with the interests of the shareholders of
the Corporation, increased ownership of the Corporation's stock by these
individuals is desirable.
To help meet such objectives, effective February 27, 1998, the Board of
Directors of the Corporation approved the amendment and restatement of the
Long-Term Plan (the "Amended Long-Term Plan"), subject to the approval of the
Corporation's shareholders, to permit the continued award of restricted stock
under such plan to employees. Except as specifically provided in the Amended
Long-Term Plan, the provisions of the Long-Term Plan as in effect at the time
of any award thereunder before the effective date of the amendment and
restatement will continue to apply to such awards. Generally, the amendment:
(1) extends the expiration period in which to make future awards under this
plan from April 23, 2003 to April 23, 2008; (2) increases the total number of
shares available for issuance under such plan by 5,000,000 shares and (3)
increases the Committee's flexibility to establish the specific terms and
conditions of awards. As of March 2, 1998, 48,848 shares remained available
for awards or grants under the Long-Term Plan. Approval of the Amended Long-
Term Plan would increase the aggregate number of shares available for future
awards or grants by 5,000,000 to a total of 5,048,848. Annual bonuses will
continue to be determined under a bonus program administered by the
Compensation Committee that ties the level of bonuses to corporate financial
performance and individual achievement.
The following is a summary description of the Amended Long-Term Plan. A
copy of the Amended Long-Term Plan will be made available, without charge,
upon written request to the Secretary of the Corporation addressed or directed
to the Corporation's corporate offices as provided in the first paragraph of
this proxy statement.
Eligibility and Types of Awards
All management and other key employees of the Corporation and its
affiliates are eligible to participate in the Amended Long-Term Plan.
Eligible employees to whom awards ("Awards") will be granted under the Amended
Long-Term Plan will be selected by the Committee (as defined below).
The Amended Long-Term Plan permits the granting of the following types of
Awards: (1) stock options ("Options"), including Options qualifying as
incentive stock options ("ISOs") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and Options not so qualifying
("Nonstatutory Stock Options"), (2) stock appreciation rights ("SARs"), (3)
restricted stock ("Restricted Stock"), (4) performance units ("Performance
Units") conditioned upon meeting performance criteria, and (5) other awards
("Other Stock Unit Awards") valued in whole or in part by reference to, or
otherwise based on, the common stock. Dividends or interest or their
equivalent may also be paid or credited in connection with any Award.
Since the number and identity of employees to whom Awards may be granted
under the Amended Long-Term Plan and the form of such Awards are at the
discretion of the Committee, it is not possible at this time to predict
precisely the number or identity of the individuals to whom Awards may be
granted in the future or the type
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or size of such Awards. It is expected, however, that the individuals
receiving Awards will include officers named in the summary compensation table
below under the heading "EXECUTIVE COMPENSATION". The awards of restricted
stock and options reflected in such compensation table as having been made
with respect to 1997 were made under the Long-Term Plan.
Administration of Amended Long-Term Plan
The Amended Long-Term Plan will be administered by a committee (the
"Committee") of the Board of Directors composed of three or more directors,
which initially will be the Compensation Committee. The Committee has the
authority (i) to select employees to whom Awards are granted, (ii) to
determine the size and types of Awards granted, (iii) to determine the terms
and conditions of such Awards in a manner consistent with the Amended Long-
Term Plan (discussed below), (iv) to interpret the Amended Long-Term Plan and
any instrument or agreement entered into under the Amended Long-Term Plan, (v)
to establish such rules and regulations relating to the administration of the
Amended Long-Term Plan as it deems appropriate and (vi) to make all other
determinations which may be necessary or advisable for the administration of
the Amended Long-Term Plan. The Committee may amend the terms of any Award,
or substitute new Awards for previously granted Awards, provided that such
amendment or substitution may not impair the rights of any participant with
respect to any outstanding Award without his consent. The Committee may
delegate to the chief executive officer and other senior officers of the
Corporation its responsibilities with respect to the grants of Awards to
employees who are not Officers (as defined in the Amended Long-Term Plan).
The Board of Directors may amend or terminate the Amended Long-Term Plan
at any time, provided that no such action may impair the rights of a
participant with respect to any outstanding Award without the participant's
consent and provided that no amendment may be made without shareholder
approval if such approval is required to comply with applicable law or stock
exchange requirements.
Shares Subject to Amended Long-Term Plan
Subject to adjustment as described below, 5,048,848 shares of common
stock ("shares")(including the remaining shares previously authorized under
the Long-Term Plan) shall be available for grant under the Amended Long-Term
Plan. The closing price per share of the common stock as reported on the New
York Stock Exchange Composite Transactions Tape on March 2, 1998 was $5.4375.
If any shares subject to any Award are forfeited, or if any Award is
terminated without issuance of shares or satisfied with other consideration,
the shares subject to such Award shall again be available for future grants.
Stock Options
The purchase price per share under any Option will be determined by the
Committee, provided that, if the purchase price of the shares is pre-
established for the full duration of the Option, it shall not be less than
100% of the fair market value of a share on the date of grant of the Option,
and, if the purchase price of the shares varies based on an index or other
variable, it shall start at not less than 100% of the fair market value of a
share on the date of grant of the Option. The term of each Option shall be
fixed by the Committee, provided that no ISO shall have a term extending
beyond ten years from the date the Option is granted. No ISO may be granted
under the Amended Long-Term Plan if such grant, together with prior grants,
would exceed any limitation on the grant of ISOs under Section 422 of the
Code. Options are exercisable during their term as provided by the Committee.
Options shall be exercised by payment of the purchase price, either in cash,
in shares valued at the fair market value on the date the Option is exercised,
in any combination thereof or in such other form of consideration as the
Committee shall determine, provided, that, if the Committee so provides, an
Option may be exercised by delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Corporation the amount of sale or loan proceeds necessary to pay the purchase
price and applicable withholding taxes in full and such other documents as the
Committee shall determine. The ability to deliver shares in lieu of cash on
the exercise of Options could permit the successive, immediate exercise of
Options with shares received upon earlier or substantially simultaneous
exercises. Whether an Option holder uses shares to exercise an entire Option
in a single exercise or through successive exercises, the net increase in
shares held by such person will be identical. The Committee may provide that
Restricted Stock or other similar securities, or any other Award, may be
issued in settlement of an exercised Option. The maximum number of shares
with respect to which options may be granted to any employee under the Amended
Long-Term Plan in any calendar year is 500,000 shares.
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Stock Appreciation Rights
An SAR may be granted either alone or in conjunction with any other Award
under the Amended Long-Term Plan. SARs related to any Option (i) must be
granted at the time such Option is granted, if such Option is an ISO, and (ii)
may be granted so as to be exercisable only upon surrender of the related
Option ("tandem SARs") or so as to be exercisable without surrender of the
related Option ("separate SARs"). Upon exercise of an SAR, the holder thereof
is entitled to receive the excess of the fair market value of the shares for
which the right is exercised (calculated as of the exercise date or, if the
Committee shall so determine in the case of any SAR not related to an ISO, as
of any time during a specified period before the exercise date) over the
exercise price per share of the related Option or, if none, the fair market
value of one share on the date the SAR was granted (hereinafter, the "exercise
price"). Payment by the Corporation upon exercise of an SAR may be made in
cash, shares, Restricted Stock or any other Award, or any combination thereof,
as the Committee shall determine.
Tandem SARs are exercisable, in whole or in part, only at such times and
to the extent the Option to which they relate is exercisable. Separate SARs
are exercisable, in whole or in part, only on such terms and to the extent the
Option to which they relate is exercisable or, if such Option has been
exercised, until such Option would have expired had it not been exercised.
SARs granted without relationship to an Option will be exercisable as
determined by the Committee.
Restricted Stock
The Committee shall determine the terms and conditions, including
acceleration and forfeiture provisions and other provision and restrictions
(which may include restrictions on the right to vote such shares and the right
to receive any dividends with respect thereto) that shall be placed on
Restricted Stock awarded under the Amended Long-Term Plan. Restricted Stock
may not be disposed of by the recipient until any such restrictions lapse.
Restricted Stock may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law. Upon termination of
employment during the restricted period, all Restricted Stock shall be
forfeited, subject to such exceptions, if any, as are authorized by the
Committee relating to termination of employment pursuant to retirement,
disability, death or other special circumstances.
Performance Units
The Committee may grant Performance Units, valued by reference to shares
or other property or measured in dollar amounts, contingent upon the
achievement of certain performance goals established by the Committee with
respect to a reference period (the "Performance Period"). Performance Units
may be issued for no cash consideration or for such minimum consideration as
may be required by applicable law. Performance Units may be paid in cash,
shares or other property, or any combination thereof, as the Committee shall
determine and may be paid in a lump sum or on an installment basis following
the close of the Performance Period, or, in accordance with procedures
established by the Committee, on a deferred basis.
Other Stock Unit Awards
In order to enable the Corporation and the Committee to respond quickly
to significant developments in applicable tax, securities and other
legislation and regulation and to trends in executive compensation practices,
the Committee shall be authorized to grant to participants, either alone or in
conjunction with other Awards granted under the Amended Long-Term Plan, Awards
of shares and other Awards that are valued in whole or in part by reference to
shares. Other Stock Unit Awards may be paid in shares or other securities of
the Corporation, cash or any other form of property as the Committee shall
determine. The Committee shall, subject to the provisions of the Amended
Long-Term Plan, determine the terms and conditions of Other Stock Unit Awards.
Nonassignability of Awards
Except as approved by the Committee, no Award or shares subject to an
Award may be assigned, transferred, pledged or otherwise encumbered by a
participant, other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code.
Except as approved by the
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Committee, each Award may be exercised during the participant's lifetime only
by the participant or, if permissible under applicable law, by the
participant's guardian or legal representative.
Adjustments
In the event of any change in corporate structure of the Corporation
affecting the shares (e.g., merger, consolidation, recapitalization,
reclassification, stock dividend, reverse split or special dividend), the
Committee shall make such adjustments as it deems appropriate to the number,
class and option price of shares subject to outstanding Options granted under
the Amended Long-Term Plan, and in the value of, or number or class of shares
subject to, other Awards granted or available to be granted under the Amended
Long-Term Plan and to individual employees.
Federal Income Tax Consequences
Under current law, the Federal income tax treatment of Options and SARs
granted under the Amended Long-Term Plan is as set forth below:
Nonstatutory Stock Options. The grant of a Nonstatutory Stock Option
will have no immediate tax consequences to the Corporation or the employee.
The exercise of a Nonstatutory Stock Option will require an employee to
include in his gross income the amount by which the fair market value of the
acquired shares on the exercise date (or the date on which any substantial
risk of forfeiture lapses) exceeds the option price. Upon a subsequent sale
or taxable exchange of shares acquired upon exercise of a Nonstatutory Stock
Option, an employee will recognize long or short-term capital gain or loss
equal to the difference between the amount realized on the sale and the tax
basis of such shares.
The Corporation will be entitled (provided applicable income tax
reporting requirements are met) to a deduction at the same time and in the
same amount as the employee is in receipt of income in connection with his
exercise of a Nonstatutory Stock Option.
Incentive Stock Options. The grant of an ISO will have no immediate
tax consequences to the Corporation or the employee. If the employee
exercises an ISO and does not dispose of the acquired shares within two years
after the grant of the option or within one year after the date of the
transfer of such shares to him (a "disqualifying disposition"), he will
realize no compensation income and any gain or loss that he realizes on a
subsequent disposition of such shares will be treated as long-term capital
gain or loss. For purposes of computing the employee's alternative minimum
taxable income, however, the option generally will be treated as if it were a
Nonstatutory Stock Option.
If an employee makes a disqualifying disposition, he will be required to
include in income, as compensation, the lesser of (i) the difference between
the option price and the fair market value of the acquired shares on the
exercise date (or the date on which any substantial risk of forfeiture lapses)
or (ii) the amount of gain realized on such disposition. In addition,
depending on the amount received as a result of such disposition, the employee
may realize long or short-term capital gain or loss.
The Corporation will be entitled to a deduction at the same time and in
the same amount as the employee is in receipt of compensation income as a
result of a disqualifying disposition. If there is no disqualifying
disposition, no deduction will be available to the Corporation.
SARs. The grant of SARs will not result in taxable income to the
recipient or a tax deduction for the Corporation at the time of grant. The
exercise of SARs will result in compensation, taxable to the employee as
ordinary income to the employee equal to the amount of cash received plus the
fair market value of any shares issued or transferred and a tax deduction to
the Corporation in an equal amount.
Accounting Treatment
Under present accounting rules, the grant or exercise of options does not
result in a charge against the Corporation's earnings. However, the excess,
if any, from time to time of the fair market value of the common stock subject
to SARs over the exercise price of such SARs will result in a charge against
the Corporation's earnings. The
8
<PAGE>
amount of the charge will increase or decrease based on changes in the market
value of the common stock and will decrease to the extent SARs are canceled.
Voting Required for Approval of Adoption
The affirmative vote of the holders of a majority of the outstanding
shares of common stock, $2.10 preferred stock and $3.625 preferred stock
entitled to vote at the Meeting is required to ratify the adoption of the
Amended Long-Term Plan. If approved, the Amended Long-Term Plan will become
effective as of the date of such approval.
The Board of Directors recommends a vote FOR the proposal to approve the
adoption of the Amended Long-Term Plan.
EXECUTIVE COMPENSATION
Set forth below is certain summary information with respect to the
compensation of Armco's chief executive officer and the four other most highly
compensated executive officers (the "Named Executives") who were serving as
executive officers at December 31, 1997 (based on amounts reported as salary
and bonus for 1997).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Long-Term Compensation
-------------------------------
Awards Payouts
--------------------- -------
Other Restricted Securities All Other
Annual Compensation Annual Stock Underlying LTIP Compen-
Principal ------------------- Compen- Award(s) Options Payouts sation
Position Year Salary($) Bonus($) sation ($) (1) (#)(2) ($) ($)(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James F. Will 1997 565,000 229,535 0 2,190,267 328,420 0 14,783
Chairman, 1996 559,167 0 0 0 0 0 17,888
President & CEO 1995 530,000 0 0 710,534 124,929 0 17,040
Jerry W. Albright 1997 260,004 40,500 0 871,454 117,935 0 6,863
V.P. & Chief 1996 0 0 0 0 0 0 0
Financial Officer 1995 0 0 0 0 0 0 0
Gary R. Hildreth 1997 228,110 71,633 0 739,488 101,995 0 6,572
V.P. 1996 217,284 0 0 0 0 0 6,913
General Counsel 1995 210,003 0 0 226,937 39,901 0 6,300
& Secretary
Gary L. McDaniel 1997 237,600 320,625 0 356,748 26,368 0 5,177
V.P. - Operations 1996 213,334 0 0 0 0 0 4,440
1995 184,168 0 0 306,454 53,882 0 3,224
Pat J. Meneely 1997 193,650 61,616 0 660,954 87,212 0 3,408
V.P. - Information 1996 173,368 0 0 144,572 25,143 0 2,976
& Organizational 1995 126,673 20,000 0 0 0 0 1,962
Effectiveness
</TABLE>
- --------------------
(1) The value indicated is based on the closing price of the common
stock on the dates of grant. The awards of restricted stock for each of the
Named Executives are comprised of: (a) an award of shares of restricted common
stock made to such Named Executives under the Corporation's shareholder-
approved plans; and (b) shares of restricted common stock awarded under the
Corporation's shareholder-approved plans to such Named Executives in lieu of
all or part of the cash bonus payable to such Named Executives for such year
under the Annual Incentive Compensation Plan. 30.8% of the restricted stock
award to the Named Executives for 1997 is payable in cash at the date the
award vests in lieu of shares. Under a compensation program (the "1997
Program") implemented by the Corporation in April 1997 for its senior
executives,
9
<PAGE>
including the Named Executives, each participant is required to receive at
least 25% of any annual bonus under such an annual incentive program approved
by the Corporation's Board of Directors for 1997, 1998 and 1999 in shares of
restricted common stock, valued at $3.0975 per share (a 30% discount from the
market price of common stock at the time of the establishment of the 1997
Program). Also under the 1997 Program, each of the participants, including
the Named Executives, was permitted, at the time of the implementation of the
1997 Program, to elect irrevocably to receive an additional percentage, up to
100%, of any annual bonuses earned under such an annual incentive compensation
program in restricted stock awards, valued at $3.0975 per share. The vesting
of the awards of restricted stock under the 1997 Program is 33 1/3% of such
shares in April 2001, a further 33 1/3% in April 2002 and 33 1/3% in April
2003. Such vesting schedule is subject to acceleration by one year for any
restricted stock awards made for a year in which the Corporation's return on
assets, as adjusted, exceeds the best performance of the Specialty Steel Peer
Group, comprised of J & L Specialty Steel and Lukens Inc. The vesting of the
restricted stock awards with respect to 1997 was so adjusted since this
condition was met in 1997.
The following table sets forth for each of the Named Executives the value
(based on the closing price of the common stock on the dates of the grant) of
the portion of those shares of restricted stock reflected above for 1997
compensation on which the restrictions will lapse in each of 2000, 2001 and
2002.
<TABLE>
<CAPTION>
Total
Name Value of Shares Vesting($) Value ($)
---- -------------------------------- -----
2000 2001 2002
---- ---- ----
<S> <C> <C> <C> <C>
J. F. Will 730,089 730,089 730,089 2,190,267
J. W. Albright 290,485 290,485 290,485 871,454
G. R. Hildreth 246,496 246,496 246,496 739,488
G. L. McDaniel 118,916 118,916 118,916 356,748
P. J. Meneely 220,318 220,318 220,318 660,945
</TABLE>
Four of the Named Executives irrevocably elected in April 1997 to receive 100%
of any incentive bonuses earned under the Annual Incentive Compensation Plan
in restricted stock (had the elections made by the Named Executives under the
1997 Program not been in effect, the amounts listed under Bonus in the
compensation table above would have reflected for the Named Executives the
following additional amounts in lieu of the restricted stock awards for 1997:
Mr. Will - $1,017,282; Mr. Albright - $365,305; Mr. Hildreth - $315,932; Mr.
McDaniel - $81,675; Mr. Meneely - $270,141). See "Compensation Committee
Report on Executive Compensation". The aggregate number and value (based on
the closing price of the common stock of $4.875 at December 31, 1997) of the
restricted shares held by the Named Executives at December 31, 1997 (which
does not include the 1997 restricted stock award in lieu of the cash bonus
discussed above) was: Mr. Will - 382,082, $1,862,699; Mr. Albright - 42,372,
$206,564; Mr. Hildreth - 127,770, $622,879; Mr. McDaniel - 123,657, $602,828;
and Mr. Meneely - 63,449, $309,314. Dividends will be paid on restricted
shares if, and only if, dividends are paid on the common stock.
(2) Also under the 1997 Program, each participant who is awarded
shares of restricted stock in lieu of cash bonus is granted an option to
purchase shares of common stock at the fair market value of the common stock
on the date of such grant equal to the number of restricted shares which would
have been awarded if no election to reduce the number of restricted shares for
federal and state income tax withholding purposes had been made. Amounts
shown for 1997 represent options granted on February 27, 1998, with respect to
bonuses earned for the fiscal year 1997. Such options are exercisable in full
on and after the second anniversary of the grant. See "Stock Option Plans"
and "Compensation Committee Report on Executive Compensation" below.
(3) The amounts for 1997 include:
(i) $2,400 each for Mr. Will, Mr. Albright, Mr. Hildreth, Mr.
McDaniel and Mr. Meneely, of matching contributions under the Armco Inc.
Retirement and Savings Plan;
(ii) $6,075 for Mr. Will, $1,500 for Mr. Albright, $1,022 for Mr.
Hildreth, $1,164 for Mr. McDaniel and $505 for Mr. Meneely, representing
contributions allocated to the trust established under the
10
<PAGE>
Armco Inc. Executive Supplemental Deferred Compensation Plan in respect of
matching contributions not paid to the Armco Inc. Retirement and Savings Plan
by reason of Internal Revenue Code limitations; and
(iii) $6,308 for Mr. Will, $2,963 for Mr. Albright, $3,150 for Mr.
Hildreth, $1,613 for Mr. McDaniel and $503 for Mr. Meneely as imputed income
for life insurance benefits provided to them.
Stock Option Plans
The Corporation has granted stock options and has authority to make
future grants of stock options and stock appreciation rights to key employees,
including the Named Executives, under stock option plans previously approved
by the shareholders. The exercise price of all outstanding options is 100% of
the fair market value on the date of grant. No stock options were granted to
the Named Executives during the 1997 fiscal year.
The following table sets forth information with respect to the options
exercised by the Named Executives in 1997 and the unexercised options held by
the Named Executives at December 31, 1997.
<TABLE>
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
------------------------------------------------
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised In-the-Money
Options Options
Shares at Fiscal at Fiscal
Acquired Year End (#) Year End ($)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------ ---------------- ------------ -----------------
<S> <C> <C> <C> <C>
J. F. Will -0- -0- 215,338/124,929 -0-/-0-
J. W. Albright -0- -0- 0/0 -0-/-0-
G. R. Hildreth -0- -0- 69,271/39,901 -0-/-0-
G. L. McDaniel -0- -0- 45,334/53,882 -0-/-0-
P. J. Meneely -0- -0- 0/25,143 -0-/-0-
</TABLE>
Pension Plans
Effective January 1, 1995, the Corporation amended the Armco Inc. Non-
Contributory Pension Plan (the "NCPP") by adopting a different defined benefit
formula called the Retirement Accumulation Pension Plan (the "RAPP") for
eligible nonrepresented salaried employees participating in the NCPP ("NCPP
participants") or the 2% Defined Contribution Plan ("DCP") as of December 31,
1994. NCPP participants received an opening balance in the RAPP equal to the
value of the NCPP benefit earned as of December 31, 1994, calculated based on
the accrued regular monthly benefit that would otherwise have been payable to
the employee upon attainment of age 62 based on final pay-related formulas.
Eligible nonrepresented salaried employees, including Mr. McDaniel, ceased
participation in the DCP and all contributions to the DCP are 100% vested in
the Armco Inc. Retirement & Savings Plan.
Each RAPP participant receives "pay credits" to a future account. For
former participants in the DCP and employees hired after December 31, 1994,
pay credits are 2% of annual pensionable earnings. The NCPP participants
receive between 2% and 9% of annual pensionable earnings depending on age and
years of service on December 31, 1994. Annual pensionable earnings include
base salary, bonus and other incentive forms of
11
<PAGE>
compensation (corresponding generally to the salary and bonus reflected in the
Summary Compensation Table above).
NCPP participants' opening accounts earn a minimum annual rate of 7.5%
and a maximum of 12.5%. Future accounts earn a minimum annual rate of 3% and
a maximum of 12.5%. Rates are based on the annualized 5-year treasury bond
rate at November 30 of the prior year. A participant's opening account ceases
to earn interest when the participant attains age 65. Pay credits and
interest are posted to participants' accounts at the end of each quarter.
The Corporation has established an Excess Retirement Accumulation Pension
Plan ("Excess RAPP") to provide highly compensated employees a nonqualified
benefit equivalent to that which would be payable under the RAPP but for
limitations under the Internal Revenue Code.
On December 31, 1997, the combined RAPP and Excess RAPP accounts of the
Named Executives were as follows: Mr. Will - $1,091,520; Mr. Albright -
$6,184; Mr. Hildreth - $703,668; Mr. McDaniel - $22,501 and Mr. Meneely -
$13,807. The pay credits for each of the Named Executives is as follows:
Mr. Will - 6%; Mr. Albright - 2%; Mr. Hildreth - 8%; Mr. McDaniel - 2% and
Mr. Meneely - 2%. If employment were continued until the retirement age of
65, based upon the average rates of remuneration over the last four years, and
assuming a constant 7.5% rate of interest accrual for future accounts, Messrs.
Will, Albright, Hildreth, McDaniel and Meneely would have account balances
under the RAPP and Excess RAPP of $1,978,242, $24,973, $1,190,605, $187,545
and $229,876, respectively.
The Corporation has also established a Supplemental Executive Retirement
Plan ("SERP") replacing the former Minimum Pension Plan ("MPP") for key
executives, including the Named Executives, whose participation has been
approved by the Board of Directors. The SERP provides a supplemental pension
benefit for those whose pension under the RAPP and Excess RAPP is limited by
reason of short service with the Corporation. The normal retirement age under
the SERP is 65. Participants who have reached age 62 and have at least ten
years of service with Armco and five years of participation in the SERP can
receive the benefit immediately on an unreduced basis. Participants with 5
years of participation in the SERP who attain age 55 with at least 10 years of
service or who complete at least 30 years of service at any age may elect an
early retirement and receive a reduced benefit. Participants would receive,
at normal retirement age, an aggregate minimum pension of 50% of their average
annual pensionable earnings before retirement.
The benefit derived from the foregoing calculation is offset by RAPP and
Excess RAPP benefits and any qualified or non-qualified defined benefit or
defined contribution benefit from prior employers not affiliated with Armco.
In addition, the equivalent of 50% of the normal Social Security retirement
benefit and any employer-provided disability benefits would also be offset.
If 1997 employment were continued until retirement at age 65, based upon
the average rates of remuneration over the last four years, Messrs. Will,
Albright, Hildreth, McDaniel and Meneely would be entitled to total annual
pensions of $355,130, $108,382, $140,420, $130,540 and $101,700 respectively,
under all plans.
Severance Arrangements
Armco's severance policy applicable to each of the Named Executives
provides a minimum severance pay of twelve months' base salary, plus
additional months (up to a maximum of 12 additional months) of pay based on a
combination of age and service.
In addition, Armco has agreements with each of the Named Executives
providing for certain benefits upon actual or constructive termination of
employment, or termination of employment by reason of disability, death or an
employee's resignation under certain circumstances, generally following a
"change in control" of Armco, as defined in the agreements. A "change of
control" under these agreements generally occurs when (1) any person or group
other than the Corporation and certain related entities becomes the beneficial
owner of securities representing 20% or more of the combined voting power of
Armco's securities, (2) during any period of two consecutive years, there is a
change in the composition of a majority of the Corporation's Board of
Directors that was not approved by at least two-thirds of the existing
directors who were so approved or (3) the shareholders of the Corporation
approve a merger or consolidation of the Corporation, subject to certain
exceptions, or the complete liquidation of the
12
<PAGE>
Corporation or the sale of all or substantially all of its assets. Under
these agreements, Armco has reserved the right to terminate employment for
"cause", as defined in the agreements, without the payment of such benefits.
Generally, upon the occurrence of an event which triggers these benefits, an
employee would be entitled to: (a) a lump sum payment equal to a multiple (two
times for the Named Executives, except for Mr. Will, which is three times) of
the sum of such employee's annual base salary (annualized at the highest rate
paid during any month during the 24 months preceding notice of termination);
(b) an amount representing the average annual incentive bonus paid in the four
calendar years preceding the termination; (c) a pro-rata bonus of any
incentive compensation payable for the year of termination; and (d)
continuation for two years of coverage under Armco's welfare benefit plans,
including life, health and other insurance benefits. The agreements also
provide, in the event of a change in control and termination of employment,
for (i) a cash payment in exchange for each employee's outstanding stock
options in an amount equal to the difference between the option price and the
higher of the per share market value of the common stock on the date of
termination and the average value of the consideration per share paid to Armco
shareholders in the transaction resulting in the change in control and (ii)
the lapse, immediately upon the change in control, of all restrictions
applicable to restricted share awards.
Insurance
Upon the occurrence of an extended illness or accident, eligible
nonrepresented salaried employees, including the Named Executives, are
provided payments equal to their then base salary for up to six months.
Thereafter, the Corporation will provide such individuals with long-term
disability payments in an amount equal to 60% of their base salary at the time
such disability occurred, less Social Security benefits and any pension
benefits paid by the Corporation prior to age 65. Such payments will continue
until age 65, at which time payments cease.
The Corporation provides all eligible nonrepresented salaried employees
hired prior to January 1, 1995, with group term life insurance equal to 24
times an employee's monthly base salary as of December 31, 1994, except that,
for exempt salaried employees who were employed on or before December 31,
1989, this insurance equals the greater of 30 times the employee's monthly
base salary as of December 31, 1989, or 24 times the employee's monthly base
salary at the time of death. From 1995 and thereafter, that life insurance
benefit will equal the greater of the level as of December 31, 1994, and 12
times monthly base salary. All employees hired as of January 1, 1995, or
thereafter will have a life insurance benefit equal to 12 times the employee's
monthly base salary.
Following retirement with attainment of age 65 and at least five years of
service, age 55 and at least 15 years of service, 30 years of service
(regardless of age), or permanent incapacitation with 15 years of service, an
employee is eligible for group term life insurance based upon age and years of
service as of January 1, 1995. An employee who is age 50 or older or has
completed at least 30 years of service with the Corporation as of January 1,
1995, will receive retiree life insurance coverage equal to one-half the
coverage provided immediately prior to retirement for the first year following
retirement, with coverage in each of the 10 succeeding years thereafter
declining by 10% per year, provided that the minimum coverage in the eleventh
year after retirement and beyond will always be $10,000. Any employee who was
under age 50 and had less than 30 years of service as of January 1, 1995, will
have life insurance of $10,000 during retirement.
Mr. Will is covered under an individual insurance policy originally
provided under a life insurance program for Cyclops Industries, Inc. key
executives in lieu of participating in the Corporation's group term life
insurance program described above. Mr. Will pays a variable premium for this
policy and the Corporation pays a fixed amount towards the total annual
premium. Mr. Will's group term life insurance under the Corporation's program
is fixed at $50,000 while he is an active employee and is subject to reduction
at his retirement as stated above.
Certain key employees, including Mr. Hildreth, could purchase
supplemental coverage equal to 18 times their monthly base salary as of
January 1, 1987, at a personal cost equal to the amount of imputed income
allocated to such individual under the Internal Revenue Code. Participant
contributions cease upon retirement, and there is no decrease in the amount of
coverage for such key employees during retirement. If the value of the policy
at the time of death exceeds the amount of coverage, the Corporation will
recoup all or a portion of premiums paid by the Corporation. Participation in
this supplemental plan was frozen as of January 1, 1987. Pursuant to a notice
of termination sent to participants, the supplemental coverage plan terminates
as of June 30, 1998. Messrs. Will, Albright, McDaniel and Meneely are not
eligible for this supplemental coverage plan.
13
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
composed of independent directors. The Committee is responsible for
reviewing, determining and recommending to the Board the annual salary, short-
and long-term incentive compensation, stock awards and other compensation of
the executive officers of the Corporation. This report describes the policies
and rationales of the Committee in establishing the principal components of
executive compensation in 1997.
The Committee's review and determination of executive compensation
generally includes consideration of the following factors:
(a) industry, peer group and national compensation surveys;
(b) past and future performance contributions of each executive
officer to corporate performance;
(c) the overall performance of the Corporation, both separately and
relative to similar companies in the specialty steel industry;
(d) historical compensation levels; and
(e) recommendations of independent compensation consultants with
respect to compensation competitiveness.
Under the direction of the Committee, the Corporation has developed a
compensation strategy designed to compensate its executives on a competitive
basis relative to specific performance targets and comparable to other
companies in the steel industry, including companies that are not included in
the Specialty Steel Peer Group performance graph under "Performance Graph"
below, the five-year cumulative total shareholder returns of which are
graphically depicted in such graph. Those companies, and the other companies
surveyed by the Corporation for their compensation policies, were selected for
comparison on the basis of industry similarities. The Specialty Steel Peer
Group was not considered exclusively because the Committee felt that it
provided too small a group for an appropriate basis and that other steel
companies should also be considered to provide a more meaningful comparison of
competitive compensation.
Compensation for each of the Corporation's executive officers, including
the Named Executives, consists of a fixed base salary and variable components,
including both short- and long-term incentive compensation, as well as certain
compensation under corporate benefit plans available generally to corporate
officers. At the beginning of each year, an annual salary and performance
incentive plan for each of the Corporation's executive officers, other than
the Chief Executive Officer ("CEO"), is developed and prepared by the
Corporation's Human Resources staff under the direction of the CEO and
submitted for consideration by the Committee. The Committee reviews and fixes
the CEO's compensation based on criteria similar to those considered for all
executives, as well as an assessment of his past and future contributions in
leading Armco toward its objectives of becoming the leading, low-cost domestic
producer of specialty steel and achieving improved long-term financial and
operating results.
Base Salary. Armco's base salary policy is designed to recognize the
------------
sustained and cumulative efforts toward achieving the Corporation's objectives
that its executives have demonstrated. In aggregate, the levels of base
salary for 1997 were determined primarily by competitive conditions but were
fixed at levels that are below competitive amounts paid to executives with
comparable qualifications at a broad range of industrial companies. Three of
the Named Executives received increases in annual base salary from the prior
year in recognition of their performance and/or increased responsibilities
associated with their executive positions. Mr. Albright was newly hired as
Vice President and Chief Financial Officer effective January 1, 1997. Mr.
Will did not receive an annual base salary increase during 1997, but did
receive an increased incentive opportunity.
Short-Term Incentives. The Committee recognized 1997 as a critical year
----------------------
in Armco's path to sustained profitability growth. With this in mind, the
Committee authorized a special, one-time bonus for certain executives in
recognition of operation and income performance substantially better than
objectives established for the first quarter of 1997. The Named Executives
participated in the special, one-time cash bonus award, which is included in
the Bonus column in the Summary Compensation Table.
Short-term incentives are paid to recognize performance that is related
generally to the achievement of key financial and operating goals that have
been established for a fiscal year. These short-term incentives are set at or
14
<PAGE>
about the mid-percentile ranges of short-term incentive bonuses paid to
executives at the steel companies surveyed by Armco. Since short-term
incentives generally reflect one-year contributions, the size of the payments
may vary considerably from year to year, depending on performance. At the
beginning of each year, performance goals for the purposes of determining
annual incentive compensation are established under the Corporation's Annual
Incentive Compensation Plan, approved by shareholders in 1995. These goals
are objective, measurable and to a reasonable degree controllable by the
respective executive. The executives are paid an annual bonus based on
achieving these annual goals.
For 1997, the Committee approved specific operating income and working
capital goals for each operating unit based on its approved annual operating
plan. These financial goals provided 80% of the executive's aggregate targeted
incentive opportunity. In addition, the Committee approved specific strategic
and operating goals, including both qualitative and quantitative measures,
such as market share, productivity initiatives, customer service, safety
performance improvements, sale of non-strategic businesses and certain other
discretionary objectives. Achievement of these goals provided the remaining
20% of the executive's aggregate targeted incentive opportunity. In the case
of certain executives, including Named Executives, minimum threshold financial
objectives were established. Had these minimum thresholds not been met, no
incentive would have been payable for 1997. The total amount of each
executive's targeted incentive opportunity is based upon a percentage of base
salary, which percentage is based on the comparative compensation data
described above. The actual incentive payment to an executive officer for any
year may exceed the targeted incentive opportunity for that year if applicable
performance targets are exceeded.
Long-Term Incentives. The Committee recognizes long-term incentive
---------------------
compensation as the key component of the total pay package linking executive
pay and corporate performance. At Armco, long-term incentive compensation is
intended to link the interests of its executives with the interests of Armco's
shareholders. The core of Armco's long-term incentives is the comprehensive
1997-1999 long-term incentive compensation program for senior management,
including the Named Executives, adopted in 1997, under which a substantial
portion of the executives' annual (short-term) incentive compensation, when
earned, is paid in restricted stock and stock options in lieu of cash. The
purpose of the program is threefold:
1. attract and retain top management;
2. provide senior management a meaningful financial incentive to
improve the Corporation's performance, including personal risk
capital, the value of which is tied to the market returns to Armco
shareholders; and
3. encourage the acquisition and retention of Armco stock by Armco's
senior management.
Under the program:
1. Initial Restricted Stock Awards. Selected members of management,
--------------------------------
including the Named Executives, received an initial grant of shares of
restricted stock in 1997. The value of these shares of restricted stock on
the date of grant is included in the Restricted Stock column in the Summary
Compensation Table. These will vest 33 1/3% in 2000, 33 1/3 % in 2001 and 33
1/3% in 2002. The amounts of these initial grants to the Named Executives
were equal to approximately one year's base salary.
2. Restricted Stock Awards. In lieu of payment in cash, each program
------------------------
participant, including the Named Executives, is paid at least 25% of the
participant's annual (short-term) incentive payment under the annual incentive
payment plans approved by the Board of Directors for 1997, 1998 and 1999
(payable in the first quarters of 1998, 1999 and 2000 respectively) in
restricted stock issued under the Corporation's shareholder-approved stock
plans. Of the Named Executives, four elected at the start of the current
three-year program to receive 100% of any incentive bonuses earned under such
annual incentive payment plan for 1997, 1998 and 1999 in restricted stock
awards.
The number of shares of restricted stock that is awarded in lieu of the
portion of the incentive payment that is mandatorily payable in restricted
stock or that the participant elected at the start of the program in April
1997 to receive in restricted stock is determined using a discounted price of
$3.0975 per share, i.e., by dividing the aggregate amount of the incentive
payment to be made in restricted stock by $3.0975. The number of shares of
restricted stock that is awarded in lieu of the portion of the incentive
payment that the participant elects after the start of the program in April
15
<PAGE>
1997 to receive in restricted stock is determined using a discounted price
equal to 70% of the average price per share of common stock over the five
trading days at the start of the current three-year program in April, 1997.
These shares of restricted stock will vest 33 1/3% in each of years three
through five following the year of grant, except that for any restricted stock
awarded with respect to a year in which the Corporation's adjusted return on
assets exceeds the best performance of the Specialty Steel Peer Group, namely
J & L Specialty Steel and Lukens Inc., this five-year vesting schedule will
accelerate by one year. If the recipient leaves Armco before any of the
shares of restricted stock are vested, the recipient will receive in cash only
the lesser of (a) the dollar amount of the incentive payment that had been
applied to the shares, or (b) the value on the date of termination of the
shares awarded in lieu of such amount.
3. Stock Option Awards. At the time that shares of restricted stock
--------------------
are allocated on the incentive payment date in 1998, 1999 and 2000, the
recipients, including the Named Executives, also receive an option, under the
Corporation's shareholders approved stock plans, to purchase one share of
common stock for each share of restricted stock allocated. These stock
options will have an exercise price equal to 100% of the fair market value of
the common stock on the date of grant and are not exercisable until the second
anniversary of the date of grant, at which time they will be fully
exercisable. If the option holder leaves the Corporation before his options
are exercisable, those options generally will terminate.
Chief Executive Officer's 1997 Compensation. As set forth in the Summary
--------------------------------------------
Compensation Table, Mr. Will's 1997 total base salary, bonus and other
compensation (excluding the restricted stock grant in 1997) was $1,826,600.
Mr. Will earned $565,000 in base salary, $229,535 in the special one-time cash
bonus for the first quarter of 1997, $1,017,282 in annual incentive bonus,
100% of which was paid to him in restricted stock and options, and $14,783 in
all other compensation.
In determining Mr. Will's 1997 compensation, the Committee considered
the various factors applied to compensation of all executive officers
discussed above. Mr. Will also had the opportunity to earn an annual
incentive bonus targeted at 65% of his annual base salary.
Armco's net income of $76.8 million in 1997 represented a $44.3 million
improvement (136%) over 1996. Strong performance in the Fabricated Products
segment as well as lower Pension and OPEB costs were significant factors in
achieving these results. Additionally, shipments of Specialty Steel products
were at record levels with profitability exceeding that achieved by the
Specialty Steel Peer Group.
Deductibility of Compensation Under Section 162(m) of the Internal
------------------------------------------------------------------
Revenue Code. The Committee acknowledges the potential impacts of Internal
- -------------
Revenue Code Section 162(m), which limits a publicly held corporation's
allowable deduction for a covered employee's applicable employee remuneration
at $1 million for a taxable year. To enable the Corporation to better
preserve the deductibility of the Corporation's compensation expenses under
Section 162(m), the Board of Directors approved the Annual Incentive
Compensation Plan and the shareholders approved it at the April 28, 1995
meeting. The Incentive Plan was designed to allow the Committee to make
awards thereunder that will be treated as performance-based compensation that
is exempt from the limitations of Section 162(m).
The foregoing report has been approved by
all members of the Committee.
Burnell R. Roberts, Chairman
John C. Haley
Bruce E. Robbins
John D. Turner
16
<PAGE>
Performance Graph
The following Performance Graph compares the five-year cumulative total
shareholder return (assuming reinvestment of dividends) of the common stock of
Armco Inc., the S&P 500 Composite Index and a defined peer group of specialty
steel companies comprised of J & L Specialty Steel and Lukens Inc. (the
"Specialty Steel Peer Group").
<TABLE>
[GRAPH APPEARS HERE]
Comparison of Cumulative Total Return
Among Armco Inc., S&P 500 Composite Index
and Specialty Steel Peer Group
<CAPTION>
Measurement period Armco S&P 500 Specialty Steel
(Fiscal year covered) Inc. Composite Index Peer Group
- --------------------- ----- --------------- --------------
<S> <C> <C> <C>
Measurement PT -
FYE 12/31/92 $100 $100 $100
FYE l2/31/93 $ 91 $110 $ 89
FYE 12/31/94 $ 98 $112 $ 93
FYE 12/31/95 $ 87 $152 $ 92
FYE 12/31/96 $ 61 $188 $ 61
FYE 12/31/97 $ 73 $249 $ 70
</TABLE>
MISCELLANEOUS
Information on the Auditors
On the recommendation of the Audit Review Committee, the Board of
Directors has appointed Deloitte & Touche LLP to examine the financial
statements of the Corporation for the fiscal year ending December 31, 1998 and
to perform other appropriate accounting services.
Representatives of Deloitte & Touche LLP are expected to be present at
the Meeting and will be given the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
17
<PAGE>
Stock Ownership
The following table sets forth information as to stock ownership of
directors and executive officers of Armco as of February 27, 1998.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Name Owned (1)(3)
- -----------------------------------------------------------------------------
<S> <C>
Jerry W. Albright 126,581
Paula H.J. Cholmondeley 2,649
Dorothea C. Gilliam 1,945 (2)
John C. Haley 19,582
Gary R. Hildreth 362,883
Gary L. McDaniel 243,498
Pat J. Meneely 162,299
Bruce E. Robbins 3,116
John D. Turner 8,115
James F. Will 1,391,692 (2)
All Directors and Executive Officers as a Group
(16 persons including those named above) 3,434,974
<FN>
(1) Other than Mr. Will, who beneficially owns 1.29 %, no director or
executive officer beneficially owns more than 1.0 % of the total shares of
common stock. The shares that are beneficially owned by all directors and
executive officers as a group constituted 3.2 % of the total shares of common
stock outstanding. No director or executive officer owns any shares of $2.10
preferred stock, $3.625 preferred stock or $4.50 Cumulative Convertible
Preferred Stock. Except as noted below, each director or executive officer
has sole voting power and sole investment power with respect to those shares
listed as beneficially owned by such director or executive officer.
(2) Mr. Will is a director, and Ms. Gilliam is Vice President -
Investments, of Alleghany Corporation. As set forth below in this section,
"Stock Ownership", Alleghany Corporation beneficially owned 5,643,355 shares
of common stock as of December 31, 1997. Ms. Gilliam and Mr. Will disclaim
beneficial ownership of such shares.
(3) For the executive officers and directors indicated, the shares
shown as beneficially owned include the number of shares such persons had the
right to acquire within 60 days after February 27, 1998, pursuant to stock
options granted by the Corporation: Mr. Will - 340,267 shares; Mr. Albright -
0 shares; Mr. Hildreth - 109,172 shares; Mr. McDaniel - 99,216; Mr. Meneely
- - 25,143 shares and all directors and executive officers as a group - 885,046
shares. The shares shown also include any shares allocated as of such date to
the person's accounts under the Armco Inc. Retirement and Savings Plan. The
numbers of shares beneficially owned under this plan, in the aggregate, for
the persons indicated are as follows: Mr. Will - 148,264 shares; Mr. Albright
- - 598 shares; Mr. Hildreth - 14,216 shares; Mr. McDaniel - 2,378 shares; Mr.
Meneely - 6,041 shares and all directors and executive officers as a group -
185,178 shares. The numbers of restricted shares owned subject to
restrictions under Armco's long-term incentive plans for the persons indicated
are as follows: Mr. Will - 609,359 shares; Mr. Albright - 123,983 shares; Mr.
Hildreth - 198,351 shares; Mr. McDaniel - 141,904 shares; Mr. Meneely- 123,800
shares and all directors and executive officers as a group - 1,897,535 shares.
The executive officers have no voting, dividend or any other rights with
respect to shares subject to options under stock option plans until the
options are exercised. Subject to the restrictions under Armco's long-term
incentive plans, the recipients have all rights of a shareholder with respect
to the restricted shares awarded thereunder, including the right to vote and
receive all dividends and other distributions paid or made with respect
thereto. The shares shown as
18
<PAGE>
beneficially owned by certain of the directors of the Corporation also include
shares that would be received under outstanding common stock units under the
Directors Stock Plan upon retirement: Ms. Cholmondeley - 2,449; Ms. Gilliam -
945; Mr. Haley - 8,582 and Mr. Robbins - 3,116.
</TABLE>
The following table lists the beneficial ownership of common stock and
$3.625 preferred stock with respect to all persons known by the Corporation to
be the "beneficial owners" (as defined in Securities and Exchange Commission
Rule 13d-3) of more than 5% of any such class. Except as indicated, the
information is as of December 31, 1997, and is based on reports filed with the
Securities and Exchange Commission. The percentage of the outstanding shares
of each class owned by each such person or entity is based on the outstanding
shares of such class as of December 31, 1997.
<TABLE>
<CAPTION>
Title of Name and Address Number of Shares % of Outstanding
Class of Beneficial Owner Beneficially Owned Shares of Class
- --------- ------------------- ------------------ ----------------
<S> <C> <C> <C>
Common Alleghany Corporation
Park Avenue Plaza
New York, NY 10055 5,643,355 (1) 5.30%
Common Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479 7,409,188 (2) 6.92%
Common Sasco Capital, Inc.
10 Sasco Hill Road
Fairfield, CT 06430 9,481,400 (3) 8.85%
Common State of Wisconsin
Investment Board
P. O. Box 7842
Madison, WI 53707 9,878,500 (4) 9.22%
$3.625 Reliance Financial
Preferred Services Corporation
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055 390,000 (5) 8.87%
$3.625 Ryback Management Corporation
Preferred 7711 Carondelet Avenue, Suite 700
St. Louis, MO 63105 312,400 (6) 7.10%
- -------------------------
(1) The reported beneficial ownership is as of December 31, 1997.
The beneficial owner reported that it had sole voting and investment power as
to 946,667 shares, shared voting power as to 4,696,688 shares.
(2) The reported beneficial ownership is indirectly through Norwest
Corporation's subsidiaries, Norwest Colorado, Inc. and Norwest Bank Colorado,
N.A. (collectively with Norwest Corporation, "Norwest"). The shares of common
stock reported as beneficially owned include shares issuable upon conversion
of 2,032 shares of $2.10 preferred stock beneficially owned and 2,712 shares
issuable upon conversion of $3.625 preferred stock. Norwest reported that it
had sole voting power as to 6,516,988 shares, shared voting power as to 2,000
shares, sole dispositive power as to 7,403,076 shares and no shared
dispositive power.
19
<PAGE>
(3) The beneficial owner reported that it has sole voting power of
5,423,400 shares, no shared voting power and sole dispositive power as to
9,481,400 shares.
(4) The beneficial owner reported that it had sole voting and
dispositive power as to all of the shares beneficially owned.
(5) The beneficial owner reported that it had sole voting and
investment power as to all of the shares beneficially owned.
(6) The beneficial owner reported that it had sole power to vote and
sole power to dispose of such shares.
</TABLE>
Shareholder Proposals
Any proposals of shareholders intended to be presented at the 1999 annual
meeting must be received by the Corporation by November 16, 1998, in order to
be considered for inclusion in the proxy statement and form of proxy for that
meeting. In addition, as set forth above under ''ELECTION OF DIRECTORS --
Board of Directors and Committees of the Board", shareholders intending to
nominate director candidates for election at the 1999 annual meeting must
deliver written notice, including specified information, to the Secretary of
Armco at its address set forth on the first page of this proxy statement by
January 24, 1999.
Proxy Solicitation
The cost of soliciting proxies from the shareholders of the Corporation
will be borne by the Corporation. Proxies may be solicited by mail, personal
interviews, telephone and telegraph. It is anticipated that banks, brokerage
houses and other custodians, nominees or fiduciaries will be requested to
forward soliciting material to their principals and to obtain authorization
for the execution of proxies and will be reimbursed for their charges and
expenses incurred in connection therewith.
The Corporation has retained Georgeson & Company Inc., Wall Street Plaza,
New York, New York 10005, to assist in the solicitation of proxies by such
methods. Georgeson & Company Inc. will receive for such services a fee of
$10,000 plus out-of-pocket expenses and disbursements. Certain directors,
officers and regular employees of the Corporation may also solicit proxies by
such methods without additional remuneration therefor.
By Order of the Board of Directors
GARY R. HILDRETH, Secretary
March 13, 1998
20
<PAGE>
RIVERS CLUB
One Oxford Centre Admission Ticket
301 Grant Street Retain for Admittance
Pittsburgh, PA 15219
(412) 391-5227
FROM PITTSBURGH INTERNATIONAL AIRPORT:
Leaving the airport, follow Route 60 East to Pittsburgh. Take Parkway (376
East) following "Pittsburgh" signs to AND through the Ft. Pitt Tunnel. (Stay
in right lane.) Cross the Bridge bearing right, follow the Monroeville Exit.
Move to left lane to take the Grant Street Exit. Proceed on Grant Street to
3rd light, make a left turn onto 3rd Avenue. After proceeding through the
Stop sign make a right turn into the Oxford Centre Garage.
FROM MONROEVILLE:
Take Parkway (376 West) following "Pittsburgh" signs. Nearing Downtown, watch
for Grant Street Exit. Exit will be from the left lane of the Parkway. Take
Grant Street to the 3rd light. Make a left turn onto 3rd Avenue. After
proceeding through the Stop sign make a right turn into the Oxford Centre
Garage.
FROM NORTH:
Take 279 South following
"Pittsburgh" signs. As
you approach the city,
follow signs for 579
(Veterans Bridge) to
downtown. Exit at 6th
Avenue. Make a right
turn at the light. Go to
second light (William
Penn Highway), make a
left turn. This street
will become Cherry Way
after 2 blocks. After 4
lights, One Oxford Centre
Garage is on your right.
FROM SOUTH:
(From the Intersection of West
Liberty Avenue [Route 19] and
Saw Mill Run Boulevard [Route
51] the south end of the
Liberty Tunnels.) Go through
the Liberty Tunnels staying in
the right lane. Cross the
Liberty Bridge bearing right [MAP OF DOWNTOWN PITTSBURGH
going up the ramp staying to APPEARS HERE]
the left of the stop sign.
Make the left onto the
Boulevard of the Allies
staying in the right lane. Go
through the light switching to
the right lane (watching for
traffic coming up on your
right). At the 3rd light make
a right onto Smithfield
Street. At the light make a
right onto 3rd Avenue. One
Oxford Centre's Garage is on
the left.
FINDING THE CLUB:
(From the Garage)
The entrance to the Rivers Club is on the 4th level of the Oxford Centre
Parking Garage. As you enter from the garage on level 4 a door marked Rivers
Club will be on your right. Go through that door and a Brass elevator will be
on your right. You will be in a marble lobby. Take the elevator to level 3
(dining) on the button.
(From Oxford Centre)
Take the glass elevator to level 4. Follow the Rivers Club signs down the
Hallway through the double doors into the marble lobby. Take the Brass
elevator to level 3 (dining).
ARMCO INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 24, 1998
The undersigned hereby appoints James F Will, John C. Haley and Gary R.
Hildreth, and each or any of them, proxies, with full power of substitution,
to represent and to vote all shares of common stock and/or preferred stock of
Armco Inc. held of record by the undersigned on February 27, 1998, at the
annual meeting of shareholders to be held on April 24, 1998, and at any
adjournment thereof, notice of which meeting together with the related proxy
statement has been received. The proxies are directed to vote the shares the
undersigned would be entitled to vote if personally present.
Item 1 Authority to vote for the election of directors:
- ------
[ ] FOR - All nominees listed (except as marked to the contrary below)
[ ] WITHHOLD Authority to vote
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below:
1. Dan R. Carmichael 4. John C. Haley 7. Jan H. Suwinski
2. Paula H.J. Cholmondeley 5. Charles J. Hora, Jr. 8. John D. Turner
3. Dorothea C. Gilliam 6. Bruce E. Robbins 9. James F. Will
Item 2 To approve the Amendment and Restatement of the 1993 Long-Term
- ------
Incentive Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends you vote FOR Item 2.
Item 3 In their discretion, as to such other business as may properly come
- ------
before the meeting or any adjournment thereof.
(CONTINUED ON REVERSE SIDE)
<PAGE>
ARMCO INC.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1415
The Annual Meeting of Shareholders will be held at the Rivers Club located at
One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania, on Friday,
April 24, 1998, at 10:00 a.m. The enclosed Notice of Meeting and Proxy
Statement contains additional information about the meeting.
INSTRUCTIONS
- ------------
1. Review and complete the Proxy Card; be sure to SIGN the card.
2. Detach and return the SIGNED Proxy Card in the enclosed return
envelope.
IMPORTANT
- ---------
You are urged to date and sign the enclosed proxy and return it promptly to
ensure a proper representation at this meeting.
Fold and detach here
- ------------------------------------------------------------------------------
Please vote on the reverse side hereof, date and sign below and return this
proxy form promptly in the enclosed envelope. If you attend the meeting and
wish to change your vote, you may do so automatically by casting your vote at
the meeting.
THIS PROXY FORM, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
DIRECTIONS GIVEN BY THE SHAREHOLDER. IF NO DIRECTIONS ARE GIVEN HEREON, THE
PROXY FORM WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE APPROVAL
OF THE AMENDMENT AND RESTATEMENT OF THE 1993 LONG-TERM INCENTIVE PLAN. THIS
PROXY DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER MATTERS
WHICH MAY COME BEFORE THE MEETING.
Dated , 1998
--------------------------------------
--------------------------------------
SIGNATURE
--------------------------------------
SIGNATURE IF SHARES HELD JOINTLY
Please sign exactly as name appears
opposite. Executors, trustees, and
administrators and other fiduciaries
should so indicate.
<PAGE>
SUPPLEMENT FOR THE
SUPPLEMENTAL INFORMATION OF
THE COMMISSION
1993 LONG-TERM INCENTIVE PLAN
OF
ARMCO INC.
PREFATORY NOTE: The 1993 Long-Term Incentive Plan (the "Original Plan") of
Armco Inc. (the "Corporation") was adopted by the shareholders of the
Corporation on April 23, 1993. Any "Awards" (as such term is defined in the
Original Plan) granted under the Original Plan prior to the effectiveness of
the amendment and restatement of the Original Plan as provided below shall
continue to be subject to the terms and conditions of the Original Plan as in
effect immediately prior to such amendment and restatement.
Upon adoption by the shareholders of the Corporation, the Original Plan
is amended and restated to read in its entirety as set forth below:
1. Purpose. The purpose of the Amended and Restated 1993 Long-Term
Incentive Plan (as so amended and restated, the "Plan") is to advance the
interests of Armco Inc. (the "Corporation") and its Affiliates by providing a
larger personal and financial interest in the success of the Corporation and
its Affiliates to selected Employees upon whose judgment, interest and special
efforts the Corporation and its Affiliates are largely dependent for the
successful conduct of their operations and to enable the Corporation and its
Affiliates to compete effectively with others for the services of new
Employees as may be needed for the continued improvement of the enterprise.
It is believed that such interests will stimulate the efforts of such
Employees on behalf of the Corporation and its Affiliates and strengthen their
desire to remain in the employ of the Corporation and its Affiliates.
2. Definitions.
As used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Affiliate" shall mean any entity (i) which is controlled,
directly or indirectly, by the Corporation, or (ii) in which the Corporation
has a significant equity interest, as determined by the Committee.
(b) "Award" shall mean any award of an Option, SAR, Restricted
Stock, Performance Unit, or Other Stock Unit Award granted pursuant to the
provisions of the Plan.
(c) "Award Instrument" shall mean any written agreement or other
instrument or document evidencing any Award granted by the Committee
hereunder.
(d) "Board" shall mean the Board of Directors of the Corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean a committee of the Board, which
initially shall be the Compensation Committee of the Board, composed of three
or more directors, which committee shall be authorized to administer the Plan
and shall be constituted in such a manner as to satisfy the requirements of
applicable law.
(g) "Corporation" shall mean Armco Inc.
(h) "Derivative Security" shall mean, except to the extent
excluded from the definition of a "derivative security" under the rules
promulgated pursuant to Section 16 of the Exchange Act, any option, warrant,
convertible security, stock appreciation right or similar right related to an
"equity security" within the meaning of Section 16 of the Exchange Act.
(i) "Employee" shall mean any key employee of the Corporation or
of any Affiliate.
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(k) "Fair Market Value" shall mean, with respect to any property,
the market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee.
(l) "Incentive Stock Option" shall mean any Option granted under
Section 7 hereof that is intended to meet the requirements of Section 422 of
the Code.
(m) "Legal Representative" shall mean, with respect to any
Participant, any legal representative or guardian which (i) is a mere
custodian with respect to the property of such Participant, (ii) stands in a
fiduciary relationship to such Participant and (iii) is subject to court
supervision in the performance of its duties as a legal representative or
guardian.
(n) "Nonstatutory Stock Option" shall mean any Option granted
under Section 6 hereof that is not intended to be an Incentive Stock Option.
(o) "Officer" shall mean any Participant who is subject to
Section 16 of the Exchange Act.
(p) "Option" shall mean any right granted to a Participant under
the Plan allowing such Participant to purchase Shares at such price or prices
and during such period or periods as the Committee shall determine.
(q) "Other Stock Unit Award" shall mean any right granted to a
Participant under the Plan pursuant to Section 11 hereof.
(r) "Participant" shall mean any Employee who is selected by the
Committee to receive an Award under the Plan. Any Employee (other than a
member of the Committee) shall be eligible to be so selected.
(s) "Performance Period" shall mean the period established by the
Committee at the time any Performance Unit is awarded or at any time
thereafter during which any performance goals specified by the Committee with
respect to such Award are to be measured.
(t) "Performance Unit" shall mean any unit granted pursuant to
Section 10 hereof.
(u) "Person" shall mean any "person" as such term is used in
Sections 13(d)(3) and 14(d) of the Exchange Act.
(v) "Restricted Stock" shall mean shares of restricted stock
awarded to a Participant pursuant to Section 9 hereof.
(w) "SAR" shall mean any stock appreciation right granted to a
Participant pursuant to Section 8 hereof.
(x) "Shares" shall mean the common stock of the Corporation, and
such other securities of the Corporation as the Committee may from time to
time determine.
(y) "Tandem SAR" shall mean any SAR exercisable only upon
surrender of the Option related to such SAR.
3. Administration. The Plan shall be administered by the
Committee. The Committee shall have full power and authority to (i) select
the Employees to whom Awards may be granted under the Plan, (ii) determine the
size and types of Awards to be granted to each such Employee, (iii) determine
the terms and conditions, not inconsistent with the provisions of the Plan,
governing such Awards, (iv) interpret the Plan and any instrument or agreement
entered into under the Plan, (v) establish such rules and regulations as it
shall deem
2
<PAGE>
appropriate for the administration of the Plan and (vi) take such other action
as it deems necessary or desirable for the administration of the Plan. The
interpretation and construction of any provision of the Plan, or any Award
Instrument, by the Committee shall be final, conclusive and binding on all
parties.
The Committee may delegate to the chief executive officer and
other senior officers of the Corporation its responsibilities with respect to
grants of Awards to Employees who are not Officers, including the selection of
the recipients of such Awards.
4. Effectiveness of Plan. The Plan shall become effective upon
adoption by the shareholders of the Corporation on April 24, 1998 and shall
remain effective until April 23, 2008 or such earlier date as the Board shall
determine. In the event of the termination of the Plan by the Board, any
Award outstanding under the Plan at that time shall remain in effect in
accordance with its terms and conditions and those of the Plan.
5. The Shares. Subject to adjustment as provided in Section 12
hereof, the total number of Shares available for grant under the Plan from and
after its effective date shall be 45,048,848. All Shares subjected under the
Plan to an Award which, for any reason, expires or terminates as to such
Shares, or with respect to which other consideration is paid in lieu of such
Shares, shall again be available for grant under the Plan; provided, however,
that Shares as to which an Incentive Stock Option has been surrendered in
connection with the exercise of a related SAR shall not increase the number of
shares available for grants of Incentive Stock Options.
6. Options. Options, which shall be evidenced by Award
Instruments, shall be subject to the terms and conditions set forth in the
Plan and such other terms and conditions not inconsistent herewith as the
Committee may approve and may be granted either alone or in addition to other
Awards granted under the Plan. Except as hereinafter provided, all Options
granted pursuant to the Plan shall be subject to the following terms and
conditions:
(a) Price. The purchase price of the Shares shall be
determined by the Committee in its sole discretion, provided, however, that
(i) if the purchase price of the Shares is pre-established for the full
duration of the Option, it shall never be less than 100% of the Fair Market
Value of the Shares on the date of the grant of the Option, or (ii) if the
purchase price of the Shares varies based on an index or other variable, it
shall not start at less than 100% of the Fair Market Value of the Shares on
the date of the grant of the Option. The purchase price shall be paid in full
at the time of purchase in cash, in Shares valued at the Fair Market Value of
the Shares on the date of purchase, in any combination thereof or in such
other form of consideration as the Committee may determine. In addition, if
the Committee so provides, an Option may be exercised by delivering a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Corporation the amount of sale or loan proceeds
necessary to pay the purchase price and applicable withholding taxes in full
and such other documents as the Committee shall determine. The purchase price
shall be subject to adjustment as provided in Section 12 hereof.
(b) Duration and Exercise of Options. Options may be granted
for such terms as the Committee shall establish. Options shall be exercisable
as provided by the Committee at the time of grant thereof.
(c) Surrender of Options. The Committee may require the
surrender of outstanding Options as a condition precedent to the grant of new
Options.
(d) Form of Settlement. In its sole discretion, the Committee
may provide at the time of grant of an Option, that Restricted Stock or other
similar securities or other Awards may be issued upon exercise of such Option,
or the Committee may reserve the right so to provide after the time of grant.
(e) Other Terms and Conditions. Options may also contain such
other provisions, which shall not be inconsistent with any of the foregoing
terms, as the Committee shall deem appropriate. The maximum number of Shares
with respect to which Options may be granted to any Employee under this Plan
during any calendar year is 500,000, subject to adjustment as provided in
Section 12.
3
<PAGE>
7. Incentive Stock Options. The Committee may grant Incentive
Stock Options under the Plan. Incentive Stock Options granted pursuant to the
Plan shall be subject to all the terms and conditions set forth in Section 6
hereof and to the following terms and conditions:
(i) The term of an Incentive Stock Option shall not exceed ten
years.
(ii) No Incentive Stock Option may be granted under the Plan if
such grant, together with any applicable prior grants which are incentive
stock options within the meaning of Section 422 of the Code, would cause any
limitation established under the Code for incentive stock options to be
exceeded, not taking into account any acceleration of the exercisability of
any Options pursuant to any term or condition included in such Options by the
Committee.
8. Stock Appreciation Rights. Stock appreciation rights ("SARs")
may be granted either alone or in addition to other Awards granted under the
Plan and may, but need not, relate to an Option. Any SAR related to a
Nonstatutory Stock Option may be granted at the same time such Option is
granted or at any time thereafter before the exercise or expiration of such
Option. Any SAR related to an Incentive Stock Option must be granted at the
same time such Option is granted.
Upon the exercise of an SAR, the Participant shall be entitled to
receive for each Share covered by the SAR so exercised the excess of (i) the
Fair Market Value of one Share on the date of exercise or, if the Committee
shall so determine in the case of any such SAR other than one related to an
Incentive Stock Option, at any time during a specific period before the date
of exercise, over (ii) the option exercise price per Share specified in the
related Option, if any, and if none, the Fair Market Value of one Share on the
date the SAR is granted. Any payment by the Corporation in respect of an SAR
may be made in cash, Shares, Restricted Stock, or other Award, or any
combination thereof, as the Committee in its sole discretion shall determine.
In addition to the terms and conditions set forth elsewhere in
the Plan, SARs shall be subject to the following terms and conditions and to
such other terms and conditions not inconsistent with the Plan as the
Committee from time to time approves:
(i) A Tandem SAR shall be exercisable, in whole or in part, only
at such times and to the extent that the Option to which it relates is
exercisable and only when the Fair Market Value of the Shares exceeds the
option price of the related Option. An SAR which is related to an Option but
which is not a Tandem SAR shall be exercisable, in whole or in part, only at
such times and to the extent that the Option to which it relates is
exercisable or, if such Option has been exercised, until the Option to which
it relates would have expired had it not been exercised. An SAR granted
without relationship to an Option shall be exercisable as determined by the
Committee.
9. Restricted Stock.
(a) Issuance. The Committee may grant awards of Restricted Stock
for no cash consideration or for such minimum consideration as may be required
by applicable law, either alone or in addition to other Awards granted under
the Plan. Shares of Restricted may be issued with such terms and conditions,
including acceleration and forfeiture and other provisions and restrictions as
the Committee, in its sole discretion, may impose (including, without
limitation, any restriction on the right to vote such Shares and the right to
receive any cash dividends with respect thereto). Such restrictions may lapse
separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate, and any such Shares may not
be sold, transferred, pledged, assigned or otherwise disposed of by the
Participant, except as may be otherwise provided, until such restrictions
lapse. All restrictions applicable to any Restricted Stock shall also apply
to any shares resulting from a stock dividend, stock split or other
distribution of Shares with respect to such Restricted Stock. Upon
termination of employment during the restricted period, all Restricted Stock
shall be forfeited, subject to such exceptions, if any, as are authorized by
the Committee relating to termination of employment pursuant to retirement,
disability, death or other special circumstances.
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(b) Registration. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or
issuance of a stock certificate or certificates. In the event any stock
certificate is issued in respect of shares of Restricted Stock awarded under
the Plan, such certificate shall be registered in the name of the Participant
and shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Award. In such event, the Committee shall
require that the stock certificates evidencing such Shares be held in custody
by the Corporation until the restrictions thereon shall have lapsed and that,
as a condition of the award of any Restricted Stock, the Participant shall
have delivered a duly signed stock power, endorsed in blank, relating to the
Shares covered by such Award.
10. Performance Units. The Committee may grant awards of units
("Performance Units") valued by reference to Shares or other property or
measured in dollar amounts, which value may be paid to the Participant by
delivery of such property as the Committee shall determine, including, without
limitation, cash, Shares or any combination thereof, upon achievement of such
performance goals during the Performance Period as the Committee shall
establish at the time of such grant or thereafter. Performance Units may be
issued for no cash consideration or for such minimum consideration as may be
required by applicable law, either alone or in addition to other Awards
granted under the Plan. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Unit or
thereafter. The performance levels to be achieved for each Performance Period
and the amount of the Award to be distributed shall be conclusively determined
by the Committee. Performance Units may be paid in a lump sum or in
installments following the close of the Performance Period or, in accordance
with procedures established by the Committee, on a deferred basis.
11. Other Stock Unit Awards. The Committee may grant other Awards
of Shares and other Awards that are valued in whole or in part by reference to
Shares ("Other Stock Unit Awards"). Other Stock Unit Awards may be granted
for no cash consideration or for such minimum consideration as may be required
by applicable law, either alone or in addition to other Awards granted under
the Plan. Such Other Stock Unit Awards may be paid in Shares, other
securities of the Corporation, cash or any other form of property as the
Committee shall determine. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine all conditions
of Other Stock Unit Awards.
12. Adjustment of and Changes in the Shares. In the event of any
merger, consolidation, recapitalization, reclassification, stock dividend,
reverse split, distribution of property, special cash dividend or other change
in corporate structure affecting the Shares as determined by the Committee,
the Committee shall make such adjustments as it deems appropriate to the
number, class and option price of Shares subject to outstanding Options
granted under the Plan, and in the value of, or number or class of Shares
subject to, other Awards granted or available to be granted under the Plan or
to individual Employees during the term of this Plan.
13. Securities Act Requirements. No Award granted pursuant to the
Plan shall be exercisable or realizable in whole or in part, and the
Corporation shall not be obligated to sell any Shares subject to any such
Award, if such exercise, sale or vesting would, in the opinion of counsel for
the Corporation, violate the Securities Act of 1933, as amended (or other
Federal or state statutes having similar requirements). As a condition
precedent to the issuance of Shares pursuant to the grant or exercise of an
Award, the Corporation may require the Participant to take any reasonable
action to meet such requirements. Each Award shall be subject to the further
requirement that, if at any time the Board shall determine in its discretion
that the listing or qualification of the Shares subject to such Award under
any securities exchange requirements or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such Award
or the issuance of Shares thereunder, certificates for Shares under the Plan
pursuant to such Award will not be delivered unless such listing,
qualification, consent or approval shall have been effected or obtained free
of any condition not acceptable to the Board, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such requirements.
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14. Amendments and Termination. The Board may amend or terminate
the Plan, and the Committee may amend the terms of any Award Instrument;
provided, however, that, to the extent required by applicable law or to comply
with the shareholder approval requirements of Section 422 of the Code or
applicable stock exchange requirements, any amendment to the Plan may be
subject to the approval of the shareholders of the Corporation. Amendments to
the Plan or to any Award Instrument may be applied prospectively or
retroactively, provided that no such amendments shall impair the rights of any
Participant with respect to any outstanding Award without such Participant's
consent.
The Committee may also substitute new Awards for previously
granted Awards, including without limitation the substitution of Options
having lower option prices than previously granted Options. The Committee's
powers include, but are not limited to, the adoption of such modifications,
amendments, procedures, subplans and the like as may be necessary to comply
with the provisions of the laws of other countries in which the Corporation or
its Affiliates may operate.
15. Change in Control. The Committee may, without limitation of
the breadth of its authority elsewhere in the Plan and notwithstanding any
provision to the contrary contained elsewhere in the Plan or in any agreement
between the Corporation and a Participant, provide that, upon a change in
control (as such may be defined by the Committee) of the Corporation, the
exercisability or release from restrictions of outstanding Awards may be
accelerated, other payments may be made in respect of outstanding Awards,
Options or other Awards may be surrendered to the Corporation for cash or
other consideration and other consequences with respect to outstanding Awards
may result, all on such terms and conditions as the Committee shall, in its
discretion, provide.
16. General Provisions.
(a) Except as otherwise approved by the Committee, in its
discretion, no Award, or Shares subject to an Award, shall be sold, assigned,
transferred, pledged or otherwise encumbered by a Participant otherwise than
by will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code prior to the date on which
Shares are issued, or, if later, the date on which any applicable restriction,
performance or reference period lapses; provided, however, that if so
determined by the Committee, a Participant may, in the manner established by
the Committee, designate a beneficiary to exercise the rights of the
Participant with respect to any Award upon the death of the Participant. Each
Award shall be exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under applicable law, by the Participant's
Legal Representative.
(b) The provisions of Awards need not be the same with respect to
each recipient. Subject to the provisions of the Plan, the term of each Award
shall be such period as may be determined by the Committee.
(c) The Committee may, in its discretion, grant to the holder of any
Award the right to receive interest or interest equivalents, or the right to
receive with respect to each Share covered by such Award payments of amounts
equal to the regular cash dividends paid to holders of the Shares during the
period that the Award is outstanding.
(d) The Corporation shall be authorized to withhold from any Award
granted or payment due under the Plan, in such manner as the Committee shall
determine (including mandatory withholding imposed as a provision of an
Award), the amount of withholding taxes due in respect of such Award or
payment hereunder and to take such other actions as may be necessary in the
opinion of the Corporation to satisfy all obligations for the payment of such
taxes.
(e) Nothing contained herein shall require the Corporation to
segregate any monies from its general funds, or to create any trusts, or to
make any special deposits for any immediate or deferred amounts payable to any
Participant for any year.
(f) Nothing contained in the Plan, or in any Award granted pursuant
to the Plan, shall confer upon any Employee or Participant any right to
continue in the employ of the Corporation or its Affiliates or limit in any
way the right of the Corporation or its Affiliates to terminate such
Participant's employment at any time.
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