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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______.
COMMISSION FILE NUMBER: 1-8944
CLEVELAND-CLIFFS INC
(Exact name of registrant as specified in its charter)
OHIO 34-1464672
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
1100 Superior Avenue, Cleveland, Ohio 44114-2589
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 694-5700
________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Shares - par value $1.00 per share New York Stock Exchange
and Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of March 13, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price of $38.625 per
share as reported on the New York Stock Exchange - Composite Index was
$451,527,718 (excluded from this figure is the voting stock beneficially owned
by the registrant's officers and directors).
The number of shares outstanding of the registrant's $1.00 par value common
stock was 12,104,892 as of March 13, 1995.
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's 1994 Annual Report to Shareholders are filed as
Exhibits 13(a) through 13(j) and are incorporated by reference into Parts I,
II and IV.
2. Portions of registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held May 9, 1995 are incorporated by reference
into Part III.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
INTRODUCTION
Cleveland-Cliffs Inc (including its consolidated subsidiaries, the
"Company") is the successor to business enterprises whose beginnings can be
traced to earlier than 1850. The Company's headquarters are at 1100 Superior
Avenue, Cleveland, Ohio 44114-2589, and its telephone number is (216) 694-5700.
BUSINESS
The Company owns, directly or indirectly, four major operating
subsidiaries, The Cleveland-Cliffs Iron Company ("CCIC"), Cliffs Mining Company
("CMC") (formerly known as Pickands Mather & Co.), Northshore Mining Company
("Northshore"), and Pickands Mather & Co. International ("PMI"). CCIC and CMC
hold interests in various independent iron ore mining ventures ("mining
ventures") and act as managing agent. The operations of Northshore and PMI are
entirely owned by the Company. CCIC, CMC, Northshore, and PMI's business
during 1994 was the production and sale of iron ore, principally iron ore
pellets. Collectively, CCIC, CMC, Northshore, and PMI control, develop, and
lease reserves to mine owners; manage and own interests in mines; sell iron
ore; and provide ancillary services to the mines. The operations of each mine
are independent of the other mines. Iron ore production activities are
conducted in the United States, Canada and Australia. Iron ore is marketed by
the subsidiaries in the United States, Canada, Europe, Asia and Australia.
For information on the iron ore business, including royalties and
management fees for the years 1992-1994, see Note C in the Notes to the
Company's Consolidated Financial Statements in the Company's Annual Report to
Security Holders for the year ended December 31, 1994, which Note C is
contained in Exhibit 13(g) and incorporated herein by reference and made a part
hereof.
For information concerning operations of the Company, see material
under the heading "11-Year Summary of Financial and Other Statistical Data" in
the Company's Annual Report to Security Holders for the year ended December 31,
1994, which 11-Year Summary of Financial and Other Statistical Data is
contained in Exhibit 13(j) and incorporated herein by reference and made a part
hereof.
NORTH AMERICA. CCIC owns or holds long-term leasehold interests in
active North American properties containing approximately 1.7 billion tons of
crude iron ore reserves. CCIC, CMC and Northshore manage six active mines in
North America with a total rated annual capacity of 39.6 million tons and own
equity interests in five of these mines (see Table on page 5).
CCIC, CMC and Northshore's United States properties are located on the
Marquette Range of the Upper Peninsula of Michigan, which has two active
open-pit mines and pellet plants, and the Mesabi Range in Minnesota, which has
three active open-pit mines and pellet plants. CMC acts only in the capacity of
manager at one of the Mesabi Range facilities. Two railroads, one of which is
99.3% owned by a subsidiary of the Company, link the Marquette Range with Lake
Michigan at the loading port of Escanaba and with Lake Superior at the loading
port of Marquette. From the Mesabi Range, pellets are transported by rail to
shiploading ports at Superior, Wisconsin and Taconite Harbor, Minnesota. At
Northshore, crude ore is shipped by rail from the mine to the processing
facilities at Silver Bay, Minnesota, which is also the upper lakes port of
shipment. In addition, in Canada, there is an open-pit mine and concentrator
at Wabush, Labrador, Newfoundland and a pellet plant and dock facility at
Pointe Noire, Quebec. At Wabush Mines, concentrates are shipped by rail from
the Scully Mine at Wabush to Pointe Noire,
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Quebec, where they are pelletized for shipment via vessel to Canada, United
States and Europe or shipped as concentrates for sinter feed to Europe.
CCIC leases or subleases its reserves to certain mining ventures which
pay royalties to CCIC on such reserves based on the tonnage and the iron
content of iron ore produced. The royalty rates on leased or subleased reserves
per ton are subject to periodic adjustments based on changes in the Bureau of
Labor Statistics producer price index for all commodities or on certain iron
ore and steel price indices. The mining ventures, except for LTV Steel Mining
Company which is wholly-owned by LTV Steel Company, include as participants
CCIC or CMC and steel producers (who are "participants" either directly or
through subsidiaries).
CCIC and CMC, pursuant to management agreements with the participants
having operating interests in the mining ventures, manage the development,
construction and operation of iron ore mines and concentrating and pelletizing
plants to produce iron ore pellets for steel producers. CCIC and CMC are
reimbursed by the participants of the mining ventures for substantially all
expenses incurred by CCIC and CMC in operating the mines and mining ventures.
In addition, CCIC and CMC are paid management fees based on the tonnage of iron
ore produced. A substantial portion of such fees is subject to escalation
adjustments in a manner similar to the royalty adjustments.
With respect to the active mines in which CCIC and CMC have an equity
interest, such interests range from 7.01% to 40.0% (see Table on page 5).
Pursuant to certain operating agreements at each mine, each participant is
generally obligated to take its share of production for its own use. CCIC and
CMC's share of production is resold pursuant to multi-year contracts with price
escalation adjustment provisions or one year sales contracts with steel
manufacturers. Pursuant to operating agreements at each mine, each participant
is entitled to nominate the amount of iron ore which will be produced for its
account for that year. During the year, such nomination generally may be
increased (subject to capacity availability) or decreased (subject to certain
minimum production levels) by a specified amount. During 1994, the North
American mines operated at or near capacity levels.
In 1993, the Tilden Magnetite Partnership ("TMP") project, in which
affiliates of CCIC, Algoma Steel, Inc. ("Algoma"), and Stelco Inc. ("Stelco")
owned equity interests of 33.3%, 50.0%, and 16.7% respectively, had four
million tons per year of magnetite pellet production capacity. Pursuant to
facilities leasing and other operational arrangements between TMP and the
original Tilden Mining Company joint venture, substantial hematite iron ore
pellet production capacity continued to be available at the Tilden Mine. The
participants in the Tilden Mining Company joint venture are affiliates of CCIC,
Algoma and Stelco. The joint venture's activities relate to the development and
operation of hematite iron ore reserves at the Tilden Mine.
In February, 1994, CCIC reached general agreement with Algoma and
Stelco to restructure and simplify the Tilden Mine operating agreement
effective January 1, 1994. The principal terms of the new agreement are: (1)
the participants' tonnage entitlements and cost-sharing are based on a 6
million ton target normal production level instead of the previous 4 million
ton base production level; (2) CCIC's interest in TMP has increased from 33.3%
to 40.0% with an associated increase in CCIC's obligation for its share of mine
costs; (3) CCIC is receiving a higher royalty; (4) CCIC has the right to supply
any additional iron ore pellet requirements of Algoma from Tilden or from CCIC;
and (5) any partner may take additional production with payment of certain fees
to TMP. The parties implemented the general agreement effective January 1,
1994, and are negotiating the detailed provisions of the definitive agreement.
The agreement has not had a material financial effect on the Company's
Consolidated Financial Statements.
On September 30, 1994, Cliffs Minnesota Minerals Company, a subsidiary
of the Company, completed a stock acquisition of Cyprus Amax Minerals Company's
("Cyprus Amax") iron ore operation ("Northshore") and power plant (Silver Bay
Power Company ("Silver Bay
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Power")) in Minnesota for $66 million, plus net working capital of $28 million.
The principal assets acquired were 4 million annual tons of active capacity for
production of standard pellets (equivalent to 3.5 million tons of flux pellet
capacity), supported by 6 million tons of active concentrate capacity, a 115
megawatt power generation plant, and an estimated 1.2 billion tons of magnetite
crude iron ore reserves, leased mainly from the Mesabi Trust. Additional
payments to Cyprus Amax would be required under certain expansion conditions.
Any such payment would occur under conditions expected to be favorable to the
Company, and is not expected to be material in any year. In January, 1995, the
Company approved a $6.1 million iron ore pellet expansion of Northshore. The
expansion, which involves the reactivation of one idle pelletizing line, is
expected to be completed by June, 1995, and will increase Northshore's annual
production capability by 900,000 tons. Production in 1995, originally
scheduled to be 3.6 million tons of standard and flux pellets, is now scheduled
to be 4.1 million tons.
McLouth Steel Products Company ("McLouth"), a significant customer of
the Company, continues to be significantly undercapitalized. The Company has
periodically extended financial support to McLouth in the form of deferred
payment terms and other considerations. Iron ore pellet sales to McLouth
totaled 1.5 million tons in 1994 which represented 18% of sales volume and a
higher percentage contribution to net income before fixed cost absorption. The
Company included in its December 31, 1994 inventory 200,000 tons of pellets
consigned to McLouth in accordance with long-standing practice. The Company
has no earnings exposure in regard to the consigned inventory and accounts
receivable from McLouth as of December 31, 1994. Non-performance by McLouth on
its sales arrangement with the Company would have a materially adverse effect
on the Company unless comparable replacement sales to other companies are
obtained. The Company has periodically replaced major customers.
On November 30, 1992, Sharon Steel Corporation ("Sharon") filed for
protection under Chapter 11 of the U.S. Bankruptcy laws. At the time of the
filing, Sharon was indebted to the Company for substantial amounts relating to
contract defaults for payments for iron ore pellets sold to Sharon during the
years 1991 and 1992 under a term sales agreement. In 1992 the Company recorded
a $12.5 million reserve, representing amounts due on the ore sales accounts
receivable of Sharon at the time of Sharon's Chapter 11 filing. Pellet sales to
Sharon, which were suspended in 1992, represented approximately 14% of the
Company's sales capacity. In November, 1994, Sharon liquidated substantially
all of its assets through an approved Bankruptcy Court sale. The Company had
filed a substantial claim against Sharon in the Bankruptcy Court for amounts
owed and contractual damages; however, the Company does not expect to receive
any material proceeds from the asset liquidation. The Company replaced the
lost Sharon sales. All amounts due from Sharon were previously reserved.
In 1992, the Company purchased $1.0 million worth of steel from LCG
Funding Corporation, an entity owned by the principal owner of Sharon and
affiliated with Castle Harlan, Inc. In connection with the transaction, LCG
Funding Corporation agreed to indemnify the Company for any loss incurred upon
resale of the steel. Following ultimate resale of the steel, LCG Funding
Corporation and Castle Harlan, Inc. refused to honor that commitment, and the
Company filed suit against Castle Harlan, Inc. and LCG Funding Corporation in
Federal District Court for the purchase price of the steel plus interest. The
proceedings, which were dismissed for lack of diversity, will be refiled.
On June 28, 1993, LTV Steel Company, Inc., a significant partner of
the Company, and its parent corporation, The LTV Corporation ("LTV Corp")
emerged from Chapter 11 bankruptcy. In final settlement of its $200 million
allowed claim, the Company received 2.3 million shares of LTV Corp Common Stock
and 4.4 million Contingent Value Rights, which were issued by the Pension
Benefit Guaranty Corporation. On July 13, 1993, the Company distributed to its
shareholders a special dividend consisting of 1.5 million shares of LTV Corp
Common Stock and $12.0 million ($1.00 per share) cash.
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<TABLE>
Following is a table of production, current defined capacity, and
implied exhaustion dates for the iron ore mines managed or owned by CCIC, CMC,
Northshore and PMI. The exhaustion dates are based on estimated mineral
reserves and assume full production rates, which could be affected by future
industry conditions and ongoing mine planning. Maintenance of effective
production capacity or implied exhaustion dates could require increases in
capital and development expenditures. Alternatively, changes in economic
conditions or the quality of ore reserves could decrease capacity or accelerate
exhaustion dates. Technological progress could alleviate such factors or
increase capacity or mine life.
<CAPTION>
Company's Current
Current Pellet Production Current Operating Implied
Operating ------------------------ Annual Continuously Exhaustion
Name and Location Type of Ore Interest 1992 1993 1994 Capacity Since Date (1)
----------------- -------------- -------- ------ ------ ------ ---------- ------------ ----------
(Tons in Thousands)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mining Ventures
---------------
Michigan
--------
Marquette Range
-Empire Iron Mining
Partnership (3) Magnetite 22.56%(4) 8,099 7,209 7,306 8,000 1963 2023
-Tilden Mine (3) Hematite and
Magnetite 40.00% 5,470 5,369 6,246 6,000(5)(6) 1974 2047
(5)(6)
Minnesota
---------
Mesabi Range
-Hibbing Taconite
Joint Venture (7) Magnetite 15.00% 8,048 7,544 8,355 8,270 1976 2022
-LTV Steel Mining
Company (7) Magnetite 0.00% 6,776 7,668 7,809 8,000 1957 2059
Canada
------
-Wabush Mines
(Newfoundland and Specular
Quebec) (7)(8) Hematite 7.01% 4,495 4,492 4,654 4,500(8) 1965 2057
Wholly-Owned Entities
---------------------
Minnesota
---------
Mesabi Range
-Northshore Mining
Company (9) Magnetite 100.00% (9) (9) 865(9) 4,800(10) 1989 2072
Australia
---------
-Savage River Mines
(Tasmania) Magnetite 100.00% 1,432 1,488 1,483 1,500 1967 1997
------ ----- ------ ------
TOTAL 34,320 33,770 36,718 41,070
====== ====== ====== ======
<FN>
(1) Based on full production at current annual capacity without regard to
economic feasibility.
(2) Tons are long tons of 2,240 pounds.
(3) CCIC receives royalties and management fees.
(4) On January 1, 1992, a wholly-owned subsidiary of CCIC transferred 2.5% of
its Empire Mine interest to Wheeling-Pittsburgh.
(5) In 1993, CCIC's ownership interest in the Tilden Mining Company and
Tilden Magnetite Partnership was 60.0% and 33.3%, respectively. Design
capacity for exclusive production of hematite ore was 8 million tons
annually. The Tilden Mining Company and the Tilden Magnetite Partnership
established certain leasing and shared usage arrangements relating to
production and other facilities at the Tilden Mine.
(6) As a result of the restructuring of the Tilden Magnetite Partnership,
effective as of January 1, 1994 and as discussed on page 3, CCIC's
entitlement ownership in the Tilden Magnetite Partnership increases from
33.3% to 40.0%. As a result of these arrangements, annual production
capacity is targeted at 6 million tons annually, and could be increased
to 8 million tons, depending on type of ore production. The predominate
ore reserves are hematite.
(7) CMC received no royalty payments with respect to such mine, but did
receive management fees.
(8) In 1991, the mine's annual production capacity was reduced to 4.5 million
tons per year. For the year 1995, annual production was increased to
5.4 million tons.
(9) Acquired by the Company on September 30, 1994. Pellet production for
Northshore for the years ending 1992, 1993 and 1994 was 1,430,000,
3,483,000 tons and 3,481,000 tons, respectively. Pellet production for
Northshore for the three months ending December 31, 1994 was 865,000
tons.
(10) Includes 900,000 annual tons of expansion to be completed on or about
June, 1995.
</TABLE>
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With respect to the Empire Mine, CCIC owns directly approximately
one-half of the remaining mineral reserves and CCIC leases the balance of the
reserves from their owners; with respect to the Tilden Mine, CCIC owns all of
the mineral reserves; with respect to the Hibbing Mine, Wabush Mines,
Northshore Mine, and Savage River Mines, all of the mineral reserves are owned
by others and leased or subleased directly to those mines.
Each of the mines contains crushing, concentrating, and pelletizing
facilities. The Empire Iron Mining Partnership facilities were constructed
beginning in 1962 and expanded in 1966, 1974 and 1980 with a total cost of
approximately $367 million; the Tilden Mine facilities were constructed
beginning in 1972, expanded in 1979 and modified in 1988 with a total cost of
approximately $523 million; the LTV Steel Mining Company facilities were
constructed beginning in 1954 and expanded in 1967 with a total cost of
approximately $250 million; the Hibbing Taconite Joint Venture facilities were
constructed beginning in 1973 and expanded in 1979 with a total cost of
approximately $302 million; the Northshore Mining Company facilities were
constructed beginning in 1951, expanded in 1963 and significantly modified in
1979 with a total cost estimated in excess of $500 million; the Wabush Mines
facilities were constructed beginning in 1962 with a total cost of
approximately $103 million; and the Savage River Mines facilities were
constructed beginning in 1965 with a total cost of approximately $57 million.
The Company believes the facilities at each site are in satisfactory condition.
However, the older facilities require more capital and maintenance expenditures
on an ongoing basis.
Production and Sales Information
--------------------------------
With the acquisition of Northshore, the Company's managed capacity has
increased to approximately 39.6 million tons or 47% of total pellet capacity in
North America and the Company's annual North American pellet sales capacity has
increased from 5.8 to 9.8 million tons. In 1994, the Company produced 8.3
million tons of pellets for its own account.
In 1994, the Company produced 28.4 million gross tons of iron ore in
the United States and Canada for participants other than the Company. The share
of participants having the five largest amounts, Bethlehem Steel Corporation
("Bethlehem"), Algoma, Inland Steel Company, LTV and Stelco aggregated 26.8
million gross tons, or 94.3%. None of such participants accounted for more than
33.9% of such production.
During 1994, the Company sold 100% of the iron ore and pellets that
were produced in the United States and Canada for its own account or purchased
from others to 13 U.S. and Canadian iron and steel manufacturing companies.
In 1994, McLouth Steel Products, WCI (formerly Warren Consolidated
Industries, Inc.), and Weirton Steel Company, directly and indirectly accounted
for 14%, 14%, and 12%, respectively, of total revenues.
AUSTRALIA. PMI owns 100% of Savage River Mines, an open pit iron ore
mining operation and concentrator at Savage River, Tasmania, and a pellet plant
with offshore loading facilities at Port Latta, Tasmania. Concentrate slurry is
pumped from the minesite through a 53 mile pipeline to Port Latta where it is
pelletized and shipped by vessel to customers in the Pacific Rim region. The
operation was downsized in 1990 to produce approximately 1.5 million tons per
year and long term sales agreements were signed with customers in Australia,
Japan and Korea to support the operation until the exhaustion of economic ore
reserves in 1997. Savage River Mines will terminate operations in the first
quarter of 1997 when economically recoverable iron ore from surface mining is
exhausted. A study to extend operations with underground mining concluded that
financial results would not justify the mining risks and large investment.
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RAIL TRANSPORTATION. The Company, through a wholly-owned subsidiary,
owns a 99.3% stock interest in Lake Superior & Ishpeming Railroad Company. The
railroad operates approximately 49 miles of track in the Upper Peninsula of
Michigan, principally to haul iron ore from the Empire and Tilden Mines to Lake
Superior at Marquette, Michigan, where the railroad has an ore loading dock, or
to interchange points with another railroad for delivery to Lake Michigan at
Escanaba, Michigan. In 1994, 89.2% of the railroad's revenues were derived from
hauling iron ore and pellets and other services in connection with mining
operations managed by CCIC. The railroad's rates are subject to regulation by
the Interstate Commerce Commission.
Other Activities and Resources
------------------------------
REDUCED IRON. The Company's strategy is to grow its basic iron ore
business and to extend its business scope to produce and supply "reduced iron
ore feed" for steel and iron production. Reduced iron products contain
approximately 90% iron versus 65% for traditional iron ore pellets and contain
less undesirable chemical elements than most scrap steel feed. The market for
reduced iron is relatively small, but is projected to increase at a greater
rate than other iron ore products.
The Company's wholly-owned subsidiary, Cliffs Reduced Iron Corporation,
continues to explore various technologies and markets for reduced iron
products, including the investigation of domestic and international site
alternatives. Commercial plants are estimated to require capital expenditures
of $75 to $100 million, depending on location and process. Decisions are
expected in 1995 on whether to proceed with one or more projects. The
Company's total 1995 expenditures are not expected to exceed $25 million.
Specific activities are described below.
The Company and several partners have formed a joint venture to
produce iron carbide, a premium form of reduced iron that would be marketed
primarily to the flat-rolled electric furnace producers in the United States.
Substantial progress has been made on siting a plant in Trinidad and improving
upon the original iron carbide process design; however, the holder of the
process license for Trinidad has withdrawn its offer to the venture of
cooperation. Rather than unduly delay the project while the issue is being
resolved, the venture is evaluating sites in the United States for an iron
carbide plant. The Company's process design improvements, coupled with
currently lower domestic natural gas prices, may result in the iron carbide
project being economically attractive in the southern part of the United
States, using the offshore iron ore supply arrangement already negotiated.
Although a precise go-ahead date is not known at this time, the joint venture's
objective is to start commercial development of iron carbide in 1995 and to
achieve production in 1997. In addition, the Company is examining other
available reduced iron processes for its Trinidad site. Northstar Steel
Company, an original partner in the Trinidad venture, recently advised the
Company that Northstar does not intend to continue as an equity participant due
to capital constraints. The Company has also been advised by Northstar that it
desires to negotiate a multi-year iron carbide purchase contract. Northstar's
withdrawal has not impeded the iron carbide project development effort.
The Company has been investigating coal-based technologies for the
production of hot briquetted iron ("HBI") in the United States. Coal-based
processes, although largely unproven, may be applicable to the Company's
Northshore Mine in Minnesota and the Company's Republic Mine in Michigan. HBI
is a potential feed for electric furnaces as well as for certain blast furnaces
where it would supplement pellets to maximize productivity. Since this HBI
product would have a lower chemical quality due to the coal reductant and
higher-silica domestic ore feed, the Company is also studying the alternative
feasibility of additional process steps that would produce a higher value
product with broader market applicability. The Company will also investigate
the use of low-silica offshore ore in a coal-based process at a site in the
United States that would be located closer to the steel producing markets.
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The Company previously formed a venture with steel company partners to
develop a commercial facility at the Company's Republic Mine in Michigan using
the coal-based technology supplied by MIDREX Corporation. During 1994, MIDREX
withdrew the technology pending further testing by its parent, Kobe Steel, and
the venture disbanded. Northshore, prior to the Company's acquisition, had
also been considering the MIDREX process, but decided to pursue technology
supplied by Inmetco and licensed to Mannesmann Demag of Germany. This effort
is continuing at Northshore as noted above for HBI products. If a favorable
decision would be made later this year, commercial production could begin in
late 1997. Issues being evaluated include technology, markets, and alternative
use of existing plant capacity.
The Company and Mitsubishi Corporation have jointly exercised an
option for a license to produce iron carbide in Australia to serve various
Pacific Rim markets. Feasibility studies, based on various iron ore feeds,
potential plant sites, and recent process design improvements, are expected to
be concluded this year. A decision to move forward could be made later in 1995
and lead to commercial production by 1998. The Company's participation would
depend on definition of a satisfactory on-going role.
OIL SHALE. Cliffs Synfuel Corp., a wholly-owned subsidiary of CCIC,
significantly enhanced its Utah oil shale holdings when it acquired in 1994 for
$700,000 the oil shale mineral rights on approximately 16,000 acres which it
previously held under a long-term lease. The acquisition gave the Company title
"in fee" to one of the most attractive oil shale properties in the United
States which contains an estimated one billion barrels of recoverable shale oil
and associated conditional water rights. While commercialization of oil shale
is currently uneconomical, the Company's holding costs are minimal.
Cliffs Oil Shale Corp., another wholly-owned subsidiary of CCIC, owns
a 15% interest in a smaller Colorado oil shale property. The remaining 85% is
owned by a Mobil Corporation subsidiary.
COAL. In 1992 CMC owned and operated its 100% owned Turner Elkhorn
Mining Co. from reserves located in Floyd County, Kentucky and managed
Pikeville Coal Co. which operates the Chisholm Mine at Phelps, Kentucky, owned
100% by Stelco. CMC sold the coal produced from Turner Elkhorn to utility and
other customers. CMC's employment as manager of the Pikeville Coal Co. was
governed by an agreement between it and the owner of the mine, which agreement
provided that CMC be reimbursed for substantially all of its expenses incurred
as manager and receive a management fee based on the number of clean tons
produced. Stelco terminated the management contract on December 31, 1992. CMC
continued to provide administrative services to Pikeville Coal Company under
the terms of an interim administrative services agreement with Stelco which
agreement terminated March 31, 1993. CMC sold its broker operations, lake
forwarding services, and royalty reserves in 1992. On February 26, 1993 CMC
sold Turner Elkhorn Mining Co., CMC's last remaining coal property.
Credit Agreement and Senior Notes
---------------------------------
On March 1, 1995 the Company entered into a new Credit Agreement
("Credit Agreement") with Chemical Bank, as Agent for a six-bank lending group,
pursuant to which the Company may borrow up to $100 million as revolving loans
until March 1, 2000, which Credit Agreement replaced the April 30, 1992 credit
facility scheduled to expire on April 30, 1995. Interest on borrowings will be
based on various interest
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rates as defined in the Credit Agreement and as selected by the Company
pursuant to the terms of the Credit Agreement. There have been no borrowings
under either of the revolving credit facilities.
On May 1, 1992, the Company placed privately with a group of
institutional lenders $25 million 8.51% Senior Notes, Series A due May 1, 1999
("Series A Notes") and $50 million 8.84% Senior Notes, Series B due May 1, 2002
("Series B Notes"). The Series A Notes are subject to mandatory annual
redemption of $5 million commencing May 1, 1995 and ending May 1, 1999. The
Series B Notes are subject to mandatory annual redemption of $7.14 million
commencing May 1, 1996 and ending May 1, 2002.
COMPETITION
The iron ore mines, which the Company's subsidiaries operate in North
America, Canada and Australia, produce various grades of iron ore which is
marketed in the United States, Canada, Great Britain, Italy, Australia, Japan
and Korea. In North America, the Company is in competition with several iron
ore producers, including Oglebay Norton Company, Iron Ore Company of Canada,
Quebec Cartier Mining Company, and USX Corporation, as well as other major
steel companies which own interests in iron ore mines and/or have excess iron
ore purchase commitments. In addition, significant amounts of iron ore have,
since the early 1980s, been shipped to the United States from Venezuela and
Brazil in competition with iron ore produced by the Company.
Other competitive forces have in the last decade become a large factor
in the iron ore business. With respect to a significant portion of steelmaking
in North America, electric furnaces built by "minimills" have replaced the use
of iron ore pellets with scrap metal in the steelmaking process. In addition,
operators of sinter plants produce iron agglomerates which substitute for iron
ore pellets. Imported steel slabs also replace the use of iron ore pellets in
producing finished steel products. Imported steel produced from iron ore
supplied by international competitors also effectively competes with the
Company's iron ore pellets.
Competition among the sellers of iron units is predicated upon the
usual competitive factors of price, availability of supply, product
performance, service and cost to the consumer.
ENVIRONMENT, EMPLOYEES AND ENERGY
ENVIRONMENT. In the construction of the Company's facilities and in
its operating arrangements, substantial costs have been incurred and will be
incurred to avoid undue effect on the environment. The Company's commitment to
environmental preservation resulted in North American capital expenditures of
$835,000 in 1993 and $3,696,000 in 1994. It is estimated that approximately
$3,449,000 will be spent in 1995 for environmental control facilities.
The Company received notice in 1983 from the U.S. Environmental
Protection Agency ("U.S. EPA") that the Company is a potentially responsible
party with respect to the Cliffs-Dow Superfund Site, located in the Upper
Peninsula of the State of Michigan, which is not related to the Company's iron
ore mining business. The Cliffs-Dow site was used prior to 1973 for the
disposal of wastes from charcoal production by a joint venture of the Company,
the Dow Chemical Company and afterward by a successor in interest,
Georgia-Pacific Corporation. The Company and other potentially responsible
parties voluntarily participated in the preparation of a Remedial Investigation
and Feasibility Study ("RI/FS") with respect to the Cliffs-Dow site, which
concluded with
9
<PAGE> 10
the publication by the U.S. EPA of a Record of Decision dated September 27,
1989 ("ROD"), setting forth the selected remedial action plan adopted by the
U.S. EPA for the Cliffs-Dow site. The Company and other potentially responsible
parties have notified the U.S. EPA that they are implementing, at an estimated
cost of $2.8 million, some of the remedial action selected in the ROD. The
Company and certain other potentially responsible parties have agreed upon
allocation of the costs for conducting the RI/FS, and implementation of the
selected remedial action plan. Upon the advice of counsel, the Company
believes it has a right to contribution from the other potentially responsible
parties for the costs of any remedial action plan ultimately implemented at the
Cliffs-Dow site. A second disposal area at the Cliffs-Dow charcoal production
plant is on the list of priority sites issued by the Michigan Department of
Natural Resources. The Company is participating in an RI/FS of this site, but
that study has not yet been completed. The Company has joined with the other
potentially responsible parties in an interim removal action at the site which
is now complete. The Company has a financial reserve of $2.4 million to
provide for its expected share of the cost of the remedial actions at the above
mentioned sites. (See "Legal Proceedings" for additional information concerning
environmental matters).
Generally, various legislative bodies and federal and state agencies
are continually promulgating numerous new laws and regulations affecting the
Company, its customers, and its suppliers in many areas, including waste
discharge and disposal; hazardous classification of materials, products, and
ingredients; air and water discharges; and many other matters. Although the
Company believes that its environmental policies and practices are sound and
does not expect a material adverse effect of any current laws or regulations,
it cannot predict the collective adverse impact of the rapidly expanding body
of laws and regulations.
EMPLOYEES. As of December 31, 1994, CCIC and CMC and the North
American independent mining ventures had 5,371 employees, of which 4,418 were
hourly employees. The hourly employees are represented by the United
Steelworkers of America ("United Steelworkers") which have collective
bargaining agreements. The United Steelworkers labor agreement at Hibbing
Taconite Company, Tilden and Empire Mines, and General Shops facilities expired
on August 1, 1993, and the United Steelworkers struck those mines and
facilities for six weeks. In 1993, a new six- year "no strike" labor agreement
was entered between those Mines and facilities and the United Steelworkers
covering the period to July 31, 1999. In 1994, a new United Steelworkers labor
agreement was entered into covering employees of LTV Steel Mining Company,
which agreement will expire on July 31, 1999. In 1994, a new United
Steelworkers labor agreement covering Wabush was entered into, which agreement
will expire on March 1, 1996.
As of December 31, 1994, Northshore had 415 employees, of which 289
were hourly employees, none of whom are represented by a union.
As of December 31, 1994, the Savage River Mines operations had 227
employees, 164 of whom are represented by several unions, whose contracts are
renegotiated from time to time.
In addition, as of December 31, 1994, Cleveland-Cliffs Inc and its
wholly-owned subsidiary, Cliffs Mining Services Company, had 296 salaried
executive, managerial, administrative and technical employees.
10
<PAGE> 11
ENERGY. Electric power supply contracts between Wisconsin Electric
Power Company ("WEPCo") and the Empire and Tilden Mines, entered into in
December 1987, provide that WEPCo shall furnish electric power to these Mines,
within specific demand limits, pursuant to price formulas. The primary term of
these contracts covers ten years through 1997. In return for a substantial
reduction in rates, the Tilden Mine converted a portion of its firm power
contract to curtailable power beginning in 1993. CCIC, as managing agent for
the Empire and Tilden Mines, is presently in negotiations with WEPCo to revise
various terms and conditions of the power contracts to better accommodate the
operations of those mines. Electric power for Hibbing Taconite is supplied by
Minnesota Power and Light under an agreement which can be terminated with four
years' notice. In 1994, Minnesota Power and Light filed and was granted a
power rate increase with the Minnesota Public Utility Commission's approval. A
large part of the increase was negated by reason of a three year extension of
Hibbing Taconite's power contract with Minnesota Power and Light. Electric
power requirements will continue to be specified annually by the Hibbing
Taconite venturers corresponding to Hibbing's operating requirements. LTV
Steel Mining Company completed reactivation of its power plant in 1992, and is
currently generating nearly all of its requirements, and an interchange
agreement with Minnesota Power and Light provides backup power and allows sale
of excess capacity to the Midwestern Area Power Pool. Silver Bay Power
Company, a subsidiary of the Company, provides the majority of Northshore's
energy requirements, has an interchange agreement with Minnesota Power and
Light for backup power and sells power to Northern States Power Company.
Wabush Mines owns a portion of the Twin Falls Hydro Generation facility which
provides power for Wabush's mining operations in Newfoundland. A twenty year
agreement with Newfoundland Power allows an interchange of water rights in
return for the power needs for Wabush's mining operations. The Wabush
pelletizing operations in Quebec are served by Quebec Hydro on an annual
contract. Savage River Mines obtains its power from the local Government Power
Authority on a special contract for the expected life of the mine.
The Company has contracts providing for the transport of natural gas
for its North American iron ore operations. Several interruptions of supply of
natural gas occurred during early 1994, requiring use of alternate fuels.
Empire and Tilden Mines have the capability of burning coal, natural
gas, or oil. Wabush and Savage River Mines have the capability of burning coal
and oil. Hibbing Taconite, Northshore and LTV Steel Mining Company have the
capability of burning natural gas and oil. During 1994 the U.S. mines burned
natural gas as their primary fuel due to favorable pricing. Wabush and Savage
River Mines used oil, supplemented with coal or coke breeze.
Any substantial interruption of operations or substantial price
increase resulting from future government regulations or energy taxes,
injunctive order, or fuel shortages could be materially adverse to the Company.
11
<PAGE> 12
In the paper format version of this document, this page contains a
map. The map is entitled, "Cleveland-Cliffs Inc and Associated Companies
Location of Iron Ore Operations". The map has an outline of the United States,
Canada and Tasmania (Australia). Located specifically on the map are arrrows
and dots representing the location of the properties described in the Table on
page 5 to this report.
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS.
Arrowhead.
----------
CMC, which has a 15 percent ownership interest in and acts as Managing
Agent for Hibbing Taconite Company, a joint venture, has been included as a
named defendant in a suit captioned United States of America v. Arrowhead
Refining Company, et al., which was filed on or about September 29, 1989 in the
United States District Court for the District of Minnesota, Fifth Division. In
that suit, the United States seeks declaratory relief and recovery of costs
incurred in connection with the study and remedial plan conducted or to be
conducted by the U.S. EPA at the Arrowhead Refinery Superfund Site near Duluth,
St. Louis County, Minnesota. In that suit, the United States has alleged that
CMC and the other 14 named defendants, including former and present owners of
the Arrowhead site, are jointly and severally liable for $1.9 million, plus
interest, representing the amount incurred for actions already taken by or on
behalf of the U.S. EPA at the Arrowhead site, and are jointly and severally
liable for the cost attributable to implementation of a remedial plan adopted
by the U.S. EPA with respect to the Arrowhead site, which remedial action is
estimated by the U.S. EPA to cost $30 million. CMC has filed an answer to the
suit denying liability. Since January 31, 1991, CMC and 13 of the other named
defendants have filed a counter claim against the United States and further
complaints naming additional parties as third party defendants. The counter
claim and third party complaints allege that the parties named therein are
jointly and severally liable for such costs. During the year certain defendants
have been dismissed, and as of December 31, 1994 there are 224 third party
defendants named in this suit. A Consent Decree is expected to be entered into
in 1995 between the parties, which agreement will provide for substantial
funding by the U.S. EPA and the State of Minnesota for remediation of the Site.
It is estimated that Hibbing Taconite's share of the funding will be
approximately $230,000, of which CMC's share is 15 percent.
Rio Tinto.
----------
On July 21, 1993, CCIC and Cliffs Copper Corp, a subsidiary of the Company,
each received Findings of Alleged Violation and Order from the Department of
Conservation and Natural Resources, Division of Environmental Protection, State
of Nevada. The Findings allege that tailings materials left at the Rio Tinto
Mine, located near Mountain City, Nevada, are entering State waters which the
State considers to be in violation of State water quality laws. The Rio Tinto
Mine was operated by Cliffs Copper Corp from 1971 to 1975 and by other
companies prior to 1971. The Order requires remedial action to eliminate water
quality impacts. The Company does not believe the potential liability, if any,
to be material. The Company believes that it has substantial defenses to claims
of liability and intends to vigorously defend alleged violations.
Summitville.
------------
On January 12, 1993, CCIC received from the United States Environmental
Protection Agency a Notice of Potential Liability at the Summitville mine site,
located at Summitville, Colorado, where CCIC, as one of three joint venturers,
conducted an unsuccessful copper ore exploration activity from 1966 through
1969. On June 25, 1993, CCIC received from the U.S. EPA a Notice of Potential
Involvement in certain portions of the Summitville mine site. The mine site has
been listed on the National Priorities List under the Comprehensive
Environmental Response Compensation and Liability Act. The Company does not
believe the potential liability, if any, to be material. The Company has
substantial defenses to these claims of liability. The Company conducted no
production activities at the Summitville mine site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE> 14
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
Position with the Company
as of March 1, 1995
-------------------------
Name Age
---- ---
<S> <C> <C>
M. T. Moore Chairman, President and Chief 60
Executive Officer
J. S. Brinzo Senior Executive-Finance 53
W. R. Calfee Senior Executive-Commercial 48
F. S. Forsythe Senior Executive-Operations 62
(Mine Partnerships)
T. J. O'Neil Executive Vice President- 54
CCI Operations and Technology
A. S. West Senior Vice President-Sales 58
</TABLE>
There is no family relationship between any of the executive officers of the
Company, or between any of such executive officers and any of the Directors of
the Company. Officers are elected to serve until successors have been elected.
All of the above-named executive officers of the Company were elected effective
on the effective dates listed below for each such officer.
<TABLE>
The business experience of the persons named above for the last five years
is as follows:
<S> <C>
M. T. Moore President and Chief Executive Officer, Company,
January 1, 1987 to May 9, 1988.
Chairman, President and Chief Executive Officer,
Company, May 10, 1988 to date.
J. S. Brinzo Senior Vice President-Finance, Company,
May 1, 1987 to August 31, 1989.
Executive Vice President-Finance, Company,
September 1, 1989 to September 30, 1993.
Senior Executive-Finance, Company,
October 1, 1993 to date.
W. R. Calfee Group Executive Vice President, Company,
March 1, 1987 to August 31, 1989.
Senior Executive Vice President, Company,
September 1, 1989 to September 30, 1993.
Senior Executive-Commercial, Company,
October 1, 1993 to date.
F. S. Forsythe Executive Vice President-Commercial, Company,
February 25, 1985 to August 31, 1989.
Executive Vice President-Operations, Company,
September 1, 1989 to September 30, 1993.
Senior Executive-Operations, Company,
October 1, 1993 to September 30, 1994.
Senior Executive-Operations (Mine Partnerships), Company,
October 1, 1994 to date.
14
<PAGE> 15
T. J. O'Neil Vice President-South Pacific Operations,
Cyprus Gold Company,
October, 1987 to August, 1989.
Vice President/General Manager,
Cyprus Sierrita Corp.,
August, 1989 to April, 1991.
Vice President-Engineering and Development,
Cyprus Copper Company,
April, 1991 to November, 1991.
Senior Vice President-Technical, Company,
November 18, 1991 to September 30, 1994.
Executive Vice President-CCI Operations and
Technology, Company,
October 1, 1994 to date.
A. S. West Senior Vice President-Sales, CCIC,
April 15, 1987 to date.
Vice President, Company,
May 14, 1985 to May 11, 1987.
Senior Vice President-Sales, Company,
July 1, 1988 to date.
</TABLE>
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated herein by
reference and made a part hereof from that portion of the Company's Annual
Report to Security Holders for the year ended December 31, 1994 contained in
the material under the headings, "Common Share Price Performance and
Dividends", "Investor and Corporate Information" and "11-Year Summary of
Financial and Other Statistical Data", such information filed as a part hereof
as Exhibits 13(h), 13(i) and 13(j), respectively.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated herein by
reference and made a part hereof from that portion of the Company's Annual
Report to Security Holders for the year ended December 31, 1994 contained in
the material under the headings, "11-Year Summary of Financial and Other
Statistical Data" and "Notes to Consolidated Financial Statements", such
information filed as a part hereof as Exhibits 13(j) and 13(g), respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is incorporated herein by
reference and made a part hereof from that portion of the Company's Annual
Report to Security Holders for the year ended December 31, 1994 contained in
the material under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations", such information filed as a
part hereof as Exhibit 13(a).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated herein by
reference and made a part hereof from that portion of the Company's Annual
Report to Security Holders for the year ended December 31, 1994 contained in
the material under the headings "Statement of Consolidated Financial Position",
"Statement of Consolidated Income", "Statement of Consolidated Cash Flows",
"Statement of Consolidated Shareholders' Equity", "Notes to Consolidated
Financial Statements" and "Quarterly Results of Operations", such information
filed as a part hereof as Exhibits 13(c), 13(d), 13(e), 13(f), 13(g) and 13(h),
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding Directors required by this Item is
incorporated herein by reference and made a part hereof from the Company's
Proxy Statement to Security Holders, dated March 23, 1995, from the material
under the heading "Election of Directors". The information regarding executive
officers required by this item is set forth in Part I hereof under the heading
"Executive Officers of the Registrant", which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference and made a part hereof from the Company's Proxy Statement to Security
Holders, dated March 23, 1995 from the material under the headings "Executive
Compensation (excluding the Compensation Committee Report on Executive
Compensation)", "Pension Benefits", and the first five paragraphs under
"Agreements and Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference and made a part hereof from the Company's Proxy Statement to Security
Holders, dated March 23, 1995, from the material under the heading "Securities
Ownership of Management and Certain Other Persons".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by
reference and made a part hereof from the Company's Proxy Statement to Security
Holders, dated March 23, 1995, from the material under the last paragraph of
the heading "Directors' Compensation".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)
(1) and (2)-List of Financial Statements and Financial Statement
Schedules.
The following consolidated financial statements of the Company,
included in the Annual Report to Security Holders for the year ended December
31, 1994, are incorporated herein by reference from Item 8 and made a part
hereof:
Statement of Consolidated Financial Position -
December 31, 1994 and 1993
Statement of Consolidated Income - Years ended
December 31, 1994, 1993 and 1992
Statement of Consolidated Cash Flows - Years ended
December 31, 1994, 1993 and 1992
Statement of Consolidated Shareholders' Equity - Years ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
17
<PAGE> 18
The following consolidated financial statement schedule of the Company
is included herein in Item 14(d) and attached as Exhibit 99(a).
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(3) List of Exhibits - Refer to Exhibit Index on pages 20-29 which
is incorporated herein by reference.
(b) During the three months ended December 31, 1994, the Company filed
(i) a Current Report on Form 8-K, dated October 13, 1994, covering
information reported under ITEM 2. ACQUISITION OR DISPOSITION OF
ASSETS, and (ii) a Current Report on Form 8-K/A, dated December 13,
1994, covering information reported under ITEM 7. FINANCIAL
STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits listed in Item 14(a)(3) above are included herein.
(d) Financial Statements and Schedule listed above in Item 14(a)(1)
and (2) are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CLEVELAND-CLIFFS INC
By: /s/John E. Lenhard
------------------
John E. Lenhard,
Secretary and Assistant General Counsel
Date: March 27, 1995
18
<PAGE> 19
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
M. T. Moore Chairman, March 27, 1995
President and Chief
Executive Officer and
Principal Executive Officer
and Director
J. S. Brinzo Senior Executive-Finance March 27, 1995
and Principal
Financial Officer
R. Emmet Vice President and March 27, 1995
Controller and Principal
Accounting Officer
R. S. Colman Director March 27, 1995
J. D. Ireland, III Director March 27, 1995
G. F. Joklik Director March 27, 1995
E. B. Jones Director March 27, 1995
L. L. Kanuk Director March 27, 1995
S. B. Oresman Director March 27, 1995
A. Schwartz Director March 27, 1995
S. K. Scovil Director March 27, 1995
J. H. Wade Director March 27, 1995
A. W. Whitehouse Director March 27, 1995
By:/s/John E. Lenhard
--------------------
(John E. Lenhard, as
Attorney-in-Fact)
</TABLE>
Original powers of attorney authorizing Messrs. M. Thomas Moore, John S.
Brinzo, Frank L. Hartman, and John E. Lenhard and each of them, to sign this
Annual Report on Form 10-K and amendments thereto on behalf of the above-named
officers and Directors of the Registrant have been filed with the Securities
and Exchange Commission.
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Pagination by
Sequential
Exhibit Numbering
Number System
------- -------------
<S> <C> <C>
Articles of Incorporation and By-Laws
of Cleveland-Cliffs Inc
-----------------------
3(a) Amended Articles of Incorporation of Cleveland-Cliffs Inc (filed as
Exhibit 3(a) to Form 10-K of Cleveland-Cliffs Inc filed on March
29, 1991 and incorporated by reference) Not Applicable
3(b) Regulations of Cleveland-Cliffs Inc (filed as Exhibit 3(b) to Form
10-K of Cleveland-Cliffs Inc filed on March 29, 1991 and
incorporated by reference) Not Applicable
Instruments defining rights of security
holders, including indentures
-----------------------------
4(a) Restated Indenture, between Empire Iron Mining Partnership, Inland
Steel Company, McLouth Steel Corporation, The Cleveland-Cliffs Iron
Company, International Harvester Company, WSC Empire, Inc. and
Chemical Bank, as Trustee, dated as of December 1, 1978 (filed as
Exhibit 4(a) to Form 10-K of Cleveland-Cliffs Inc filed on March
29, 1991 and incorporated by reference) Not Applicable
4(b) First Supplemental Indenture, between Empire Iron Mining
Partnership, Inland Steel Company, McLouth Steel Corporation, The
Cleveland-Cliffs Iron Company, International Harvester Company, WSC
Empire Inc. and Chemical Bank, as Trustee, dated as of February 14,
1981 (filed as Exhibit 4(b) to Form 10-K of Cleveland-Cliffs Inc
filed on March 29, 1991 and incorporated by reference) Not Applicable
4(c) Second Supplemental Indenture, between Empire Iron Mining
Partnership, Inland Steel Company, McLouth Steel Corporation, The
Cleveland-Cliffs Iron Company, International Harvester Company, and
Chemical Bank, as Trustee, dated as of May 1, 1982 (filed as
Exhibit 4(c) to Form 10-K of Cleveland-Cliffs Inc filed on March
29, 1991 and incorporated by reference) Not Applicable
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
4(d) Third Supplemental Indenture, between Empire Iron Mining
Partnership, Inland Steel Company, McLouth Steel Corporation, The
Cleveland-Cliffs Iron Company, and Chemical Bank, as Trustee, dated
as of June 21, 1982 (filed as Exhibit 4(d) to Form 10-K of
Cleveland-Cliffs Inc filed on March 29, 1991 and incorporated by
reference) Not Applicable
4(e) Fourth Supplemental Indenture, between Empire Iron Mining
Partnership, Inland Steel Company, The Cleveland-Cliffs Iron
Company, Cliffs IH Empire, Inc., Cliffs MC Empire, Inc., Jones &
Laughlin Ore Mining Company, J&L Empire, Inc. and Chemical Bank, as
Trustee, dated as of February 1, 1983 (filed as Exhibit 4(e) to
Form 10-K of Cleveland-Cliffs Inc filed on March 29, 1991 and
incorporated by reference) Not Applicable
4(f) Fifth Supplemental Indenture, between Empire Iron Mining
Partnership, Inland Steel Company, The Cleveland-Cliffs Iron
Company, Cliffs IH Empire, Inc., J&L Empire, Inc., Wheeling-
Pittsburgh/Cliffs Partnership, and Chemical Bank, as Trustee, dated
as of October 1, 1983 (filed as Exhibit 4(f) to Form 10-K of
Cleveland-Cliffs Inc filed on March 29, 1991 and incorporated by
reference) Not Applicable
4(g) Sixth Supplemental Indenture, between Empire Iron Mining
Partnership, Inland Steel Company, The Cleveland-Cliffs Iron
Company, J&L Empire, Inc., Wheeling-Pittsburgh/Cliffs Partnership,
McLouth-Cliffs Partnership, Cliffs Empire, Inc. and Chemical Bank,
as Trustee, dated as of July 1, 1984 (filed as Exhibit 4(g) to Form
10-K of Cleveland-Cliffs Inc filed on March 29, 1991 and
incorporated by reference) Not Applicable
4(h) Form of Guaranty of Payment of 9.55% Secured Guaranteed Notes of
Empire Iron Mining Partnership due September 1, 1998 (filed as
Exhibit 4(h) to Form 10-K of Cleveland-Cliffs Inc filed on March
29, 1991 and incorporated by reference) Not Applicable
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
4(i) Restated First Mortgage Indenture, among Tilden Iron Ore
Partnership, Tilden Iron Ore Company and Chemical Bank and Clinton
G. Martens, as Trustees, dated as of October 31, 1977, as
supplemented and amended (See Footnote (A)) Not Applicable
4(j) Restated Financing Agreement, by and among Tilden Iron Ore
Partnership, Tilden Iron Ore Company, Cannelton Iron Ore Company,
The Cleveland-Cliffs Iron Company, Stelco Coal Company, Wheeling-
Pittsburgh Steel Corporation, Sharon Steel Corporation and Chemical
Bank and Clinton G. Martens, as Trustees, dated as of October 31,
1977 (filed as Exhibit 4(j) to Form 10-K of Cleveland-Cliffs Inc
filed on March 29, 1991 and incorporated by reference) Not Applicable
4(k) Form of Guarantee of Payment, dated January 20, 1984 relating to
Notes of Empire Iron Mining Partnership (See Footnote (A)) Not Applicable
4(l) Form of Guarantee of Payment, dated August 12, 1986 relating to
Notes of Empire Iron Mining Partnership (See Footnote (A)) Not Applicable
4(m) Form of Common Stock Certificate (filed as Exhibit 4(m) to Form 10-
K of Cleveland-Cliffs Inc filed on March 30, 1992 and incorporated
by reference) Not Applicable
4(n) Rights Agreement dated September 8, 1987, and amended and restated
as of November 19, 1991, by and between Cleveland-Cliffs Inc and
Society National Bank (successor to Ameritrust Company National
Association) (filed as Exhibit 4.2 to Form 8-K of Cleveland-Cliffs
Inc filed on November 20, 1991 and incorporated by reference) Not Applicable
4(o) Credit Agreement dated as of March 1, 1995 among Cleveland-Cliffs
Inc, the Banks named therein and Chemical Bank, as Agent Filed Herewith
4(p) Conformed Note Agreements dated as of May 1, 1992 among Cleveland-
Cliffs Inc and each of the Purchasers named in Schedule I thereto
(filed as Exhibit 4(t) to Form 10-Q of Cleveland-Cliffs Inc filed
on July 22, 1992 and incorporated by reference) Not Applicable
<FN>
-------------------------
(A) This document has not been filed as an exhibit hereto because the
long-term debt of the Company represented thereby, either directly or through
its interest in an affiliated or associated entity, does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of this document to the Securities and
Exchange Commission upon request.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Material Contracts
------------------
<S> <C> <C> <C>
10(a) * Amendment and Restatement of Supplemental Retirement Benefit Plan
of Cleveland-Cliffs Inc, dated as of January 1, 1991 (filed as
Exhibit 10(a) to Form 10-K of Cleveland-Cliffs Inc filed on March
30, 1992 and incorporated by reference) Not Applicable
10(b) * The Cleveland-Cliffs Iron Company Plan for Deferred Payment of
Directors' Fees dated as of July 1, 1981, assumed by Cleveland-
Cliffs Inc effective July 1, 1985 (filed as Exhibit 10(b) to Form
10-K of Cleveland-Cliffs Inc filed on March 29, 1991 and
incorporated by reference) Not Applicable
10(c) * Amendment No. 1 to Cleveland-Cliffs Inc Plan for Deferred Payment
of Directors' Fees (filed as Exhibit 10(c) to Form 10-K of
Cleveland-Cliffs Inc filed on March 30, 1992 and incorporated by
reference) Not Applicable
10(d) * Consulting Agreement dated as of June 23, 1987, by and between
Cleveland-Cliffs Inc and S. K. Scovil (filed as Exhibit 10(c) to
Form 10-K of Cleveland-Cliffs Inc filed on March 29, 1991 and
incorporated by reference) Not Applicable
10(e) * Amendment to Consulting Agreement with S. K. Scovil (filed as
Exhibit 10(e) to Form 10-K of Cleveland-Cliffs Inc filed on March
30, 1992 and incorporated by reference) Not Applicable
10(f) * Form of contingent employment agreements with certain executive
officers (filed as Exhibit 10(f) to Form 10-K of Cleveland-Cliffs
Inc filed on March 30, 1992 and incorporated by reference) Not Applicable
10(g) * Cleveland-Cliffs Inc and Subsidiaries Management Performance
Incentive Plan, dated as of January 1, 1994 (Summary Description) Filed Herewith
10(h) Instrument of Assignment and Assumption dated as of July 1, 1985,
by and between The Cleveland-Cliffs Iron Company and Cleveland-
Cliffs Inc (filed as Exhibit 10(f) to Form 10-K of Cleveland-Cliffs
Inc filed on March 29, 1991 and incorporated by reference) Not Applicable
<FN>
------------------------
*Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
10(i) Instrument of Assignment and Assumption dated as of September 1,
1985, by and between The Cleveland-Cliffs Iron Company and
Cleveland-Cliffs Inc (filed as Exhibit 10(g) to Form 10-K of
Cleveland-Cliffs Inc filed on March 29, 1991 and incorporated by
reference) Not Applicable
10(j) Form of indemnification agreements with certain directors and
officers (filed as Exhibit 10(h) to Form 10-K of Cleveland-Cliffs
Inc filed on March 29, 1991 and incorporated by reference) Not Applicable
10(k) * 1987 Incentive Equity Plan (filed as Exhibit 10(k) to Form 10-K of
Cleveland-Cliffs Inc filed on March 30, 1992 and incorporated by Not Applicable
10(l) * 1992 Incentive Equity Plan (filed as Appendix A to Proxy Statement
of Cleveland-Cliffs Inc filed on March 13, 1992 and incorporated by
reference) Not Applicable
10(m) Purchase and Sale Agreement dated as of December 8, 1987, by and
among The Cleveland-Cliffs Iron Company, Cliffs Electric Service
Company, Upper Peninsula Generating Company, Upper Peninsula Power
Company and Wisconsin Electric Power Company (filed as Exhibit
10(m) to Form 10-K of Cleveland-Cliffs Inc filed on March 29, 1993
and incorporated by reference) Not Applicable
10(n) * Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-
Employee Directors dated as of January 1, 1988 (filed as Exhibit
10(n) to Form 10-K of Cleveland-Cliffs Inc filed on March 29, 1993
and incorporated by reference) Not Applicable
10(o) * Amended and Restated Trust Agreement No. 1 dated as of March 9,
1992, by and between Cleveland-Cliffs Inc and Key Trust Company of
Ohio, N.A. (successor trustee to Society National Bank) with
respect to the Supplemental Retirement Benefit Plan and certain
contingent employment agreements (filed as Exhibit 10(o) to Form
10-K of Cleveland-Cliffs Inc filed on March 30, 1992 and
incorporated by reference) Not Applicable
<FN>
------------------------
*Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
10(p) * Amended and Restated Trust Agreement No. 2 dated as of March 9,
1992, by and between Cleveland-Cliffs Inc and Key Trust Company of
Ohio, N.A. (successor trustee to Society National Bank) with
respect to the Severance Pay Plan for Key Employees of Cleveland-
Cliffs Inc, the Cleveland-Cliffs Inc Retention Plan for Salaried
Employees and certain contingent employment agreements (filed as
Exhibit 10(p) to Form 10-K of Cleveland-Cliffs Inc filed on March
30, 1992 and incorporated by reference) Not Applicable
10(q) * Trust Agreement No. 4 dated as of October 28, 1987, by and between
Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A. (successor
trustee to Society National Bank) with respect to the Plan for
Deferred Payment of Directors' Fees (filed as Exhibit 10(q) to Form
10-K of Cleveland-Cliffs Inc filed on March 29, 1993 and
incorporated by reference) Not Applicable
10(r) * First Amendment to Trust Agreement No. 4 dated as of April 9, 1991,
by and between Cleveland-Cliffs Inc and Key Trust Company of Ohio,
N.A. (successor trustee to Society National Bank) and Second
Amendment to Trust Agreement No. 4 dated as of March 9, 1992 by and
between Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A.
(successor trustee to Society National Bank) (filed as Exhibit
10(r) to Form 10-K of Cleveland-Cliffs Inc filed on March 30, 1992
and incorporated by reference) Not Applicable
10(s) * Trust Agreement No. 5 dated as of October 28, 1987, by and between
Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A. (successor
trustee to Society National Bank) with respect to the Cleveland-
Cliffs Inc Voluntary Non-Qualified Deferred Compensation Plan
(filed as Exhibit 10(s) to Form 10-K of Cleveland-Cliffs Inc filed
on March 29, 1993 and incorporated by reference) Not Applicable
<FN>
------------------------
*Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
10(t) * First Amendment to Trust Agreement No. 5 dated as of May 12, 1989,
by and between Cleveland-Cliffs Inc and Key Trust Company of Ohio,
N.A. (successor trustee to Society National Bank), Second Amendment
to Trust Agreement No. 5 dated as of April 9, 1991 by and between
Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A. (successor
trustee to Society National Bank) and Third Amendment to Trust
Agreement No. 5 dated as of March 9, 1992, by and between
Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A. (successor
trustee to Society National Bank) (filed as Exhibit 10(t) to Form
10-K of Cleveland-Cliffs Inc filed on March 30, 1992 and
incorporated by reference) Not Applicable
10(u) Amended and Restated Trust Agreement No. 6 dated as of March 9,
1992, by and between Cleveland-Cliffs Inc and Key Trust Company of
Ohio, N.A. (successor trustee to Society National Bank) with
respect to certain indemnification agreements with directors and
certain officers (filed as Exhibit 10(u) to Form 10-K of Cleveland-
Cliffs Inc filed on March 30, 1992 and incorporated by reference) Not Applicable
10(v) * Trust Agreement No. 7 dated as of April 9, 1991, by and between
Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A. (successor
trustee to Society National Bank) with respect to the Cleveland-
Cliffs Inc Supplemental Retirement Benefit Plan, as amended by
First Amendment to Trust Agreement No. 7 (filed as Exhibit 10(v) to
Form 10-K of Cleveland-Cliffs Inc filed on March 30, 1992 and
incorporated by reference) Not Applicable
10(w) * Trust Agreement No. 8 dated as of April 9, 1991, by and between
Cleveland-Cliffs Inc and Key Trust Company of Ohio, N.A. (successor
trustee to Society National Bank) with respect to the Cleveland-
Cliffs Inc Retirement Plan for Non-Employee Directors, as amended
by First Amendment to Trust Agreement No. 8 (filed as Exhibit 10(w)
to Form 10-K of Cleveland-Cliffs Inc filed on March 30, 1992 and
incorporated by reference) Not Applicable
10(x) * Severance Pay Plan for Key Employees of Cleveland-Cliffs Inc (filed
as Exhibit 10(y) to Form 10-K of Cleveland-Cliffs Inc filed on
March 30, 1992 and incorporated by reference) Not Applicable
<FN>
------------------------
*Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
10(y) * First Amendment to Severance Pay Plan for Key Employees of
Cleveland-Cliffs Inc, dated November 18, 1994 Filed Herewith
10(z) * Voluntary Non-Qualified Deferred Compensation Plan of Cleveland-
Cliffs Inc, Amended and Restated as of January 1, 1994 (filed as
Exhibit 10 to Form 10-Q of Cleveland-Cliffs Inc filed on August 9,
1994 and incorporated by reference) Not Applicable
10(aa) * First Amendment to Voluntary Non-Qualified Deferred Compensation
Plan of Cleveland-Cliffs Inc, Amended and Restated as of January 1,
1994, dated November 18, 1994 Filed Herewith
10(bb) * First Amendment to Amendment and Restatement of Cleveland-Cliffs
Inc Supplemental Retirement Benefit Plan, dated as of January 15,
1993 (filed as Exhibit 10(aa) to Form 10-Q of Cleveland-Cliffs Inc
filed on May 12, 1993 and incorporated by reference) Not Applicable
10(cc) * Second Amendment to Amendment and Restatement of Cleveland-Cliffs
Inc Supplemental Retirement Benefit Plan, dated November 18, 1994 Filed Herewith
10(dd) * Fourth Amendment to Trust Agreement No. 5, dated November 18, 1994,
by and between Cleveland-Cliffs Inc and Key Trust Company of Ohio,
N.A. (successor trustee to Society National Bank) Filed Herewith
10(ee) * Second Amendment to Trust Agreement No. 7, dated November 18, 1994,
by and between Cleveland-Cliffs Inc and Key Trust Company of Ohio,
N.A. (successor trustee to Society National Bank) Filed Herewith
10(ff) * Cleveland-Cliffs Inc Long-Term Performance Share Program, dated as
of March 31, 1994 (Summary Description) Filed Herewith
10(gg) Stock Purchase Agreement, dated as of September 30, 1994, among
Cleveland-Cliffs Inc, Cliffs Minnesota Minerals Company and Cyprus
Amax Minerals Company (filed as Exhibit 2 to Form 8-K of Cleveland-
Cliffs Inc filed on October 13, 1994 and incorporated by reference,
and to which certain portions of which were accorded "Confidential
Information" pursuant to order of the Securities and Exchange
Commission, dated December 21, 1994) Not Applicable
<FN>
------------------------
*Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
10(hh) Financial Statements, Pro Forma Financial Information and Exhibits
to include the audited financial statements of Cyprus Northshore
Mining Corporation and consolidated subsidiary as of December 31,
1993, the unaudited financial statements of Cyprus Northshore
Mining Corporation and consolidated subsidiary as of September 30,
1994, and the related pro forma financial information (filed as
Exhibits 99.1, 99.2 and 99.3 to Form 8-K/A of Cleveland-Cliffs Inc
filed on December 13, 1994 and incorporated by reference) Not Applicable
Filed Herewith
11 Statement re computation of per share earnings (Page 30-31)
13 Selected portions of 1994 Annual Report to Security Holders
13(a) Management's Discussion and Analysis of Financial Condition Filed Herewith
and Results of Operations (Page 32-41-A)
Filed Herewith
13(b) Report of Independent Auditors (Page 42)
Filed Herewith
13(c) Statement of Consolidated Financial Position (Page 43-44)
Filed Herewith
13(d) Statement of Consolidated Income (Page 45)
Filed Herewith
13(e) Statement of Consolidated Cash Flows (Page 46)
Filed Herewith
13(f) Statement of Consolidated Shareholders' Equity (Page 47)
Filed Herewith
13(g) Notes to Consolidated Financial Statements (Page 48-63)
13(h) Quarterly Results of Operations/Common Share Price Filed Herewith
Performance and Dividends (Page 64)
Filed Herewith
13(i) Investor and Corporate Information (Page 65)
Filed Herewith
13(j) 11-Year Summary of Financial and Other Statistical Data (Page 66-67)
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
Filed Herewith
21 Subsidiaries of the registrant (Page 68-70)
Filed Herewith
23 Consent of independent auditors (Page 71)
Filed Herewith
24 Power of Attorney (Page 72)
27 Consolidated Financial Data Schedule submitted for Securities and
Exchange Commission information --
99 Additional Exhibits
99(a) Schedule II - Qualification and valuation
accounts 73
</TABLE>
29
<PAGE> 1
EXHIBIT 4(0)
____________________________________________________________
____________________________________________________________
CREDIT AGREEMENT
Dated as of March 1, 1995
Among
CLEVELAND-CLIFFS INC,
THE BANKS NAMED HEREIN
And
CHEMICAL BANK, as Agent
____________________________________________________________
____________________________________________________________
[6700-089(RM1)/CVO1.WPF/7N/4334/9M]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
ARTICLE I
<CAPTION>
Definitions
-----------
<S> <C> <C>
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.03. Notice of Borrowings . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.04. Notes; Repayment of Loans . . . . . . . . . . . . . . . . . . 19
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.06. Interest on Loans . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.07. Default Interest . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.08. Alternate Rate of Interest . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Termination and Reduction of Commitments . . . . . . . . . . 22
SECTION 2.10. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.11. Reserve Requirements; Change in Circumstances . . . . . . . . 24
SECTION 2.12. Change in Legality . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.13. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.14. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.15. Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.16. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.18. Termination or Assignment of Commitments Under Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization, Corporate Powers . . . . . . . . . . . . . . . 33
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
[6700-089(RM1)/TC01.WPF/7N/4334/9M]
<PAGE> 3
<TABLE>
Contents, p. 2
<S> <C> <C>
SECTION 3.03 Governmental Approvals . . . . . . . . . . . . . . . . . . . 34
SECTION 3.04. Enforceability . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.06. No Material Adverse Change . . . . . . . . . . . . . . . . . 35
SECTION 3.07. Title to Properties; Possession Under Leases . . . . . . . . 35
SECTION 3.08. Litigation; Compliance with Laws . . . . . . . . . . . . . . 35
SECTION 3.09. Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.10. Federal Reserve Regulations . . . . . . . . . . . . . . . . . 36
SECTION 3.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.12. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 37
SECTION 3.13. No Material Misstatements . . . . . . . . . . . . . . . . . . 37
SECTION 3.14. Investment Company Act and Public Utility Holding Company Act 38
SECTION 3.15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.16. Environmental and Safety Matters . . . . . . . . . . . . . . 38
ARTICLE IV
Conditions of Lending
---------------------
SECTION 4.01. All Borrowings . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.02. First Borrowing . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.02. Business and Properties . . . . . . . . . . . . . . . . . . . 41
SECTION 5.03. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.04. Obligations and Taxes . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.05. Financial Statements, Reports, etc. . . . . . . . . . . . . . 43
SECTION 5.06. Litigation and Other Notices . . . . . . . . . . . . . . . . 44
SECTION 5.07. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.08. Maintaining Records; Access to Properties and Inspections . . 45
SECTION 5.09. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.02. Sale and Leaseback Transactions . . . . . . . . . . . . . . . 48
</TABLE>
[6700-089(RM1)/TC01.WPF/7N/4334/9M]
<PAGE> 4
<TABLE>
Contents, p. 3
<S> <C> <C>
SECTION 6.03. Mergers and Acquisitions . . . . . . . . . . . . . . . . . . 49
SECTION 6.04. Disposition of Assets . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.05. Line of Business . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.06. Consolidated Tangible Net Worth . . . . . . . . . . . . . . . 51
SECTION 6.07. Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.08. Transactions with Affiliates . . . . . . . . . . . . . . . . 51
SECTION 6.09. Fiscal Year; Accounting . . . . . . . . . . . . . . . . . . . 52
ARTICLE VII
Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 52
--------
ARTICLE VIII
The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 56
---------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.02. Survival of Agreement . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . 61
SECTION 9.05. Expenses of the Agent and the Banks; Indemnity . . . . . . . 65
SECTION 9.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.07. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.08. Payments on Business Days . . . . . . . . . . . . . . . . . . 67
SECTION 9.09. Waivers; Amendment . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.10. Interest Rate Limitation . . . . . . . . . . . . . . . . . . 68
SECTION 9.11. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.13. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.14. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.15. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
[6700-089(RM1)/TC01.WPF/7N/4334/9M]
<PAGE> 5
Contents, p.4
EXHIBITS AND SCHEDULES
EXHIBIT A Form of Note
EXHIBIT B Form of Assignment and Acceptance
EXHIBIT C Administrative Questionnaire
EXHIBIT D Form of Opinion of Counsel of Frank L.
Hartman, Vice President and General Counsel to the
Borrower
Schedule I Entities Not Deemed Subsidiaries
Schedule 2.01 Commitments
Schedule 3.16 Environmental Matters
Schedule 6.01 Liens
Schedule 6.07 Indebtedness
[6700-089(RM1)/TC01.WPF/7N/4334/9M]
<PAGE> 6
CONFORMED COPY
CREDIT AGREEMENT dated as of March 1, 1995,
among CLEVELAND-CLIFFS INC, an Ohio corporation (the
"Borrower"), the banks listed on Schedule 2.01 (the
"Banks"), and CHEMICAL BANK, as agent for the Banks
(in such capacity, the "Agent").
The Borrower has requested the Banks to extend credit in order
to enable the Borrower, subject to the terms and conditions of this Agreement,
to borrow on a revolving basis, at any time and from time to time prior to the
Maturity Date (such term and each other capitalized term used but not defined
herein having the meaning given to it in Article I), an aggregate principal
amount at any time outstanding not in excess of $100,000,000. The proceeds of
such borrowings are to be used for general corporate purposes. The Banks are
willing to extend such credit to the Borrower on the terms and subject to the
conditions set forth herein.
Accordingly, the Borrower, the Banks and the Agent agree as
follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ADJUSTED CD RATE" shall mean, with respect to any CD
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/100 of 1%) equal to the sum of (a) a rate per annum
equal to the product of (i) the Fixed CD Rate in effect for such Interest
Period and (ii) Statutory Reserves, plus (b) the Assessment Rate. For purposes
hereof, the term "Fixed CD Rate" shall mean the arithmetic average (rounded
upwards, if necessary,
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 7
2
to the next 1/100 of 1%) of the prevailing rates per annum bid on or about
10:00 a.m., New York City time, to the Agent on the first Business Day of the
Interest Period applicable to such CD Borrowing by three New York City
negotiable certificate of deposit dealers of recognized standing selected by
the Agent for the purchase at face value of negotiable certificates of deposit
of major United States money center banks in principal amount approximately
equal to the Agent's portion (or, if different, the portion of the Bank having
the largest Commitment) of such CD Borrowing and with a maturity comparable to
such Interest Period.
"ADJUSTED LIBO RATE" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of
(i) the LIBO Rate in effect for such Interest Period and (ii) Statutory
Reserves. For purposes hereof, the term "LIBO Rate" shall mean the rate
(rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar
deposits approximately equal in principal amount to the Agent's portion (or, if
different, the portion of the Bank having the largest Commitment) of such
Eurodollar Borrowing and for a maturity comparable to such Interest Period are
offered to the principal London office of the Agent in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"ADMINISTRATIVE FEE" shall have the meaning assigned to such
term in Section 2.05(b).
"AFFILIATE" shall mean, when used with respect to a specified
person, any other person which directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the person specified.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. For purposes hereof, "PRIME RATE" shall mean the
rate of interest per annum publicly announced from time to time by the Agent as
its prime rate in effect at its principal office in New York City; each change
in the Prime Rate shall be effective on the date such change is publicly
announced as being
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 8
3
effective. "BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate. "THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the
secondary market rate for three-month certificates of deposit in units of
$100,000 or more reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board through
the public information telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit in units of $100,000 or more issued by
major money center banks in New York City received at approximately 10:00 a.m.,
New York City time, on such day (or, if such day shall not be a Business Day,
on the next preceding Business Day) by the Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected by
it. "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it.
If for any reason the Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability or failure of the Agent to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined without
regard to clause (b) or (c), or both, of the first sentence of this definition,
as appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
"APPLICABLE MARGIN" shall mean, with respect to the Loans
comprising any Eurodollar Borrowing or CD
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 9
4
Borrowing, on any date, the applicable percentage set forth below under the
caption "EURODOLLAR SPREAD" or "CD SPREAD", as applicable, based upon the ratio
as of the last day of the most recent fiscal quarter for which financial
statements have been delivered as provided below of (a) Total Indebtedness on
such date to (b) the sum of (i) Consolidated Tangible Net Worth on such date
plus (ii) Total Indebtedness on such date:
<TABLE>
<CAPTION>
Eurodollar
Ratio Spread CD Spread
----- ---------- ---------
<S> <C> <C>
Category 1
----------
Less than or equal to .20 to 1 .375% .500%
Category 2
----------
Greater than .20 to 1 and
less than .35 to 1 .400% .525%
Category 3
----------
Greater than or equal to .35 to 1 .700% .825%
</TABLE>
Each change in the Applicable Margin resulting from a change
in the ratio of Total Indebtedness to the sum of Consolidated Tangible Net
Worth plus Total Indebtedness as of the end of any fiscal quarter will be
effective as of the first day of the second succeeding fiscal quarter.
Notwithstanding the foregoing, at any time at which the Borrower has failed to
deliver such financial statements or such certificate with respect to such
fiscal quarter and five Business Days shall have elapsed since the
Administrative Agent shall have notified the Borrower of its failure to deliver
such financial statements or such certificate with respect to such fiscal
quarter in accordance with such provisions, the then-current ratio of Total
Indebtedness to the sum of Consolidated Tangible Net Worth plus Total
Indebtedness shall be deemed to be greater than .35 to 1 until such time as the
Borrower shall deliver such financial statements and certificate.
"ASSESSMENT RATE" shall mean for any day the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently
estimated by the Agent as the then current net annual assessment rate that will
be employed in determining amounts payable by the Agent to the Federal Deposit
Insurance Corporation (or any successor) for
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 10
5
insurance by such Corporation (or any successor) of time deposits made in
dollars at the Agent's domestic offices.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and
acceptance entered into by a Bank and an assignee, and accepted by the Agent,
in the form of Exhibit B hereto.
"ATTRIBUTABLE DEBT" shall mean, in connection with a Sale and
Lease Back Transaction, the present value (discounted in accordance with
generally accepted accounting principles at the debt rate implied in the lease)
of the obligations of the lessee for rental payments during the term of the
lease.
"BOARD" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"BORROWING" shall mean a group of Loans of a single Type made
by the Banks on a single date and as to which a single Interest Period is in
effect.
"BUSINESS DAY" shall mean any day, other than a day which is a
Saturday, Sunday or legal holiday in the State of New York, on which banks are
not authorized or required to be closed in New York City; PROVIDED, HOWEVER,
that when used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"CAPITALIZED LEASE OBLIGATIONS" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under
generally accepted accounting principles and, for the purposes of this
Agreement, the amount of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with generally accepted
accounting principles.
"CD BORROWING" shall mean a Borrowing comprised of CD Loans.
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<PAGE> 11
6
"CD LOAN" shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
A "CHANGE IN CONTROL" shall be deemed to have occurred if any
person or group (within the meaning of Rule 13d-5 of the Securities and
Exchange Commission as in effect on the date hereof) shall acquire directly or
indirectly, beneficially or of record, shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Borrower.
"CLOSING DATE" shall mean the date of the first Borrowing.
"CODE" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"COMMITMENT" shall mean, with respect to any Bank, the
commitment of such Bank to make Loans hereunder as set forth in paragraphs (a)
and (b) of Section 2.01 and in Schedule 2.01 hereto, or in an Assignment and
Acceptance delivered by such Bank under Section 9.04, as the same may be
reduced from time to time pursuant to Section 2.09 or pursuant to one or more
assignments under Section 9.04.
"COMMITMENT FEE" shall have the meaning assigned to such term
in Section 2.05(a).
"COMMITMENT FEE PERCENTAGE" shall mean, on any date, the
applicable percentage set forth below based upon the ratio as of the last day
of the most recent preceding fiscal quarter for which financial statements have
been delivered as provided below of (a) Total Indebtedness on such date to (b)
the sum of (i) Consolidated Tangible Net
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 12
7
<TABLE>
<CAPTION>
Worth on such date plus (ii) Total Indebtedness on such date:
Commitment Fee
Ratio Percentage
----- --------------
<S> <C>
Category 1
----------
Less than or equal to .20 to 1 .125%
Category 2
----------
Greater than .20 to 1 and less than .35 to 1 .150%
Category 3
----------
Greater than or equal to .35 to 1 .250%
</TABLE>
Each change in the Commitment Fee Percentage resulting from a change in the
ratio of Total Indebtedness to the sum of Consolidated Tangible Net Worth plus
Total Indebtedness as of the end of any fiscal quarter will be effective as of
the first day of the second succeeding fiscal quarter. Notwithstanding the
foregoing, at any time at which the Borrower has failed to deliver such
financial statements or such certificate with respect to such fiscal quarter
and five Business Days shall have elapsed since the Administrative Agent shall
have notified the Borrower of its failure to deliver such financial statements
or such certificate with respect to such fiscal quarter in accordance with such
provisions, the then current ratio of Total Indebtedness to the sum of
Consolidated Tangible Net Worth plus Total Indebtedness shall be deemed to be
greater than .35 to 1 until such time as the Borrower shall deliver such
financial statements and certificate.
"CONSOLIDATED NET INCOME" with respect to the Borrower for any
period shall mean the net income (or net deficit) of the Borrower and the
Subsidiaries for such period (excluding charges related to the adoption of
Statement of Financial Accounting Standards ("SFAS") 106 (Employers' Accounting
for Post-Retirement Benefits Other Than Pensions)), computed on a consolidated
basis in accordance with generally accepted accounting principles consistently
applied.
"CONSOLIDATED TANGIBLE NET WORTH" with respect to the Borrower
at any date shall mean (i) the sum of the Borrower's capital stock, capital in
excess of par or stated value of shares of such capital stock, retained
earnings and
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<PAGE> 13
8
any other account which, in accordance with generally accepted accounting
principles consistently applied, constitutes stockholders' equity, less (ii)
the Borrower's treasury stock, less (iii) the amount of all assets of the
Borrower reflected as goodwill, patents, research and development and all other
assets required to be classified as intangibles in accordance with generally
accepted accounting principles, less (iv) all writeups of assets of the
Borrower occurring after the date hereof, plus (v) the amount of any liability
or reserve related to the Borrower's adoption of SFAS 106.
"CONTROL" (including the terms "Controlling", "Controlled by"
and "under common Control with") shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of voting securities, by
contract or otherwise.
"DEFAULT" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"DOLLARS" and the symbol "$" shall mean the lawful currency of
the United States of America.
"ENVIRONMENTAL LAWS" at any date shall mean all provisions of
law, statutes, ordinances, rules, regulations, judgments, writs, injunctions,
decrees, orders, awards and standards promulgated by the government of the
United States of America or by any state or municipality thereof or therein or
by any court, agency, instrumentality, regulatory authority or commission of
any of the foregoing concerning the protection of, or regulating the discharge
of substances into, the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business (whether or
not incorporated) that is a member of a group of which the Borrower or any
Subsidiary is a member and which is under common Control with the Borrower or
any Subsidiary within the meaning of Section 414 of the Code, and the
regulations promulgated thereunder.
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 14
9
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of
Eurodollar Loans.
"EURODOLLAR LOAN" shall mean any Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning specified in Article
VII hereof.
"EXISTING CREDIT AGREEMENT" shall mean the Credit Agreement
dated as of April 30, 1992, as amended, among Cleveland-Cliffs Inc, the banks
listed therein and Chemical Bank, as agent.
"FEES" shall mean the Administrative Fees and the Commitment
Fees.
"FINANCIAL OFFICER" of any corporation shall mean its chief
financial officer, principal accounting officer, treasurer, assistant
treasurer, controller or assistant controller.
"FUNDED DEBT" shall mean, with respect to the Borrower and its
Subsidiaries at the time of determination thereof, all Indebtedness of the
Borrower and its Subsidiaries determined at such time on a consolidated basis,
including any portion of such Indebtedness that would be classified as current
in accordance with generally accepted accounting principles, but in all events
excluding any amount of such Indebtedness arising from or attributable to (i)
amounts outstanding under credit lines, revolving credit agreements or similar
agreements so long as all such amounts are fully paid for a period of not less
than 30 consecutive days in each twelve-month period pursuant to the terms of
such agreements, (ii) trade payables and accrued expenses (other than for
borrowed money) constituting current liabilities, (iii) short term letters of
credit, surety bonds and similar instruments issued in commercial transactions
in the ordinary course of business and (iv) any Guarantee of Indebtedness of
Subsidiaries of the types described in any of the foregoing clauses (i), (ii)
or (iii).
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 15
10
"GUARANTEE" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "PRIMARY
OBLIGOR") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such person, direct or indirect, (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Indebtedness, (ii) to purchase property,
securities or services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness, or (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the Primary Obligor so as to enable the Primary Obligor to pay such
Indebtedness (PROVIDED, HOWEVER, that the term Guarantee shall not include
endorsements for collection or deposit, in either case in the ordinary course
of business), and the term "Guaranteed" shall have a correlative meaning.
"INDEBTEDNESS" shall mean, with respect to any person, at any
time, without duplication, (a) all obligations of such person for borrowed
money, or with respect to deposits or advances of any kind, (b) all obligations
of such person evidenced by bonds, debentures, notes or similar instruments,
(c) all obligations of such person upon which interest charges are customarily
paid, (d) all obligations of such person under conditional sale or other title
retention agreements relating to property purchased by such person, (e) all
obligations of such person issued or assumed as the deferred purchase price of
property or services (other than accounts payable to suppliers incurred in the
ordinary course of business and paid when due), (f) all Capitalized Lease
Obligations of such person, (g) all obligations of such person as an account
party in respect of letters of credit and bankers' acceptances, (h) all
Guarantees of such person of the Indebtedness of others, (i) all obligations of
such person in respect of interest rate protection agreements, (j) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on,
or which may be satisfied by or out of the proceeds of, any property owned or
acquired by such person, whether or not the obligations secured thereby have
been assumed and (k) all Indebtedness of others that is serviced by such
person, whether or not such Indebtedness has been assumed; PROVIDED, HOWEVER,
that Indebtedness shall
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 16
11
not be deemed to include (1) any Indebtedness of any Subsidiary or any of the
entities listed on Schedule I hereto to the extent such Indebtedness (or a
participation interest in such Indebtedness) is owned by the Borrower or any
Subsidiary, (2) intercompany Indebtedness not effectively serviced by such
person from time to time existing between such person and its subsidiaries, or
between two or more such subsidiaries, which would not, in accordance with
generally accepted accounting principles consistently applied, be reflected as
Indebtedness on a consolidated balance sheet of the ultimate parent of such
person or (3) obligations in the nature of performance bonds and other similar
surety arrangements to the extent paid or covered by insurance from financially
sound and reputable insurers. For purposes of this Agreement the principal
amount of any Indebtedness referred to in clause (i) of the preceding sentence
shall be the amount of any such obligation that would be payable upon the
acceleration, termination or liquidation thereof.
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration or a CD Borrowing with an Interest
Period of more than 90 days' duration, each day that would have been an
Interest Payment Date had successive Interest Periods of three months' duration
or 90 days' duration, as the case may be, been applicable to such Borrowing,
and, in addition, the date of any refinancing or conversion of such Borrowing
with or to a Borrowing of a different Type.
"INTEREST PERIOD" shall mean, subject to Section 2.02(d), (a)
as to any Eurodollar Borrowing, the period commencing on the date of such
Borrowing or on the last day of the immediately preceding Interest Period
applicable to such Borrowing, as the case may be, and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the
last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the
Borrower may elect, (b) as to any CD Borrowing, a period of 30, 60, 90 or 180
days' duration, as the Borrower may elect, commencing on the date of such
Borrowing or on the last day of the immediately preceding Interest Period
applicable to such Borrowing, as the case may be, and (c) as to any ABR
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 17
12
preceding Interest Period applicable to such Borrowing, as the case may be, and
ending on the earliest of (i) the next succeeding March 31, June 30, September
30 or December 31, (ii) the Maturity Date and (iii) the date such Borrowing is
repaid or prepaid in accordance with Section 2.10; PROVIDED, HOWEVER, that if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the
case of a Eurodollar Borrowing only, such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day. Interest shall accrue from and including
the first day of an Interest Period to but excluding the last day of such
Interest Period.
"LIEN" shall mean, with respect to any asset, (i) any
mortgage, lien, pledge, encumbrance, charge or security interest in or on such
asset, (ii) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset or (iii) in the case of securities, any purchase option, call or similar
right of a third party with respect to such securities; PROVIDED, that neither
the right of an issuer to redeem its securities upon payment of an amount not
less than the issuance price thereof, nor rights of first refusal or similar
rights granted to any issuer of such securities or to any partner (or any
Affiliates of such partner) of the issuer of such securities or of the person
holding such securities, or any rights or restrictions applicable to any
securities issued in a bankruptcy reorganization, which rights or restrictions
are created pursuant to the applicable court approved plan of reorganization,
shall be deemed to be a Lien.
"LOAN" or "LOANS" shall mean the loans made by the Banks
pursuant to Section 2.01. Each Loan shall be either an ABR Loan, a CD Loan or
a Eurodollar Loan.
"LOAN DOCUMENTS" shall mean this Agreement and the Notes.
"MARGIN STOCK" shall have the meaning assigned to such term in
Regulation U.
"MATERIAL ADVERSE EFFECT" shall mean (a) a materially adverse
effect on the business, assets, operations or financial condition of the
Borrower and the Subsidiaries taken as a whole or (b) material impairment of
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 18
13
the ability of the Borrower to perform any of its obligations under any Loan
Document to which it is or will be a party.
"MATURITY DATE" shall mean March 1, 2000.
"MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which the Borrower or any Subsidiary
or any ERISA Affiliate (other than one considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) is making or
accruing any obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"NOTE" or "NOTES" shall mean the promissory notes of the
Borrower issued pursuant to Section 2.04, substantially in the form of Exhibit
A.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"PERMITTED LIENS" shall mean liens permitted to be incurred by
the Borrower or a Subsidiary in accordance with Section 6.01, whether presently
in existence or hereafter arising.
"PERSON" shall mean and include any natural person, company,
partnership, joint venture, association, corporation, business trust,
unincorporated organization or government or any department or political
subdivision or agency thereof.
"PLAN" shall mean any pension plan other than a Multiemployer
Plan which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code which is maintained (in whole or in part) for employees of the
Borrower or any ERISA Affiliate.
"REGULATION D" shall mean Regulation D of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REGULATION G" shall mean Regulation G of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 19
14
"REGULATION U" shall mean Regulation U of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REGULATION X" shall mean Regulation X of the Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"REPORTABLE EVENT" shall mean any reportable event as defined
in Section 4043 of Title IV of ERISA or the regulations issued thereunder with
respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Code).
"REQUIRED BANKS" shall mean, at any time, Banks holding Loans
representing at least 66-2/3% of the sum of the aggregate principal amount of
the Loans outstanding or, if no Loans are outstanding, Banks having Commitments
representing at least 66-2/3% of the aggregate Commitments.
"RESPONSIBLE OFFICER" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other
officer or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"SALE AND LEASEBACK TRANSACTION" shall have the meaning given
such term in Section 6.02.
"SENIOR DEBT" shall mean, at the time of determination
thereof, the Loans then outstanding hereunder and all other Funded Debt
outstanding at such time, other than any of such Funded Debt which by its terms
or by agreement is subordinated in right of payment to the Loans then
outstanding hereunder in a manner satisfactory to, and approved by, the
Required Banks, and under which no scheduled principal payments are due prior
to the Maturity Date.
"STATUTORY RESERVES" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board and any other banking authority to which
the Agent is
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 20
15
subject (a) with respect to the Adjusted CD Rate or the Base CD Rate (as such
term is used in the definition of "Alternate Base Rate"), for new negotiable
nonpersonal time deposits in Dollars of $100,000 or more with maturities
approximately equal to (i) the applicable Interest Period, in the case of the
Adjusted CD Rate, and (ii) three months, in the case of the Base CD Rate (as
such term is used in the definition of "Alternate Base Rate"), and (b) with
respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in
Regulation D). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Loans shall be deemed to constitute
Eurocurrency Liabilities and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets which may be
available from time to time to any Bank under such Regulation D. Statutory
Reserves shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"SUBSIDIARY" shall mean, with respect to any person (the
"Parent"), any corporation, association or other business entity of which
securities or other ownership interests representing more than 50% of the
ordinary voting power are, at the time as of which any determination is being
made, owned or Controlled by the Parent or one or more subsidiaries of the
Parent or by the Parent and one or more subsidiaries of the Parent.
"SUBSIDIARY" shall mean any subsidiary of the Borrower, other
than those entities listed on Schedule I.
"TOTAL INDEBTEDNESS" with respect to the Borrower shall mean
the aggregate amount of all Indebtedness of the Borrower and the Subsidiaries,
calculated on a consolidated basis, without duplication.
"TRANSACTIONS" shall have the meaning assigned to such term in
Section 3.02.
"TYPE", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the Adjusted LIBO Rate, the Adjusted CD Rate and the Alternate Base
Rate.
"WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer
Plan as a result of a complete or partial
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 21
16
withdrawal from such Multiemployer Plan, as such terms are defined in Part 1 of
Subtitle E of Title IV of ERISA.
SECTION 1.02. TERMS GENERALLY. The definitions in Section
1.01 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, (a) any reference in
this Agreement to any Loan Document shall mean such document as amended,
restated, supplemented or otherwise modified from time to time and (b) all
terms of an accounting or financial nature shall be construed in accordance
with generally accepted accounting principles, as in effect from time to time;
PROVIDED, HOWEVER, that, for purposes of determining compliance with any
covenant set forth in Article VI, such terms shall be construed in accordance
with generally accepted accounting principles, as in effect on the date of this
Agreement applied on a basis consistent with the application used in preparing
the Borrower's audited financial statements referred to in Section 3.05.
ARTICLE II
The Credits
-----------
SECTION 2.01. COMMITMENTS. Subject to the terms and
conditions and relying upon the representations and warranties herein set
forth, each Bank agrees, severally and not jointly, to make Loans to the
Borrower, at any time and from time to time on or after the date hereof and
until the earlier of the Maturity Date and the termination of the Commitment of
such Bank in accordance with the terms hereof, in an aggregate principal amount
at any time outstanding not to exceed the Commitment of such Bank set forth
opposite its name on Schedule 2.01, as the same may be reduced from time to
time pursuant to Section 2.09.
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 22
17
Within the limits set forth in Schedule 2.01, the Borrower may
borrow, pay or prepay and reborrow Loans on or after the date hereof and prior
to the Maturity Date, subject to the terms, conditions and limitations set
forth herein.
SECTION 2.02. LOANS. (a) Each Loan shall be made as part of
a Borrowing consisting of Loans made by the Banks ratably in accordance with
their Commitments; PROVIDED, HOWEVER, that the failure of any Bank to make any
Loan shall not in itself relieve any other Bank of its obligation to lend
hereunder (it being understood, however, that no Bank shall be responsible for
the failure of any other Bank to make any Loan required to be made by such
other Bank). The Loans comprising each Borrowing shall be in an aggregate
principal amount which is an integral multiple of $500,000 and not less than
$2,500,000 (or an aggregate principal amount equal to the remaining balance of
the Commitments).
(b) Each Borrowing shall be comprised entirely of ABR Loans,
CD Loans or Eurodollar Loans, as the Borrower may request pursuant to Section
2.03. Each Bank may at its option fulfill its Commitment with respect to any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Bank to make such Loan; PROVIDED that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement and the applicable Note. Borrowings of more than one
Type may be outstanding at the same time; PROVIDED, HOWEVER, that the Borrower
shall not be entitled to request any Borrowing which, if made, would result in
an aggregate of more than seven separate CD Loans or Eurodollar Loans of any
Bank being outstanding hereunder at any one time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Loans.
(c) Subject to paragraph (d) below, each Bank shall make a
Loan in the amount of its pro rata portion, as determined under Section 2.14,
of each Borrowing hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Agent in New York, New York, not later than
12:00 noon, New York City time, and the Agent shall by 3:00 p.m., New York City
time, credit the amounts so received to the general deposit account of the
Borrower with the Agent or, if a Borrowing shall not occur on such date because
any condition precedent herein specified shall
[6700-089(RM1)/CR01.CNF/7N/4334/9M]
<PAGE> 23
18
not have been met, return the amounts so received to the respective Banks.
Unless the Agent shall have received notice from a Bank prior to the date of
any Borrowing, or, in the case of an ABR Borrowing, by 12:00 noon, New York
City time, on the date of such ABR Borrowing, that such Bank will not make
available to the Agent such Bank's portion of such Borrowing, the Agent may
assume that such Bank has made such portion available to the Agent on the date
of such Borrowing in accordance with this paragraph (c) and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have made
such portion available to the Agent, such Bank and the Borrower severally agree
to repay to the Agent forthwith on demand such corresponding amount together
with interest thereon, (i) in the case of the Borrower, for each day from the
date such amount is made available to the Borrower to (but not including) the
date on which such amount is repaid to the Agent, at the interest rate
applicable at the time to the Loans comprising such Borrowing (provided that
the Borrower shall not be required to pay any amount as a premium, penalty or
similar prepayment charge in connection with any such repayment) and (ii) in
the case of such Bank, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Agent, at the
Federal Funds Effective Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount shall (so long as such corresponding amount
advanced by the Agent on behalf of such Bank to the Borrower remains part of an
outstanding Borrowing hereunder) constitute such Bank's Loan as part of such
Borrowing for purposes of this Agreement. Without prejudice to any other
recourse or remedy that may be available to the Borrower against such Bank,
such Bank shall not be entitled to receive, and the Borrower shall not be
required to pay, a Commitment Fee pursuant to Section 2.05(a) of this Agreement
on any amount that such Bank is obligated to repay to the Agent as provided
above.
(d) The Borrower may refinance all or any part of any
Borrowing with a Borrowing of the same or a different Type, subject to the
conditions and limitations set forth in this Agreement. Any Borrowing or part
thereof so refinanced shall be deemed to be repaid or prepaid in accordance
with Section 2.04 or 2.10, as applicable, with the proceeds of a new Borrowing,
and the proceeds of the new Borrowing, to the extent they do not exceed the
principal amount of the Borrowing being refinanced, shall not be paid by the
Banks
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to the Agent or by the Agent to the Borrower pursuant to paragraph (c) above.
SECTION 2.03. NOTICE OF BORROWINGS. The Borrower shall give
the Agent written, telex or telecopy notice (or telephone notice promptly
confirmed in writing or by telex or telecopy) in the case of Borrowing that is
(a) a Eurodollar Borrowing, not later than 10:00 a.m., New York City time,
three Business Days before a proposed Borrowing, (b) a CD Borrowing, not later
than 10:00 a.m., New York City time, two Business Days before a proposed
Borrowing and (c) an ABR Borrowing, not later than 11:00 a.m., New York City
time, the day of a proposed Borrowing. Such notice shall be irrevocable and
shall in each case refer to this Agreement and specify (i) whether the
Borrowing then being requested is to be a Eurodollar Borrowing, a CD Borrowing
or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business
Day) and the amount thereof; and (iii) if such Borrowing is to be a Eurodollar
Borrowing or CD Borrowing, the Interest Period with respect thereto. If no
election as to the Type of Borrowing is specified in any such notice, then the
requested Borrowing shall be an ABR Borrowing. If no Interest Period with
respect to any Eurodollar Borrowing or CD Borrowing is specified in any such
notice, then the Borrower shall be deemed to have selected an Interest Period
of one month's duration, in the case of a Eurodollar Borrowing, or 30 days'
duration, in the case of a CD Borrowing. If the Borrower shall not have given
notice in accordance with this Section 2.03 of its election to refinance a
Borrowing prior to the end of the Interest Period in effect for such Borrowing,
then the Borrower shall (unless such Borrowing is repaid at the end of such
Interest Period) be deemed to have given notice of an election to refinance
such Borrowing with an ABR Borrowing. The Agent shall promptly advise the
Banks of any notice given pursuant to this Section 2.03 and of each Bank's
portion of the requested Borrowing.
SECTION 2.04. NOTES; REPAYMENT OF LOANS. The Loans made by
each Bank shall be evidenced by a Note, duly executed on behalf of the
Borrower, dated the Closing Date, in substantially the form attached hereto as
Exhibit A with the blanks appropriately filled, payable to the order of such
Bank in a principal amount equal to such Bank's Commitment. The outstanding
principal balance of each Loan, as evidenced by such a Note, shall be payable
on the last day of the Interest Period applicable to such Loan. Each Note
shall bear interest from the date of the first Borrow-
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ing hereunder on the outstanding principal balance thereof as set forth in
Section 2.06. Each Bank shall, and is hereby authorized by the Borrower to,
endorse on the schedule attached to each Note delivered to such Bank (or on a
continuation of such schedule attached to such Note and made a part thereof),
or otherwise to record in such Bank's internal records, an appropriate notation
evidencing the date and amount of each Loan from such Bank, each payment and
prepayment of principal of any such Loan, each payment of interest on any such
Loan and the other information provided for on such schedule; PROVIDED,
HOWEVER, that the failure of any Bank to make such a notation or any error
therein shall not affect the obligation of the Borrower to repay the Loans made
by such Bank in accordance with the terms of this Agreement and the applicable
Notes.
SECTION 2.05. FEES. (a) The Borrower agrees to pay to each
Bank, through the Agent, on the last Business Day of March, June, September and
December in each year, and on the earlier of the Maturity Date and the date on
which the Commitment of such Bank shall be terminated as provided herein, a
commitment fee (a "Commitment Fee") equal to the applicable Commitment Fee
Percentage on the average daily unused amount of the Commitment of such Bank
during the preceding quarter (or shorter period commencing with the date hereof
or ending with the Maturity Date or the date on which the Commitment of such
Bank shall be terminated). All Commitment Fees shall be computed on the basis
of the actual number of days elapsed in a year of 360 days. The Commitment Fee
due to each Bank shall commence to accrue on the date of this Agreement and
shall cease to accrue on the earlier of the Maturity Date and the date on which
the Commitment of such Bank shall be terminated as provided herein.
(b) The Borrower agrees to pay to the Agent, for its own
account, agent and administrative fees (the "Administrative Fees") in the
amounts agreed upon in the letter agreement dated February 22, 1995, between
the Borrower and the Agent.
(c) All Fees shall be paid on the dates due, in immediately
available funds, to the Agent for distribution, if and as appropriate, among
the Banks. Once paid, none of the Fees shall be refundable under any
circumstances.
SECTION 2.06. INTEREST ON LOANS. (a) Subject to the
provisions of Section 2.07, the Loans comprising each
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ABR Borrowing shall bear interest (computed on the basis of the actual number
of days elapsed over a year of 365 or 366 days, as the case may be, when
determined by reference to the Prime Rate and over a year of 360 days at all
other times) at a rate per annum equal to the Alternate Base Rate.
(b) Subject to the provisions of Section 2.07, the Loans
comprising each CD Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum
equal to the Adjusted CD Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin with respect to such Loans.
(c) Subject to the provisions of Section 2.07, the Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to the Adjusted LIBO Rate for the Interest Period in effect for
such Eurodollar Borrowing plus the Applicable Margin with respect to such
Loans.
(d) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise provided in this
Agreement. The applicable Alternate Base Rate, Adjusted CD Rate or Adjusted
LIBO Rate for each Interest Period or day within an Interest Period, as the
case may be, shall be determined by the Agent, and such determination shall be
conclusive absent manifest error. The Agent shall, upon request, advise the
Borrower of any such determination.
SECTION 2.07. DEFAULT INTEREST. If the Borrower shall
default (i) in the payment of the principal of or interest on any Loan or any
other amount becoming due hereunder, by acceleration or otherwise or (ii) in
the due observance of the covenants contained in Section 6.06 or 6.07, the
Borrower shall on demand from time to time pay interest, to the extent
permitted by law, in the case of a default under clause (i) hereof on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment), and, in the case of a default under clause (ii)
hereof, on the aggregate amount of the Loans outstanding on the date of such
default from the date 60 days after such default up to (but not including) the
date the Borrower shall cease to fail to comply with Sections 6.06 or 6.07, in
each case at a rate per annum (computed on the basis of the actual number of
days elapsed
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over a year of 360 days) equal to the Alternate Base Rate plus 2%.
SECTION 2.08. ALTERNATE RATE OF INTEREST. (a) In the event,
and on each occasion, that on the day two Business Days prior to the
commencement of any Interest Period for a Eurodollar Borrowing the Agent shall
have determined that dollar deposits in the principal amounts of the Loans
comprising such Borrowing are not generally available in the London interbank
market, or that the rates at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to any Bank of making or maintaining
its Eurodollar Loan during such Interest Period, or that reasonable means do
not exist for ascertaining the Adjusted LIBO Rate, the Agent shall, as soon as
practicable thereafter, give written, telex or telecopy notice of such
determination to the Borrower and the Banks. In the event of any such
determination, any request by the Borrower for a Eurodollar Borrowing pursuant
to Section 2.03 shall, until the Agent shall have advised the Borrower and the
Banks that the circumstances giving rise to such notice no longer exist, be
deemed to be a request for an ABR Borrowing. Each determination by the Agent
hereunder shall be conclusive absent manifest error.
(b) In the event, and on each occasion, that on or before the
day on which the Adjusted CD Rate for a CD Borrowing is to be determined the
Agent shall have determined that such Adjusted CD Rate cannot be determined for
any reason, including the inability of the Agent to obtain sufficient bids in
accordance with the terms of the definition of Fixed CD Rate, or the Agent
shall determine that the Adjusted CD Rate for such CD Borrowing will not
adequately and fairly reflect the cost to any Bank of making or maintaining its
CD Loan during such Interest Period, the Agent shall, as soon as practicable
thereafter, give written, telex or telecopy notice of such determination to the
Borrower and the Banks. In the event of any such determination, any request by
the Borrower for a CD Borrowing pursuant to Section 2.03 shall, until the Agent
shall have advised the Borrower and the Banks that the circumstances giving
rise to such notice no longer exist, be deemed to be a request for an ABR
Borrowing. Each determination by the Agent hereunder shall be conclusive
absent manifest error.
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS. (a)
Upon at least three Business Days' prior
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irrevocable written, telex or telecopy notice (or telephone notice promptly
confirmed in writing or by telex or telecopy) to the Agent, the Borrower may at
any time in whole permanently terminate, or from time to time in part
permanently reduce, the Commitments; PROVIDED, HOWEVER, that each partial
reduction of the Commitments shall be in an integral multiple of $1,000,000 and
in a minimum aggregate principal amount of $5,000,000.
(b) Each reduction in the Commitments hereunder shall be made
ratably among the Banks in accordance with their respective applicable
Commitments. The Borrower shall pay to the Agent for the account of the Banks,
on the date of each termination or reduction, the Commitment Fees on the amount
of the Commitments so terminated or reduced accrued through the date of such
termination or reduction.
(c) The Commitments shall be automatically terminated at 5:00
p.m., New York City time, on the Maturity Date.
SECTION 2.10. PREPAYMENT. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing, in whole or in
part, upon at least three Business Days' prior written, telex or telecopy
notice (or telephone notice promptly confirmed by written, telex or telecopy
notice) to the Agent; PROVIDED, HOWEVER, that each partial prepayment shall be
in an amount which is an integral multiple of $1,000,000 and not less than
$5,000,000.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.09 or 6.04, the Borrower shall pay or prepay
so much of the Borrowings as shall be necessary in order that the aggregate
principal amount of the Loans outstanding will not exceed the aggregate
Commitments after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
Borrowing by the amount stated therein on the date stated therein. All
prepayments under this Section 2.10 shall be subject to Section 2.13 but
otherwise without premium or penalty. All prepayments under this Section 2.10
shall be accompanied by
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accrued interest on the principal amount being prepaid to the date of payment.
SECTION 2.11. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation
or administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Bank of the
principal of or interest on any Eurodollar Loan or CD Loan made by such Bank or
any Fees or other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Bank by the jurisdiction in
which such Bank has its principal office or by any political subdivision or
taxing authority therein), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits
with or for the account of or credit extended by such Bank (except any such
reserve requirement which is reflected in the Adjusted LIBO Rate or the
Adjusted CD Rate) or shall impose on such Bank or the London interbank market
any other condition affecting this Agreement or Eurodollar Loans or CD Loans
made by such Bank, and the result of any of the foregoing shall be to increase
the cost to such Bank of making or maintaining any Eurodollar Loan or CD Loan
or to reduce the amount of any sum received or receivable by such Bank
hereunder or under the Notes (whether of principal, interest or otherwise) by
an amount deemed by such Bank to be material, then the Borrower will pay to
such Bank upon demand such additional amount or amounts as will compensate such
Bank for such additional costs incurred or reduction suffered.
(b) If any Bank shall have determined that the applicability
of any law, rule, regulation, agreement or guideline adopted pursuant to or
arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other law, rule, regulation, agreement or guideline regarding
capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or any lending office of
such Bank) or any Bank's holding company with any request or
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directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital or on the capital
of such Bank's holding company, if any, as a consequence of this Agreement or
the Loans made by such Bank pursuant hereto to a level below that which such
Bank or such Bank's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration such
Bank's policies and the policies of such Bank's holding company with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank or such Bank's holding company for any
such reduction suffered.
(c) A certificate of each Bank (i) setting forth such amount
or amounts (and the manner of determining the same) as shall be necessary to
compensate such Bank or its holding company as specified in paragraph (a) or
(b) above, as the case may be, and (ii) identifying the event or circumstance
that caused the cost or reduction in respect of which such compensation is
claimed, shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay each Bank the amount shown as due on
any such certificate delivered by it within 10 days after its receipt of the
same.
(d) Failure on the part of any Bank to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period shall not constitute
a waiver of such Bank's right to demand compensation with respect to such
period or any other period; PROVIDED, HOWEVER, that no Bank shall be entitled
to compensation for any such increased costs or reduction in amounts received
or receivable with respect to any date unless it shall have notified the
Borrower that it will demand compensation therefor not more than 90 days after
the later of such date and the date on which the circumstances giving rise to
such increased costs or reduction in amounts received or receivable shall take
effect. The protection of this Section shall be available to each Bank
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, guideline or other change or condition which shall
have occurred or been imposed.
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(e) Any Bank claiming any additional amounts payable pursuant
to this Section 2.11 shall use reasonable efforts (consistent with legal and
regulatory restrictions) to change the jurisdiction of its applicable lending
office if the making of such change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue and would
not, in the sole determination of such Bank, be otherwise disadvantageous to
such Bank.
SECTION 2.12. CHANGE IN LEGALITY. (a) Notwithstanding any
other provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank to
make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written
notice to the Borrower and to the Agent, such Bank may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Bank hereunder, whereupon any request by the Borrower for a
Eurodollar Borrowing shall, as to such Bank only, be deemed a request
for an ABR Loan unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Bank shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Bank or the
converted Eurodollar Loans of such Bank shall instead be applied to repay the
ABR Loans made by such Bank in lieu of- or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.12, a notice to the
Borrower by any Bank shall be effective as to each Eurodollar Loan, if lawful,
on the last day of the Interest Period currently applicable to such Eurodollar
Loan; in all other cases such notice shall be effective on the date of receipt
by the Borrower.
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SECTION 2.13. INDEMNITY. The Borrower shall indemnify each
Bank against any loss or reasonable expense which such Bank may sustain or
incur as a consequence of any failure by the Borrower to fulfill on the date of
any Borrowing hereunder the applicable conditions set forth in Article IV, any
failure by the Borrower to borrow or to refinance, convert or to continue any
Loan hereunder after irrevocable notice of such borrowing or refinancing,
conversion or continuation has been given pursuant to Section 2.03, any payment
or prepayment or conversion of a CD Loan or Eurodollar Loan required by any
other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the applicable Interest Period, any default in
payment or prepayment of the principal amount of any Loan or any part thereof
or interest accrued thereon, as and when due and payable (at the due date
thereof, whether by scheduled maturity, acceleration, irrevocable notice of
prepayment or otherwise), or the occurrence of any Event of Default, including,
but not limited to, in each such case, any loss or reasonable expense sustained
or incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a CD Loan or Eurodollar Loan. Such loss or reasonable expense shall
include, without limitation, an amount equal to the excess, if any, as
reasonably determined by such Bank of (i) the amount of interest that would
have accrued on the principal amount so paid or prepaid or converted or not
borrowed (based on the Adjusted CD Rate or the Adjusted LIBO Rate applicable
thereto) for the period from the date of such payment or prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date of such failure to borrow) over (ii) the
amount of interest (as reasonably determined by such Bank) that would be
realized by such Bank in reemploying the funds so paid or prepaid or converted
or not borrowed for such period or Interest Period, as the case may be. A
certificate of any Bank setting forth any amount or amounts which such Bank is
entitled to receive pursuant to this Section 2.13, and the manner of
determining the same, shall be delivered to the Borrower and shall be
conclusive absent manifest error.
SECTION 2.14. PRO RATA TREATMENT. Except as required under
Section 2.12, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the
Commitment Fees,
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each reduction of the Commitments and each refinancing of any Borrowing with,
conversion of any Borrowing to or continuation of any Borrowing as a Borrowing
of any Type shall be allocated pro rata among the Banks in accordance with
their respective applicable Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective principal amounts
of their outstanding Loans). Each Bank agrees that in computing such Bank's
portion of any Borrowing to be made hereunder, the Agent may, in its
discretion, round each Bank's percentage of such Borrowing, computed in
accordance with Section 2.01, to the next higher or lower whole dollar amount.
SECTION 2.15. SHARING OF SETOFFS. Each Bank agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against the Borrower, including, but not limited to, a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Bank under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, obtain payment (voluntary or involuntary) in
respect of any Loan or Loans as a result of which the unpaid principal portion
of its Loans shall be proportionately less than the unpaid principal portion of
the Loans of any other Bank, it shall be deemed simultaneously to have
purchased from such other Bank at face value, and shall promptly pay to such
other Bank the purchase price for, a participation in the Loans of such other
Bank, so that the aggregate unpaid principal amount of the Loans and
participations in Loans held by each Bank shall be in the same proportion to
the aggregate unpaid principal amount of all Loans then outstanding as the
principal amount of its Loans prior to such exercise of banker's lien, setoff
or counterclaim or other event was to the principal amount of all Loans
outstanding prior to such exercise of banker's lien, setoff or counterclaim or
other event; PROVIDED, HOWEVER, that if any such purchase or purchases or
adjustments shall be made pursuant to this Section and the payment giving rise
thereto shall thereafter be recovered, such purchase or purchases or
adjustments shall be rescinded to the extent of such recovery and the purchase
price or prices or adjustment restored without interest. The Borrower
expressly consents to the foregoing arrangements and agrees that any Bank
holding a participation in a Loan deemed to have been so purchased may exercise
any and all rights of banker's lien, setoff or counterclaim with respect to any
and all moneys owing by the
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Borrower to such Bank by reason thereof as fully as if such Bank had made a
Loan directly to the Borrower in the amount of such participation.
SECTION 2.16. PAYMENTS. (a) The Borrower shall make each
payment (including principal of or interest on any Borrowing or any Fees or
other amounts) hereunder and under any other Loan Document not later than 1:00
p.m., New York City time, on the date when due in Dollars to the Agent at its
offices at 270 Park Avenue, New York, New York 10017 (or any other office
designated in a notice from the Agent to the Borrower), in immediately
available funds.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other
Loan Document shall become due, or otherwise would occur, on a day that is not
a Business Day, such payment may be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.17. TAXES. (a) Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 2.16, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, EXCLUDING taxes imposed on the net income of the Agent or any Bank (or
any transferee or assignee thereof, including a participation holder (any such
entity being called a "Transferee")) and franchise taxes imposed on the Agent
or any Bank (or Transferee) by the United States or any jurisdiction under the
laws of which the Agent or any such Bank (or Transferee) is organized or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Banks (or any Transferee) or
the Agent, (i) the sum payable shall be increased by the amount necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.17) such Bank (or Transferee) or
the Agent (as the case may be) shall receive an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxing authority or
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other Governmental Authority in accordance with applicable law; PROVIDED,
HOWEVER, that no Transferee of any Bank shall be entitled to receive any
greater payment under this paragraph (a) than such Bank would have been
entitled to receive with respect to the rights assigned, participated or
otherwise transferred unless such assignment, participation or transfer shall
have been made at a time when the circumstances giving rise to such greater
payment did not exist.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Bank (or Transferee) and
the Agent for the full amount of Taxes and Other Taxes paid by such Bank (or
Transferee) or the Agent, as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant taxing authority or other Governmental Authority; PROVIDED,
HOWEVER, that a Bank shall not be entitled to compensation for a Tax or Other
Tax unless such Bank notifies the Borrower of the possible imposition of such
Tax or Other Tax within 90 days after the earlier to occur of (i) the date such
Bank receives a written claim for such Tax or Other Tax from a taxing authority
with respect to any payment made hereunder or the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Document and (ii) the date such Bank becomes aware that such Tax or Other Tax
is due with respect to any payment made hereunder or the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Document; and FURTHER PROVIDED that, as of the date hereof (and assuming that
payments were being made on Loans outstanding hereunder on such date), each
Bank and the Agent hereby confirms to the Borrower that such Bank and the Agent
are aware of no Taxes or Other Taxes that would be assessed against or incurred
by it that could entitle it to compensation from Borrower pursuant to this
Section 2.17. Such indemnification shall be made within 30 days after the date
any Bank (or Transferee) or the Agent, as the case may be, makes written demand
therefor. If a Bank (or Transferee) or the Agent shall become aware that it is
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entitled to receive a refund in respect of Taxes or Other Taxes as to which it
has been indemnified by the Borrower pursuant to this Section 2.17, it shall
promptly notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such
refund at the Borrower's expense. If any Bank (or Transferee) or the Agent
receives a refund in respect of any Taxes or Other Taxes as to which it has
been indemnified by the Borrower pursuant to this Section 2.17, it shall
promptly notify the Borrower of such refund and shall, within 30 days after
receipt of a request by the Borrower (or promptly upon receipt, if the Borrower
has requested application for such refund pursuant hereto), repay such refund
to the Borrower (to the extent of amounts that have been paid by the Borrower
under this Section 2.17 with respect to such refund), net of all out-of-pocket
expenses of such Bank and without interest; PROVIDED that the Borrower, upon
the request of such Bank (or Transferee) or the Agent, agrees to return such
refund (plus penalties, interest or other charges) to such Bank (or Transferee)
or the Agent in the event such Bank (or Transferee) or the Agent is required to
repay such refund. Nothing contained in this paragraph (c) shall require any
Bank (or Transferee) or the Agent to make available any of its tax returns (or
any other information relating to its taxes which it deems to be confidential).
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Bank (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its
address referred to in Section 9.01, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.17
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) Upon the written request of the Borrower, each Bank (or
Transferee) that is organized under the laws of a jurisdiction outside the
United States shall, if legally able to do so, prior to the immediately
following due date of any payment by the Borrower hereunder, deliver to the
Borrower such certificates, documents or other evidence, as required by the
Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service
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Form 1001 or Form 4224 and any other certificate or statement of exemption
required by Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or
any subsequent version thereof or successors thereto, properly completed and
duly executed by such Bank (or Transferee) establishing that such payment is
(i) not subject to United States Federal withholding tax under the Code because
such payment is effectively connected with the conduct by such Bank (or
Transferee) of a trade or business in the United States or (ii) totally exempt
from United States Federal withholding tax, or subject to a reduced rate of
such tax under a provision of an applicable tax treaty. Unless the Borrower
and the Agent have received forms or other documents satisfactory to them
indicating that such payments hereunder or under the Notes are not subject to
United States Federal withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Borrower or the Agent shall withhold
taxes from such payments at the applicable statutory rate.
(g) The Borrower shall not be required to pay any additional
amounts to any Bank (or Transferee) in respect of United States Federal
withholding tax pursuant to paragraph (a) above if the obligation to pay such
additional amounts would not have arisen but for a failure by such Bank (or
Transferee) to comply with the provisions of paragraph (f) above; PROVIDED,
HOWEVER, that the Borrower shall be required to pay those amounts to any Bank
(or Transferee) that it was required to pay hereunder prior to the failure of
such Bank (or Transferee) to comply with the provisions of such paragraph (f).
(h) Any Bank (or Transferee) claiming any additional amounts
payable pursuant to this Section 2.17 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
requested by the Borrower or to change the jurisdiction of its applicable
lending office if the making of such a filing or change would avoid the need
for or reduce the amount of any such additional amounts which may thereafter
accrue and would not, in the sole determination of such Bank, be otherwise
disadvantageous to such Bank (or Transferee).
SECTION 2.18. TERMINATION OR ASSIGNMENT OF COMMITMENTS UNDER
CERTAIN CIRCUMSTANCES. In the event that any Bank shall have delivered a
notice or certificate pursuant to Section 2.11 or 2.12, or the Borrower shall
be required to make additional payments to any Bank under
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Section 2.17, the Borrower shall have the right, at its own expense, upon
notice to such Bank and the Agent, (a) to terminate the Commitment of such Bank
or (b) to require such Bank to transfer and assign without recourse (in
accordance with and subject to the restrictions contained in Section 9.04) all
its interests, rights and obligations under this Agreement to another financial
institution which shall assume such obligations; PROVIDED that (i) no such
termination or assignment shall conflict with any law, rule or regulation or
order of any Governmental Authority and (ii) the Borrower or the assignee, as
the case may be, shall pay to the affected Bank in immediately available funds
on the date of such termination or assignment the principal of and interest
accrued to the date of payment on the Loans made by it hereunder and all other
amounts accrued for its account or owed to it hereunder.
ARTICLE III
Representations and Warranties
------------------------------
The Borrower represents and warrants to each of the Banks that:
SECTION 3.01. ORGANIZATION, CORPORATE POWERS. (a) Each of
the Borrower and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, has the requisite corporate power and authority to own its
property and assets and to carry on its business as now conducted and proposed
to be conducted, is qualified to do business in every jurisdiction where the
nature of the business conducted or the property owned or leased by it requires
such qualification, except where the failure so to qualify would not have a
Material Adverse Effect and, in the case of the Borrower, has the corporate
power and authority to execute, deliver and perform its obligations under each
Loan Document to which it is or will be a party and to borrow hereunder.
(b) Each of the Borrower and the Subsidiaries has obtained
and maintains all licenses, permits, franchises, patents, copyrights,
trademarks, trade names, consents and approvals necessary to own its property
and assets and to carry on its business as now conducted, except where the
failure to do so would not have a Material Adverse Effect.
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SECTION 3.02. AUTHORIZATION. The execution, delivery and
performance by the Borrower of each Loan Document to which it is or will be a
party, the borrowings hereunder by the Borrower, the execution and delivery of
the Notes by the Borrower, the use of proceeds of the Loans in accordance with
this Agreement and the other transactions constituting any of the foregoing
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not (i)
violate (A) any provision of any law, statute, rule or regulation applicable
to, or of the certificate or articles of incorporation or the regulations or
By-laws of the Borrower or any Subsidiary, (B) any order of any Governmental
Authority binding upon the Borrower or any Subsidiary or (C) any material
provision of any indenture, agreement or other instrument to which the Borrower
or any Subsidiary is a party, or by which the Borrower or any Subsidiary or any
of their properties or assets are or may be bound, (ii) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time or
both) a default under any such indenture, agreement or other instrument or
(iii) result in the creation or imposition of any Lien upon any property or
assets now owned or hereafter acquired by the Borrower or any Subsidiary.
SECTION 3.03. GOVERNMENTAL APPROVALS. No action, consent or
approval of, registration or filing with or any other action by any
Governmental Authority is or will be required in connection with the
Transactions, except such as have been made or obtained and are in full force
and effect.
SECTION 3.04. ENFORCEABILITY. This Agreement has been duly
executed and delivered by the Borrower and constitutes, and the Notes, when
duly executed and delivered by the Borrower, will constitute, a legal, valid
and binding obligation of the Borrower, enforceable in accordance with their
respective terms.
SECTION 3.05. FINANCIAL STATEMENTS. The Borrower has
heretofore delivered to the Banks its consolidated balance sheet as of December
31, 1993, consolidated statement of operations for the fiscal year ended
December 31, 1993, and consolidated statement of cash flows for the fiscal year
ended December 31, 1993, of the Borrower and the Subsidiaries, all such
consolidated balance sheets and financial statements audited by Ernst & Young
and certified by a Financial Officer of the Borrower. Such
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statements present fairly the consolidated financial position of the Borrower
and the Subsidiaries as of such dates and the results of their operations for
such periods, in conformity with generally accepted accounting principles
applied on a consistent basis (except as otherwise disclosed in the notes
thereto and subject, where applicable, to year-end audit adjustments). Such
balance sheets and the notes thereto disclose all material liabilities, direct
or contingent, of the Borrower and the Subsidiaries as of the dates thereof.
SECTION 3.06. NO MATERIAL ADVERSE CHANGE. There has been no
material adverse change in the business, assets, operations or financial
condition of the Borrower and the Subsidiaries taken as a whole since December
31, 1993.
SECTION 3.07. TITLE TO PROPERTIES; POSSESSION UNDER LEASES.
(a) Each of the Borrower and the Subsidiaries has good and marketable title to
(or valid leasehold interests in) all their material properties and assets
reflected in the financial statements referred to in Section 3.05 (or, if more
recent, the financial statements referred to in Section 5.05), except for such
properties as are no longer used or useful in the conduct of their businesses
or as have been disposed of since the date of such financial statements in the
ordinary course of business and except for any Permitted Liens affecting title
to such properties.
(b) Each of the Borrower and the Subsidiaries has complied
with all material obligations under all material leases to which any of them is
a party and under which any of them is in occupancy, and all such leases are in
full force and effect. The Borrower and the Subsidiaries enjoy peaceful and
undisturbed possession under all such leases.
SECTION 3.08. LITIGATION; COMPLIANCE WITH LAWS. (a) There
are not any actions, suits or proceedings at law or in equity or by or before
any Governmental Authority now pending or, to the knowledge of the Borrower or
any Subsidiary, threatened against or affecting the Borrower or any Subsidiary
or any business, property or rights of the Borrower or any Subsidiary (i) which
involve any Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, result in a Material
Adverse Effect.
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(b) Neither the Borrower nor any of the Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default could result in a Material Adverse Effect; PROVIDED, that
the foregoing is not applicable to ERISA, which is treated separately in
Section 3.12, or to Environmental Laws, which are treated separately in Section
3.16. The Transactions will not violate any law or regulation applicable to or
binding upon the Borrower or the Subsidiaries or violate or be prohibited by
any law, order, judgment, writ, injunction decree or order of any Governmental
Authority applicable to or binding upon the Borrower or the Subsidiaries.
SECTION 3.09. AGREEMENTS. (a) Neither the Borrower nor any
Subsidiary is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or is reasonably expected to result in
a Material Adverse Effect.
(b) Neither the Borrower nor any of its Subsidiaries is in
default in any manner under any provision of any indenture or other agreement
or instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default would be reasonably expected to
result in a Material Adverse Effect.
SECTION 3.10. FEDERAL RESERVE REGULATIONS. (a) Neither the
Borrower nor any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately,
(i) to purchase or carry Margin Stock or to extend credit to others for the
purpose of purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose, or (ii) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of the Regulations
of the Board, including, without limitation, Regulations G, U and X.
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SECTION 3.11. TAXES. Each of the Borrower and each
Subsidiary has filed or caused to be filed all Federal, state, local and
foreign tax returns which are required to be filed by it, and has paid or
caused to be paid all taxes shown to be due and payable on such returns or on
any assessments received by it, other than any taxes or assessments the
validity of which the Borrower or such Subsidiary is contesting in good faith
by appropriate proceedings, and with respect to which the Borrower or such
Subsidiary shall, to the extent required by generally accepted accounting
principles applied on a consistent basis, have set aside on its books adequate
reserves.
SECTION 3.12. EMPLOYEE BENEFIT PLANS. Each of the Borrower,
the Subsidiaries and their respective ERISA Affiliates is in compliance in all
material respects with those provisions of ERISA and the regulations and
published interpretations thereunder which are applicable to it. No Reportable
Event has occurred with respect to any Plan as to which the Borrower or any
Subsidiary or ERISA Affiliate was required to file a report with the PBGC. As
of January 1, 1995 the present value of all benefit liabilities under each Plan
maintained by the Borrower or any ERISA Affiliate (based on those assumptions
used to fund such Plan) did not exceed by more than $15,000,000 the value of
the assets of such Plan. None of the Borrower and the ERISA Affiliates has
incurred any Withdrawal Liability that could result in a Material Adverse
Effect. None of the Borrower and the ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan
is reasonably expected to be in reorganization or to be terminated, where such
reorganization has resulted or can reasonably be expected to result through
increases in the contributions required to be made to such Plan or otherwise in
a Material Adverse Effect.
SECTION 3.13. NO MATERIAL MISSTATEMENTS. No information,
report, financial statement, exhibit or schedule furnished on or prior to the
date hereof by or on behalf of the Borrower or any Subsidiary to the Agent or
any Bank in connection with the negotiation of any Loan Document or included in
such Loan Document or delivered pursuant thereto and no information, report,
financial statement, exhibit or schedule delivered pursuant to this Agreement
after the date hereof contained, contains or will contain any material
misstatement of fact or omitted, omits or will omit to state any material fact
necessary to make the
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statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the representation and warranty
contained in this Section 3.13 shall not apply to any financial or other
business projections or pro forma financial statements delivered at any time.
All financial or other business projections and pro forma financial statements
provided to the Banks by the Borrower from time to time have been prepared in
good faith based on estimates, information and assumptions which the Borrower
in good faith believes to be reasonable and which the Borrower will, upon the
request at any time of the Agent or any Bank, disclose and discuss with such
person or its authorized representatives any of such estimates, information and
assumptions.
SECTION 3.14. INVESTMENT COMPANY ACT AND PUBLIC UTILITY
HOLDING COMPANY ACT. Neither the Borrower nor any Subsidiary is (a) an
"investment company" as defined in, or otherwise subject to regulation under,
the Investment Company Act of 1940 or (b) a "holding company" within the
meaning of, or otherwise subject to regulation under, the Public Utility
Holding Company Act of 1935.
SECTION 3.15. USE OF PROCEEDS. The Borrower will use the
proceeds of the Loans only for the general corporate purposes of the Borrower
and the Subsidiaries.
SECTION 3.16. ENVIRONMENTAL AND SAFETY MATTERS. Except as
set forth in Schedule 3.16, the Borrower and each Subsidiary has complied in
all material respects with all Federal, state, local and other statutes,
ordinances, orders, judgments, rulings and regulations relating to
environmental pollution or to environmental regulation or control or to
employee health or safety. Except as set forth in Schedule 3.16, neither the
Borrower nor any Subsidiary has received notice of any material failure so to
comply. Except as set forth in Schedule 3.16, the Borrower's and the
Subsidiaries' plants do not manage any hazardous wastes, hazardous substances,
hazardous materials, toxic substances, toxic pollutants or substances similarly
denominated, as those terms or similar terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any
other applicable law relating to environmental pollution or employee health and
safety, in violation of any law or regulations which violations the Borrower
reasonably
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believes either individually or in the aggregate, will have a Material Adverse
Effect. Except as set forth in Schedule 3.16, the Borrower is aware of no
events, conditions or circumstances involving environmental pollution or
contamination or employee health or safety that could reasonably be expected to
result in a Material Adverse Effect.
ARTICLE IV
Conditions of Lending
---------------------
The obligations of the Banks in respect of each Borrowing
shall be subject to satisfaction of the following conditions precedent:
SECTION 4.01. ALL BORROWINGS. On the date of each Borrowing,
including each Borrowing in which Revolving Loans are refinanced with new Loans
as contemplated by Section 2.02(d):
(a) The Agent shall have received a notice of such Borrowing
as required by Section 2.03.
(b) The representations and warranties set forth in Article
III hereof and in each other Loan Document shall be true and correct
in all material respects on and as of the date of such Borrowing with
the same effect as though made on and as of such date (except insofar
as such representations and warranties relate expressly and solely to
an earlier date).
(c) The Borrower shall be in compliance with all the terms
and provisions set forth herein as in each other Loan Document on its
part to be observed or performed, and at the time of and immediately
after such Borrowing no Event of Default or Default shall have
occurred and be continuing.
(d) The Banks shall have received such other instruments and
documents as they may have reasonably requested from the Borrower in
connection with the Loans to be made on such date.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date of
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such Borrowing as to the matters specified in paragraphs (b) and (c) of this
Section 4.01.
SECTION 4.02. FIRST BORROWING. On the date hereof:
(a) Each Bank shall have received a duly executed Note
complying with the provisions of Section 2.04.
(b) The Agent shall have received the favorable written
opinion of Frank L. Hartman, Counsel to the Borrower, to the effect
set forth in Exhibit D hereto which shall be dated the date hereof,
addressed to the Banks and satisfactory to the Banks.
(c) The Agent shall have received (i) a copy of the
certificate of incorporation or articles of incorporation, as the case
may be, as amended, of the Borrower certified by the Secretary of
State of the state of its incorporation as of a recent date, and a
certificate as to the good standing of and charter documents filed by
the Borrower from such Secretary of State, dated as of a recent date;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Borrower, dated the date hereof and certifying (A) that attached
thereto is a true and complete copy of the By-laws of the Borrower as
in effect on the date of such certificate and at all times since a
date prior to the date of the resolutions of such corporation
described in item (B) below, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the Board of Directors of
the Borrower authorizing the execution, delivery and performance of
all Loan Documents, the Borrowings by the Borrower hereunder, and that
such resolutions have not been modified, rescinded or amended and are
in full force and effect, (C) that the certificate of incorporation or
articles of incorporation of the Borrower have not been amended since
the date of the certification thereof furnished pursuant to (i) above,
and (D) as to the incumbency and specimen signature of each officer
executing any Loan Document or any other document delivered in
connection therewith; (iii) a certificate of another officer of the
Borrower as to the incumbency and specimen signature of the Secretary
or such Assistant Secretary of the Borrower; and (iv) such other
documents as the Banks or their counsel or Cravath, Swaine & Moore,
counsel for or the Agent, may reasonably request.
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(d) The Revolving Credit Commitment (as defined in the
Existing Credit Agreement) of each bank under the Existing Credit
Agreement shall have been terminated on the date hereof, all Revolving
Credit Loans (as defined in the Existing Credit Agreement) outstanding
and other amounts owed to the banks thereunder (including Term Loans
(as defined in the Existing Credit Agreement) outstanding) shall have
been paid in full on the date hereof.
(e) All legal matters incident to the Loan Documents, the
Loans to be made on such date and the Transactions shall be
satisfactory from a legal point of view to Cravath, Swaine & Moore,
counsel for the Agent.
ARTICLE V
Affirmative Covenants
---------------------
The Borrower covenants and agrees with each Bank that so long
as this Agreement shall remain in effect or the principal of or interest on any
Loan, or any Fee, or any other expenses or amounts payable under any Loan
Document shall be unpaid, unless the Required Banks shall otherwise consent in
writing, it will, and will cause each Subsidiary to:
SECTION 5.01. CORPORATE EXISTENCE. Do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence, except as otherwise permitted by Section 6.03.
SECTION 5.02. BUSINESSES AND PROPERTIES. At all times do or
cause to be done all things necessary to obtain, preserve, renew and keep in
full force and effect the rights, licenses, permits (including those required
under Environmental Laws), franchises, authorizations, patents, copyrights,
trademarks and trade names material to the conduct of its businesses; defend
all the foregoing against all claims, actions, demands, suits or proceedings at
law or in equity or by or before any Governmental Authority; maintain and
operate such businesses in substantially the manner in which they are presently
maintained and operated, subject to changes in the ordinary course of business;
comply in all material respects with all laws, rules, regulations and orders,
whether Federal, state, local or
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foreign (including, without limitation, Environmental Laws), applicable to the
operation of such businesses whether now in effect or hereafter enacted; and at
all times maintain, preserve and protect all property material to the conduct
of such businesses and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times in accordance with customary and prudent
business practices for similar businesses.
SECTION 5.03. INSURANCE. (a) Keep its insurable properties
adequately insured at all times by financially sound and reputable insurers, in
the same manner and to the same extent as is customary with companies similarly
situated and in the same or similar businesses, (b) maintain such other
insurance, to such extent and against such risks, including fire and other
risks insured against by extended coverage, as is customary with companies
similarly situated and in the same or similar businesses, (c) maintain in full
force and effect public liability insurance against claims for personal injury
or death or property damage occurring upon, in, about or in connection with the
use of any properties owned, occupied or controlled by it, in such amount as it
shall reasonably deem necessary, and (d) maintain such other insurance as may
be required by law or any other Loan Document or as may be reasonably requested
by the Required Banks for purposes of assuring compliance with this Section
5.03.
SECTION 5.04. OBLIGATIONS AND TAXES. Pay and discharge
promptly when due all Indebtedness and other obligations, including taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property, before the same shall become
delinquent or in default, as well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might give rise to a Lien upon such
properties or any part thereof; PROVIDED, HOWEVER, that such payment and
discharge shall not be required with respect to any such Indebtedness,
obligation, tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
the Borrower or Subsidiary shall, to the extent required by generally accepted
accounting principles applied on a
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consistent basis, have set aside on its books adequate reserves with respect
thereto.
SECTION 5.05. FINANCIAL STATEMENTS, REPORTS, ETC. In the
case of the Borrower, furnish to the Agent and each of the Banks:
(a) within 90 days after the end of each fiscal year (being
December 31 in each calendar year), its consolidated balance sheets
and consolidated income statements showing the financial condition of
the Borrower and the Subsidiaries as of the close of such fiscal year
and the results of their operations during such year and a
consolidated statement of cash flows, as of the close of such fiscal
year, all the foregoing financial statements to be audited by Ernst &
Young or other independent certified public accountants of recognized
national standing and accompanied by an opinion of such accountants
(which shall not be qualified in any material respect) to the effect
that such financial statements present fairly the financial condition
and results of operations of such person on a consolidated basis in
accordance with generally accepted accounting principles consistently
applied, and to be in form reasonably acceptable to the Required
Banks;
(b) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year, its unaudited consolidated
balance sheets, consolidated income statements and consolidated
statements of cash flows showing the financial condition and results
of operations of the Borrower and the Subsidiaries on a consolidated
basis as of the end of each such quarter and for such quarter and the
then elapsed portion of the fiscal year, all certified by one of its
Financial Officers as presenting fairly the financial position and
results of operations of the Borrower and the Subsidiaries and as
having been prepared in accordance with generally accepted accounting
principles consistently applied, in each case subject to normal
year-end audit adjustments;
(c) promptly after the same become publicly available, copies
of such registration statements, annual, periodic and other reports,
and such proxy statements and other information, as shall be filed by
the Borrower or any Subsidiary with the Securities and
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Exchange Commission or with any national securities exchange or, in
the case of the Borrower, distributed to its shareholders;
(d) concurrently with any delivery of financial statements
under paragraph (a) or (b) above, a certificate of the accounting firm
or Financial Officer opining on or certifying such statements (which
certificate furnished by the independent accountants referred to in
paragraph (a) above may be limited to accounting matters and disclaim
responsibility for legal interpretations) (i) certifying that to the
best of its or his knowledge no Event of Default or Default has
occurred, (ii) in the case of a certificate of a Financial Officer of
the Borrower, if such an Event of Default or Default has occurred,
specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect thereto and (iii) setting
forth the ratio of Total Indebtedness to the sum of Consolidated
Tangible Net Worth plus Total Indebtedness as of the date of the
balance sheet included in such financial statements;
(e) concurrently with any delivery under paragraph (a) or (b)
above, a certificate of a Financial Officer of the Borrower
demonstrating compliance, as of the date of the financial statements
being furnished at such time, with the covenants set forth in Sections
6.06 and 6.07; and
(f) promptly, from time to time, such other information
regarding the compliance by the Borrower with the terms of any Loan
Document or the affairs, operations or condition (financial or
otherwise) of the Borrower and the Subsidiaries as the Agent or any
Bank may reasonably request.
SECTION 5.06. LITIGATION AND OTHER NOTICES. Give the Agent
and each Bank prompt written notice of the following:
(a) the filing or commencement of, or notice of intention of
any person to file or commence, any action, suit or proceeding against
the Borrower or any Affiliate, whether at law or in equity or by or
before any Governmental Authority which, if adversely determined,
would result in a Material Adverse Effect;
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(b) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) which is proposed to
be taken with respect thereto; and
(c) any development that has resulted in, or is reasonably
anticipated to result in, a Material Adverse Effect.
SECTION 5.07. ERISA. (a) Comply in all material respects
with the applicable provisions of ERISA and (b) furnish to the Agent and each
Bank (i) as soon as possible, and in any event within 30 days after any
Responsible Officer of the Borrower or any ERISA Affiliate either knows or has
reason to know that any Reportable Event has occurred that alone or together
with any other Reportable Event could reasonably be expected to result in
liability of the Borrower to the PBGC in an aggregate amount exceeding
$3,000,000, a statement of a Financial Officer setting forth details as to such
Reportable Event and the action proposed to be taken with respect thereto,
together with a copy of the notice, if any, of such Reportable Event given to
the PBGC, (ii) promptly after receipt thereof, a copy of any notice the
Borrower or any ERISA Affiliate may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a
trustee to administer any Plan or Plans, (iii) within 10 days after the due
date for filing with the PBGC pursuant to Section 412(n) of the Code of a
notice of failure to make a required installment or other payment with respect
to a Plan, a statement of a Financial Officer setting forth details as to such
failure and the action proposed to be taken with respect thereto, together with
a copy of such notice given to the PBGC and (iv) promptly and in any event
within 30 days after receipt thereof by the Borrower or any ERISA Affiliate
from the sponsor of a Multiemployer Plan, a copy of each notice received by the
Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability or (B) a determination that a Multiemployer Plan is, or is expected
to be, terminated or in reorganization, in each case within the meaning of
Title IV of ERISA.
SECTION 5.08. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. Maintain financial records in accordance with generally accepted
accounting practice and,
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upon reasonable notice, at all reasonable times and as often as any Bank may
reasonably request, permit any authorized representative designated by such
Bank to visit and inspect the properties and financial records of the Borrower
or any Subsidiary, and to make extracts from such financial records and permit
any authorized representative designated by such Bank to discuss the affairs,
finances and condition of the Borrower or any Subsidiary with the officers
thereof and its independent public accountants.
SECTION 5.09. USE OF PROCEEDS. Use the proceeds of the Loans
only for the purposes set forth in Section 3.15.
ARTICLE VI
Negative Covenants
------------------
The Borrower covenants and agrees with each Bank that, so long
as this Agreement shall remain in effect, or the principal of or interest on
any Loan, or any Fees, expense or amount payable hereunder shall be unpaid,
unless the Required Banks shall otherwise consent in writing, the Borrower will
not, and it will not cause or permit any Subsidiary to, either directly or
indirectly:
SECTION 6.01. LIENS. Create, incur, assume or permit to
exist any Lien on any property or assets (including, without limitation, stock
of any direct or indirect subsidiary, but not including any shares of capital
stock of the Borrower held as treasury stock) now owned or hereafter acquired
by it or on any income or rights in respect of any thereof, except:
(a) any Lien or privilege vested in any lessor, licensor or
permittor for rent or royalties to become due or for other obligations
or acts to be performed, the payment of which rent or royalties to
become due or the performance of which other obligations or acts is
required under leases, sub-leases, licenses or permits, so long as the
payment of such rent or royalties or the performance of such other
obligation or act is not delinquent;
(b) pledges and deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance, old-age pensions
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and other social security benefits and Voluntary Employee Benefit Act
Trusts established pursuant to collective bargaining agreements;
(c) deposits to secure the performance of bids, tenders,
leases (other than Capital Lease Obligations), trade contracts (other
than for Indebtedness), statutory obligations, surety, customs and
appeal bonds and other obligations of like nature, incurred as an
incident to and in the ordinary course of business;
(d) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's, repairmen's, vendors' or other like Liens
arising in the ordinary course of business and securing obligations
which are not yet due or which are being contested in compliance with
Section 5.04;
(e) Liens securing the payment of taxes, assessments and
governmental charges or levies, either not yet due or which are being
contested in compliance with Section 5.04;
(f) zoning restrictions, easements, rights-of-way,
restrictions on the use of property or other similar minor
irregularities of title or encumbrances, which, in the aggregate, are
not substantial in amount, and which do not in any case materially
detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Borrower or
Subsidiary;
(g) any Lien on property or assets existing at or prior to the
time such property is acquired by the Borrower or Subsidiary;
PROVIDED, in each case, that (i) such Liens were not created in
contemplation of or in connection with such acquisition by such person
and (ii) such Lien shall not apply to any other property of the
Borrower or Subsidiary;
(h) purchase money security interests in property hereafter
acquired by the Borrower or any Subsidiary; PROVIDED that (i) such
security interests were incurred, and the Indebtedness secured thereby
was created, substantially simultaneously with the acquisition of such
property by the Borrower or such Subsidiary, (ii) the Indebtedness
secured thereby does not exceed the lesser of the cost or fair market
value
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of such property at the time of acquisition and (iii) such purchase
money security interests shall not apply to any other property of the
Borrower or such Subsidiary;
(i) any Lien in any mining lease or in any direct or indirect
ownership interest in mining properties or in any stock or securities
of or partnership interest in or advance to or contractual rights
against any entity formed to engage in mining operations, provided
that the Borrower or a Subsidiary either owns an equity interest in or
acts as manager of such entity, created in connection with the
financing or joint ownership arrangements of such entity;
(j) Liens on property or assets of the Borrower and its
Subsidiaries existing on the date hereof and set forth on Schedule
6.01, PROVIDED that such Liens shall secure only those obligations
which they secure on the date hereof;
(k) extensions, renewals and replacements of Liens referred to
in paragraphs (a) through (j) of this Section 6.01, but only to the
extent that no Event of Default shall have occurred or be continuing
at the time of any such extension, renewal or replacement; PROVIDED
that any such extension, renewal or replacement Lien shall be limited
to the property or assets covered by the Lien extended, renewed or
replaced and that the obligations secured by any such extension,
renewal or replacement Lien shall be in an amount not greater than the
amount of the obligations secured by the Lien extended, renewed or
replaced; and
(l) Liens securing Indebtedness of the Borrower otherwise
prohibited by this Section 6.01, but only to the extent that (A) no
Event of Default shall have occurred or be continuing at the time such
Indebtedness is incurred and such Lien is created, incurred or assumed
and (B) the aggregate amount of (1) all Indebtedness secured by Liens
permitted under this clause (1) and (2) all Attributable Debt of the
Borrower and the Subsidiaries does not exceed 15% of Consolidated
Tangible Net Worth.
SECTION 6.02. SALE AND LEASEBACK TRANSACTIONS. Enter into
any arrangement, directly or indirectly, with any person whereby it shall sell
or transfer any property, real
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or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which it
intends to use for substantially the same purpose or purposes as the property
being sold or transferred (a "Sale and Leaseback Transaction"); PROVIDED that
the Borrower or a Subsidiary may enter into any Sale and Leaseback Transaction
if (a) at the time of such Transaction no Event of Default shall have occurred
and be continuing, and (b) the aggregate amount of (i) all Indebtedness secured
by Liens permitted under clause (1) of Section 6.01 and (ii) all Attributable
Debt of the Borrower and the Subsidiaries does not exceed 15% of Consolidated
Tangible Net Worth.
SECTION 6.03. MERGERS AND ACQUISITIONS. Acquire all or a
substantial part of the capital stock or assets of any other person (whether in
one transaction or a series of transactions), or merge or consolidate with or
into any other person or take any other action having a similar effect;
PROVIDED, HOWEVER, that, so long as no Event of Default (other than an Event of
Default that would, but for this proviso, arise solely under this Section 6.03)
and no Default (other than a Default that would, but for this proviso, become
an Event of Default solely under this Section 6.03) shall have occurred and be
continuing, both before and after giving effect thereto, this provision shall
not prohibit (i) any such merger or acquisition in which the surviving entity
is the Borrower or a Subsidiary or (ii) any such merger, consolidation or other
action having a similar effect, by a Subsidiary in which the Subsidiary is not
the surviving entity, which would not result in the violation of the covenants
set forth in Section 6.04 below. The Borrower shall furnish to the Agent and
each of the Banks upon the consummation of a transaction under the proviso of
this Section 6.03, a certificate of a Financial Officer of the Borrower
demonstrating compliance, as of the date of the consummation of such
transaction but after giving effect to such transaction, with the covenants set
forth in Sections 6.06 and 6.07.
SECTION 6.04. DISPOSITION OF ASSETS. Sell, lease, transfer,
assign or otherwise dispose of (including any of the foregoing effected by
means of a merger, consolidation or other action having a similar effect by a
Subsidiary, it being agreed that any merger, consolidation or other action
having a similar effect by a Subsidiary shall be deemed to constitute a sale of
such Subsidiary by the owners of the capital stock of such Subsidiary) all or a
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substantial part (defined to be in excess of 10% of consolidated total assets
as determined in accordance with generally accepted accounting principles) of
the assets of the Borrower and its Subsidiaries (other than: in the ordinary
course of business; in a transaction described in clause (i) of the PROVISO to
Section 6.03 above; non-cash trades of mining partnership interests in
accordance with past practices; any other dividend or distribution, including
regular quarterly cash dividend payments, made to the shareholders of the
Borrower; or any issuance or sale by the Borrower of its capital stock, or of
rights or options to acquire such capital stock, including any capital stock
now or hereafter held by the Borrower as treasury shares) in any given fiscal
year and provided that such disposition of substantial assets on a cumulative
basis from the date of this Agreement shall not exceed 25% of consolidated
total assets as of the end of the fiscal quarter preceding each sale, except
that: (x) any Subsidiary, other than the Borrower, may sell, lease, transfer,
assign or otherwise dispose of its assets to the Borrower or any other
Subsidiary; and (y) the Borrower or any Subsidiary may sell, lease, transfer,
assign or otherwise dispose of assets (provided that any transfer of assets of
the Borrower directly held or owned by the Borrower to a Subsidiary, other than
advances of funds by the Borrower to its Subsidiaries, must be for
consideration (and not merely as a contribution to capital) and must comply
with Section 6.08) in excess of the limitations set forth above if the proceeds
of such dispositions are (i) used to purchase other property of a similar
nature of at least equivalent value within one year of such sale; or (ii) used
to prepay Senior Debt; PROVIDED, that at least the Applicable Percentage of any
proceeds applied pursuant to the foregoing clause (ii) will be applied to
prepay Loans under the Agreement (to the extent such Loans are outstanding),
and the Commitments (to the extent they remain in effect) shall be permanently
reduced by an amount equal to the Adjusted Applicable Percentage of such
proceeds. For purposes of the foregoing, "Applicable Percentage" shall mean a
fraction (expressed as a percentage) calculated prior, and without giving
effect, to any prepayments made or to be made out of such proceeds, of which
(A) the numerator shall be the aggregate principal amount of the Loans then
outstanding hereunder and (B) the denominator shall be the aggregate principal
amount of all Senior Debt then outstanding, and "Adjusted Applicable
Percentage" shall mean a fraction (expressed as a percentage) calculated prior,
and without giving effect, to any prepayments made or to be made out of such
proceeds, of
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which (C) the numerator shall be the sum of (1) the aggregate principal amount
of the Loans outstanding hereunder and (2) the aggregate amount by which the
Commitments exceed such outstanding Loans and (D) the denominator shall be the
sum of (x) the amounts referred to in clause (2) of the preceding clause (C)
and (y) the aggregate principal amount of all Senior Debt then outstanding;
PROVIDED, that if the aggregate Commitments in effect at such time do not
exceed the aggregate principal amount of the Loans then outstanding, the
Adjusted Applicable Percentage shall be equal to the Applicable Percentage.
SECTION 6.05. LINE OF BUSINESS. Engage in any business
activities or operations substantially different from and not reasonably
related to its current activities and operations.
SECTION 6.06. CONSOLIDATED TANGIBLE NET WORTH. Permit
Consolidated Tangible Net Worth to be less at any time than (a) during the
fiscal year ending December 31, 1994, $250,000,000 or (b) during any subsequent
fiscal year, an amount equal to (i) the Consolidated Tangible Net Worth
required to be maintained under this Section during the immediately preceding
fiscal year plus (ii) 50% of Consolidated Net Income, if positive, for such
immediately preceding fiscal year and any loss shall not reduce any other
amount added for any fiscal year.
SECTION 6.07. RATIOS. (a) Permit the ratio of Total
Indebtedness to the sum of (i) Consolidated Tangible Net Worth plus (ii) Total
Indebtedness at any time to exceed .45:1.0.
(b) Permit the ratio of (i) the sum of (A) the aggregate
principal amount of all Indebtedness of Subsidiaries (excluding any
Indebtedness described in Schedule 6.07 and otherwise existing on the date
hereof in an aggregate amount not to exceed $30,000,000 and (B) the aggregate
principal amount of all Indebtedness secured by Liens permitted under 6.01(l)
to (ii) Consolidated Tangible Net Worth at any time to exceed .20:1.0.
SECTION 6.08. TRANSACTIONS WITH AFFILIATES. Sell or transfer
any assets to, or purchase or acquire any assets of, or otherwise engage in any
other material transactions with, any of its Affiliates, except at prices not
less favorable to the Borrower (or any Subsidiary, in any
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transaction involving such Subsidiary and any Affiliate that is not also a
Subsidiary of the Borrower) than fair market prices and on terms and conditions
not less favorable to the Borrower (or any Subsidiary, in any transaction
involving such Subsidiary and any Affiliate that is not also a Subsidiary of
the Borrower) than could be reasonably obtained on an arm's-length basis from
unrelated third parties; PROVIDED, that any such transaction with Affiliates
shall be assessed in light of, and taking into consideration, all related
transactions with the relevant Affiliate or Affiliates (including its or their
Affiliates).
SECTION 6.09. FISCAL YEAR; ACCOUNTING. Change its fiscal
year or method of accounting (other than immaterial changes in methods), except
as required or permitted by generally accepted accounting principles; provided
that any such voluntary change shall not substantially affect compliance with
Sections 6.06 and 6.07.
ARTICLE VII
Defaults
--------
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made, or deemed made, in or
in connection with any Loan Document or the Borrowings hereunder, or
in any report, certificate, financial statement or other instrument
furnished in connection with or pursuant to any Loan Document or the
Borrowings hereunder shall prove to have been false or misleading in
any material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan, when and as the same shall become due and payable, whether
at the due date thereof or at a date fixed for prepayment thereof or
by acceleration thereof or otherwise when and as the same shall become
due and payable;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or any other amount (other than an amount referred
to in (b) above) due under this Agreement or any other Loan Document,
when and as the same shall become due and payable, and such
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default shall continue unremedied for a period equal to the longer of
(i) three days and (ii) two Business Days;
(d) default shall be made in the due observance of any
covenant, condition or agreement contained in Section 5.06 or Article
VI;
(e) default shall be made in the due observance or performance
of any other covenant, condition or agreement to be observed or
performed on the part of the Borrower or any Subsidiary pursuant to
the terms of this Agreement or any other Loan Document (other than
those specified in (b), (c) or (d) above) and such default shall
continue unremedied for a period of 20 days after notice thereof from
any Bank to the Borrower;
(f) the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate
manner, any proceeding or the filing of any petition referred to in
(h) below, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any Subsidiary or for a substantial part
of its property or assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) become
unable, or admit in writing its inability, or fail generally, to pay
its debts as they become due or (vii) take any corporate action for
the purpose of effecting any of the foregoing;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any
Subsidiary or of a substantial part of any of its property or assets,
under Title 11 of the United States Code or any other Federal, state
or foreign bankruptcy, insolvency, receivership or similar law, (ii)
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar
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official for the Borrower or any Subsidiary or for a substantial part
of the property or assets of the Borrower or a Subsidiary or (iii) the
winding up or liquidation of the Borrower or any Subsidiary; and such
proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(h) the Borrower or any Subsidiary (i) shall fail to pay any
amount of principal of or interest on any of its Indebtedness in a
principal amount in excess of $1,000,000, when and as the same shall
become due and payable, or (ii) shall fail to observe or perform any
term, covenant or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness, if the effect thereof
is to cause or to permit the holder or obligee of any such
Indebtedness (or any trustee on behalf of such holder or obligee) to
cause (with or without notice or lapse of time or both), such
Indebtedness to become due prior to its stated maturity;
(i) a Reportable Event or Reportable Events or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(1) of the Code) shall have occurred with respect to any
Plan or Plans that results in or reasonably could be expected to
result in liabilities of the Borrower and the Subsidiaries to the PBGC
or to a Plan or Plans in an aggregate amount in excess of $3,000,000
and, within 30 days after the reporting of such Reportable Event or
Reportable Events to the Agent or after receipt by the Agent of the
statement required pursuant to Section 5.07(b)(iii) hereof, the Agent
shall have notified the Borrower in writing that (i) the Required
Banks have made a determination that, on the basis of such Reportable
Event or Reportable Events or the failure to make a required payment,
there are reasonable grounds for (A) termination of such Plan or Plans
by the PBGC, (B) the appointment by the appropriate United States
District Court of a trustee to administer such Plan or Plans or (C)
the imposition of a lien in favor of the Plan or Plans and (ii) as a
result of such determination, an Event of Default exists hereunder; or
the PBGC shall have instituted proceedings to terminate any Plan or
Plans, or a trustee shall have been appointed by a United States
District Court to administer any Plan or Plans;
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(j) (i) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not in fact contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
such Withdrawal Liability specified in such notice, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification), exceeds $5,000,000 or requires payments
exceeding $2,500,000 in any year;
(k) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within
the meaning of Title IV of ERISA, if solely as a result of such
reorganization or termination the aggregate annual contributions of
the Borrower and its ERISA Affiliates to all Multiemployer Plans that
are then in reorganization or have been or are being terminated have
been or will be increased over the amounts required to be contributed
to such Multiemployer Plans for their most recently completed plan
years by an amount exceeding $2,500,000;
(l) (i) one or more judgments for the payment of money in an
aggregate amount in excess of $1,000,000 (exclusive of amounts paid or
covered by insurance to the satisfaction of the Required Banks) shall
be rendered by a court or other tribunal against the Borrower or (ii)
one or more judgments for the payment of money with respect to which
the aggregate amount of the Borrower's or any Subsidiary's share
(calculated by multiplying the aggregate percentage interest of the
Borrower and the Subsidiaries in the entity or entities against which
such judgment or judgments are rendered by the aggregate amount of
such judgment or judgments) is in excess of $1,000,000 (exclusive of
amounts paid or covered by insurance to the satisfaction of the
Required Banks), and in each case the same shall remain undischarged
for a period of 60 consecutive days during which execution of any such
judgment shall not have been effectively stayed, or any action is
legally taken by a judgment creditor to levy upon any such judgment;
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(m) any of the Loan Documents shall cease to be, or shall be
asserted by the Borrower not to be, a legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms;
or
(n) there shall have occurred a Change in the Control of the
Borrower;
then, and in any such event (other than an event with respect to the Borrower
described in paragraph (f) or (g) above), and at any time thereafter during the
continuance of such event, the Agent may, and upon the written request of the
Required Banks shall, by notice to the Borrower, take either or both of the
following actions at the same or different times: (i) terminate forthwith the
Commitments of the Banks, and (ii) declare the Loans then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of the
Loans, together with accrued interest thereon and any unpaid accrued Fees in
respect thereof, and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and payable both
as to principal and interest, without presentment, demand, protest or any other
notice of any kind, including, without limitation, notice of intent to
accelerate or notice of acceleration, all of which are hereby expressly waived
by the Borrower, anything contained herein or in any Note to the contrary
notwithstanding; and in any event with respect to the Borrower described in
paragraph (f) or (g) above, the Commitments of the Banks shall automatically
terminate and the principal of the Loans then outstanding, together with
accrued interest thereon and any unpaid accrued fees and all other liabilities
of the Borrower accrued hereunder and under any other Loan document, shall
automatically become due and payable, all without presentment, demand, protest
or other notice of any kind, including, without limitation, notice of intent to
accelerate or notice of acceleration, all of which are hereby expressly waived
by the Borrower, anything contained in any Loan Document to the contrary
notwithstanding.
ARTICLE VIII
The Agent
---------
In order to expedite the transactions contemplated by this
Agreement, Chemical Bank is hereby appointed to act as Agent on behalf of the
Banks. Each of the Banks, and
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each subsequent holder of any Note by its acceptance thereof, hereby
irrevocably authorizes the Agent to take such actions on behalf of such Bank or
holder and to exercise such powers as are specifically delegated to the Agent
by the terms and provisions hereof and of the other Loan Documents, together
with such actions and powers as are reasonably incidental thereto. The Agent
is hereby expressly authorized by the Banks, without hereby limiting any
implied authority, (a) to receive on behalf of the Banks all payments of
principal of and interest on the Loans and all other amounts due to the Banks
hereunder, and promptly to distribute to each Bank its proper share of each
payment so received; (b) to give notice on behalf of each of the Banks to the
Borrower of any Event of Default specified in this Agreement of which the Agent
has actual knowledge acquired in connection with its agency hereunder; and (c)
to distribute to each Bank copies of all notices, financial statements and
other materials delivered by the Borrower pursuant to this Agreement as
received by the Agent.
Neither the Agent nor any of its directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by
the Borrower of any of the terms, conditions, covenants or agreements contained
in any Loan Document. The Agent shall not be responsible to the Banks or the
holders of the Notes for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement, the Notes or any other Loan
Documents or other instruments or agreements. The Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof until it shall
have received from the payee of such Note notice, given as provided herein, of
the transfer thereof in compliance with Section 9.04. The Agent shall in all
cases be fully protected in acting, or refraining from acting, in accordance
with written instructions signed by the Required Banks and, except as otherwise
specifically provided herein, such instructions and any action or inaction
pursuant thereto shall be binding on all the Banks and each subsequent holder
of any Note. The Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by
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the proper person or persons. Neither the Agent (in its capacity as such) nor
any of its directors, officers, employees or agents shall have any
responsibility to the Borrower on account of the failure of or delay in
performance or breach by any Bank of any of its obligations hereunder or to any
Bank on account of the failure of or delay in performance or breach by any
other Bank or the Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The
Agent may execute any and all duties hereunder by or through agents or
employees and shall be entitled to rely upon the advice of legal counsel
selected by it with respect to all matters arising hereunder and shall not be
liable for any action taken or suffered in good faith by it in accordance with
the advice of such counsel.
The Banks hereby acknowledge that the Agent shall be under no
duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement unless it shall be requested in writing to do
so by the Required Banks.
Subject to the appointment and acceptance of a successor Agent
as provided below, the Agent may resign at any time by notifying the Banks and
the Borrower. Upon any such resignation, the Required Banks shall have the
right to appoint a successor. If no successor shall have been so appointed by
the Required Banks and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, on behalf of the Banks, appoint a successor Agent which shall be a
bank organized in the United States having a combined capital and surplus of at
least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of
any appointment as Agent hereunder by a successor bank, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its
duties and obligations hereunder. After the Agent's resignation hereunder, the
provisions of this Article and Section 9.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
With respect to the Loans made by it hereunder and the Notes
issued to it, the Agent in its individual capacity and not as Agent shall have
the same rights and powers as any other Bank and may exercise the same as
though it were not the Agent, and the Agent and its Affiliates may accept
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deposits from, lend money to and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if it were not the
Agent.
Each Bank agrees (i) to reimburse the Agent, on demand, in the
amount of its pro rata share (based on its Commitment hereunder) of any
expenses incurred for the benefit of the Banks by the Agent, including counsel
fees and compensation of agents and employees paid for services rendered on
behalf of the Banks, which shall not have been reimbursed by the Borrower and
(ii) to indemnify and hold harmless the Agent and any of its directors,
officers, employees or agents, on demand, in the amount of such pro rata share,
from and against any and all liabilities, taxes, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against it in its capacity as the Agent or any of them in any way relating to
or arising out of this Agreement or any other Loan Document or any action taken
or omitted by it or any of them under this Agreement or any other Loan
Document, to the extent the same shall not have been reimbursed by the
Borrower; PROVIDED that no Bank shall be liable to the Agent for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence or
wilful misconduct of the Agent or any of its directors, officers, employees or
agents.
Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it
will, independently and without reliance upon the Agent or any other Bank and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
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ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. NOTICES. Notices and other communications
provided for herein shall be in writing and shall be delivered or mailed (or in
the case of telegraphic communication, delivered by telex, telecopier, graphic
scanning or other telegraphic communications equipment) addressed,
(a) if to the Borrower, at Cleveland-Cliffs Inc,
18th Floor-Diamond Building, 1100 Superior Ave.,
Cleveland, Ohio 44114-2589;
Attention of Secretary
Telecopy No.: (216) 694-6741
Confirm: (216) 694-5473
(b) if to the Agent, at Chemical Bank, 270 Park Avenue,
New York, New York 10017;
Attention of Rohan Paul
Telecopy No.: (212) 270-2555
Confirm: (212) 270-7665
(c) if to any Bank, at its address set forth in Schedule 2.01.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telex, telecopy or other telegraphic communications equipment of the sender, or
on the date five Business Days after dispatch by certified or registered mail
if mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 9.01.
SECTION 9.02. SURVIVAL OF AGREEMENT. All covenants,
agreements, representations and warranties made by the Borrower herein and in
the certificates or other instruments prepared or delivered in connection with
this Agreement or any other Loan Document shall be considered to have been
relied upon by the Banks and shall survive the making by the Banks of Loans,
the execution and delivery to the Banks of the Notes evidencing such Loans,
regardless of any investigation made by the Banks or on their behalf, and
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shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan, or any Fee or amount payable under this Agreement
or any other Loan Document is outstanding and unpaid, and so long as the
Commitments have not been terminated.
SECTION 9.03. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have received copies hereof which, when taken together,
bear the signatures of each Bank, and thereafter shall be binding upon and
inure to the benefit of the Borrower, the Agent and each Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
consent of all the Banks and the Banks may assign their rights hereunder or
interests herein only in compliance with Section 9.04.
SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Agent or the Banks
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns.
(b) Each Bank may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it and the Notes held by it); PROVIDED, HOWEVER, that (i) except in the case
of an assignment to a Bank or an Affiliate of such Bank (other than if at the
time of such assignment, such Bank or Affiliate would be entitled to require
the Borrower to pay greater amounts under Section 2.11, 2.12, or 2.17(a), (b)
or (c) than if no such assignment had occurred, in which case such assignment
shall be subject to the consent requirement of this clause (i)), the Borrower
and the Agent must give their prior written consent to such assignment (which
consent shall not be unreasonably withheld); PROVIDED, that if such assignment
may, as of the date of such assignment, result in an increase in the amount of
any payment required to be made by the Borrower pursuant to Section 2.11, 2.12
or 2.17(a), (b) or (c) over the amount of such payments that would have been
required had such assignment not occurred then, unless the Borrower's written
consent to such
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assignment specifically contains the Borrower's consent to pay such increased
amounts existing on the date of such assignment, such assignee shall be deemed
to have irrevocably waived its right to receive, and the Borrower's obligation
to pay, any such increased amounts, (ii) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's rights and
obligations under this Agreement, (iii) the amount of the Commitment of the
assigning Bank subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Agent) shall not be less than $5,000,000, (iv) the parties to each such
assignment shall execute and deliver to the Agent an Assignment and Acceptance,
together with the Note or Notes subject to such assignment and a processing and
recordation fee of $2,500 and (v) the assignee, if it shall not be a Bank,
shall deliver to the Agent an Administrative Questionnaire. Upon acceptance
and recording pursuant to paragraph (e) of this Section 9.04, from and after
the effective date specified in each Assignment and Acceptance, which effective
date shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of
a Bank under this Agreement and (B) the assigning Bank thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment
and Acceptance covering all or the remaining portion of an assigning Bank's
rights and obligations under this Agreement, such Bank shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections
2.11, 2.13, 2.17 and 9.05, as well as to any Fees accrued for its account and
not yet paid, to the extent such Fees have not been assigned).
(c) By executing and delivering an Assignment and Acceptance,
the assigning Bank thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Bank warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and
that its Commitment, and the outstanding balances of its Revolving Credit Loans
without giving effect to assignments thereof which have not become effective,
are as set forth in such Assignment and Acceptance, (ii) except as set forth in
(i) above, such assigning Bank makes no representation or warranty and
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assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto, or the financial condition of the Borrower or any
Subsidiary or the performance or observance by the Borrower or any Subsidiary
of any of its obligations under this Agreement, any other Loan Document or any
other instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.05 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
(d) The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Banks, and the Commitment of, and principal amount of the
Loans owing to, each Bank pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence of
manifest error and the Borrower, the Agent and the Banks may treat each person
whose name is recorded in the Register pursuant to the terms hereof as a Bank
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrower and any Bank, at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Bank and
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an assignee together with the Note or Notes subject to such assignment, an
Administrative Questionnaire completed in respect of the assignee (unless the
assignee shall already be a Bank hereunder), the processing and recordation fee
referred to in paragraph (b) above and, if required, the written consent of the
Borrower and the Agent to such assignment, the Agent shall (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Banks. Within five
Business Days after receipt of notice, the Borrower, at its own expense, shall
execute and deliver to the Agent, in exchange for the surrendered Note or
Notes, a new Note or Notes to the order of such assignee in a principal amount
equal to the applicable Commitment assumed by it pursuant to such Assignment
and Acceptance and, if the assigning Bank has retained a Commitment, a new Note
to the order of such assigning Bank in a principal amount equal to the
applicable Commitment retained by it. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note; such new Notes shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
Exhibit A hereto. Canceled Notes shall be returned to the Borrower.
(f) Each Bank may without the consent of the Borrower or the
Agent sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it and the Notes held by it);
PROVIDED, HOWEVER, that (i) such Bank's obligations under this Agreement shall
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost protection
provisions contained in Sections 2.13, 2.15 and 2.19 to the same extent as if
they were Banks (provided that additional amounts payable to any Bank pursuant
to Sections 2.13, 2.14 and 2.19 shall be determined as if such Bank had not
sold any participations) and (iv) the Borrower, the Agent and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, and such Bank shall
retain the sole right to enforce the obligations of the Borrower relating to
the Loans and to approve any amendment, modification or waiver of any provision
of this Agreement (other than amendments, modifications or waivers decreasing
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any fees payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loans, extending any scheduled principal payment
date or date fixed for the payment of interest on the Loans or changing or
extending the Commitments).
(g) Any Bank or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrower furnished to such Bank
by or on behalf of the Borrower; PROVIDED that, prior to any such disclosure of
information, each such assignee or participant or proposed assignee or
participant shall execute an agreement whereby such assignee or participant
shall agree (subject to customary exceptions) to preserve the confidentiality
of such confidential information.
(h) Any Bank may at any time assign all or any portion of its
rights under this Agreement and the Notes issued to it to a Federal Reserve
Bank; PROVIDED that no such assignment shall release a Bank from any of its
obligations hereunder.
(i) The Borrower shall not assign or delegate any of its
rights or duties hereunder.
(j) Except as expressly provided otherwise herein, the costs
and expenses associated with any assignment or participation shall be solely
for the account of the assigning or participating Bank and/or the assignee or
participant, and such parties also shall be solely responsible for effecting
such assignment or such sale of a participation in compliance with all
applicable requirements of any laws, rules or regulations.
SECTION 9.05. EXPENSES OF THE AGENT AND THE BANKS; INDEMNITY.
(a) The Borrower agrees to pay all out-of-pocket expenses incurred by the
Agent in connection with any amendments, modifications or waivers of the
provisions of any Loan Document (whether or not the transactions hereby
contemplated shall be consummated), including the reasonable fees and
disbursements of Cravath, Swaine & Moore, counsel for the Agent, in connection
with the preparation of this Agreement and the other Loan Documents, and any
expenses incurred by the Agent or any Bank in connection with the enforcement
or protection of its rights in connection with
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this Agreement, the other Loan Documents, or the Loans made or the Notes issued
hereunder or in connection with any pending or threatened action, proceeding or
investigation relating thereto, and in connection with any enforcement or
protection, the reasonable fees and disbursements of Cravath Swaine & Moore,
counsel for the Agent, and any other counsel for the Agent or any Bank. The
Borrower further agrees that it shall indemnify the Agent and each Bank from
and hold it harmless against any documentary taxes, assessments or charges made
by any Governmental Authority by reason of the execution and delivery of any of
the Loan Documents.
(b) The Borrower agrees to indemnify each Bank and the Agent
and their respective directors, officers, employees, agents and affiliates
(each an "Indemnified Party") against, and to hold each such Indemnified Party
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees and expenses (including the
allocated fees of inside counsel), incurred by or asserted against such
Indemnified Party arising out of, in any way connected with, or as a result of
(i) the execution or delivery of this Agreement, any other Loan Document or any
other document contemplated hereby or thereby, the performance by the parties
hereto and thereto of their respective obligations hereunder and thereunder
(including but not limited to the making of the Commitments) and consummation
of the Transactions and the other transactions contemplated hereby and thereby,
(ii) the use of proceeds of the Loans or (iii) any claim, litigation,
investigation or proceedings relating to any of the foregoing, whether or not
such Indemnified Party is a party thereto; PROVIDED, HOWEVER, that: (i) such
indemnity shall not, as to any Indemnified Party, apply to any such losses,
claims, damages, liabilities or related expenses arising from (A) any unexcused
breach by such Indemnified Party of any of its obligations under this Agreement
or (B) the gross negligence or willful misconduct of such Indemnified Party;
(ii) the Borrower shall not be liable for any settlement effected by an
Indemnified Party without the Borrower's prior consent (which shall not be
unreasonably withheld); and (iii) the Borrower shall have the right to
participate in the defense of any proceeding for which indemnification shall be
sought.
(c) The provisions of this Section 9.05 shall remain
operative and in full force and effect regardless of the expiration of the term
of this Agreement or any other Loan Document, the consummation of the
transactions
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contemplated hereby, the repayment of any of the Loans, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document or any investigation made by or on behalf of the Agent or the Banks.
All amounts due under this Section 9.05 shall be payable on written demand
therefor.
SECTION 9.06. RIGHT OF SETOFF. If an Event of Default shall
have occurred and be continuing, each Bank is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Bank to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such Bank, irrespective of whether or not such
Bank shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Bank under this Section are in addition to other rights and remedies (including
other rights of setoff) which such Bank may have.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
SECTION 9.08. PAYMENTS ON BUSINESS DAYS. Should the
principal of or interest on the Notes, or any fee or other amount payable
hereunder become due and payable on other than a Business Day, payment in
respect thereof may be made on the next succeeding Business Day, and such
extension of time shall in such case be included in computing interest, if any,
in connection with such payment.
SECTION 9.09. WAIVERS; AMENDMENT. (a) No failure or delay
of the Agent or any Bank in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the Agent and
the Banks hereunder and under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or consent
to any
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departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Banks; PROVIDED, HOWEVER,
that no such agreement shall (i) decrease the principal amount of, or extend
the maturity of or any scheduled principal payment date or date for the payment
of any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each holder of a Note affected thereby, (ii) change or
extend the Commitment or decrease the Commitment Fees of any Bank without the
prior written consent of the Banks, or (iii) amend or modify the provisions of
Section 2.14, the provisions of this Section or the definition of "Required
Banks", without the prior written consent of each Bank; PROVIDED FURTHER that
no such agreement shall amend, modify or otherwise affect the rights or duties
of the Agent hereunder without the prior written consent of the Agent. Each
Bank and each holder of a Note shall be bound by any waiver, amendment or
modification authorized by this Section regardless of whether its Note shall
have been marked to make reference thereto, and any consent by any Bank or
holder of a Note pursuant to this Section shall bind any person subsequently
acquiring a Note from it, whether or not such Note shall have been so marked.
SECTION 9.10. INTEREST RATE LIMITATION. Notwithstanding
anything herein or in the Notes to the contrary, if at any time the applicable
interest rate, together with all fees and charges which are treated as interest
under applicable law (collectively the "Charges"), as provided for herein or in
any other document executed in connection herewith, or otherwise contracted
for, charged, received, taken or reserved by any Bank, shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by such Bank in accordance with applicable law, the rate
of interest payable under the Note held by such Bank, together with all
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Charges payable to such Bank, shall be limited to the Maximum Rate.
SECTION 9.11. WAIVER OF JURY TRIAL. Each party hereto hereby
waives, to the fullest extent permitted by applicable law, any right it may
have to a trial by jury in respect of any litigation directly or indirectly
arising out of, under or in connection with this Agreement or any of the other
Loan Documents. Each party hereto (a) certifies that no representative, agent
or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce the
foregoing waiver and (b) acknowledges that it and the other parties hereto have
been induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 9.11.
SECTION 9.12. SEVERABILITY. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall not in any way be affected or impaired thereby. The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 9.13. ENTIRE AGREEMENT. Except as otherwise
expressly provided herein or in the other Loan Documents, (i) this Agreement
and the other Loan Documents constitute the entire contract between the parties
relative to the subject matter hereof, (ii) any previous agreement among the
parties with respect to the Transactions is superseded by this Agreement and
the other Loan Documents and (iii) nothing in this Agreement or in the other
Loan Documents, expressed or implied, is intended to confer upon any party,
other than the parties hereto or thereto, any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.
SECTION 9.14. COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one contract, and shall
become effective when copies hereof which, when taken together,
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bear the signatures of each of the parties hereto shall have been received by
the Agent.
SECTION 9.15. HEADINGS. Article and Section headings and the
Table of Contents used herein are for convenience of reference only and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
IN WITNESS WHEREOF, the Borrower, the Agent and the Banks have
caused this Agreement to be duly executed by their duly authorized officers,
all as of the day and year first above written.
CLEVELAND-CLIFFS INC,
by /s/ Cynthia B. Bezik
--------------------------
Name: Cynthia B. Bezik
Title: Treasurer and Director
Financial Planning
CHEMICAL BANK, individually
and as Agent,
by /s/ Theodore L. Parker
--------------------------
Name: Theodore L. Parker
Title: Vice President
NBD BANK,
by /s/ Winifred S. Pinet
--------------------------
Name: Winifred S. Pinet
Title: Vice President
NATIONAL CITY BANK,
by /s/ Terry A. Wolford
--------------------------
Name: Terry A. Wolford
Title: Vice President
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PNC BANK, NATIONAL ASSOCIATION,
by /s/ Joseph G. Moran
--------------------------
Name: Joseph G. Moran
Title: Vice President
THE HUNTINGTON NATIONAL BANK,
by /s/ Timothy M. Ward
--------------------------
Name: Timothy M. Ward
Title: Assistant Vice President
SOCIETY NATIONAL BANK,
by /s/ William J. Kysela
--------------------------
Name: William J. Kysela
Title: Vice President
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EXHIBIT A
[FORM OF]
NOTE
$__________________
New York, New York
[ ], 1995
FOR VALUE RECEIVED, the undersigned, CLEVELAND-CLIFFS INC, an
Ohio corporation (the "Borrower"), hereby promises to pay to the order of
_______________________ (the "Bank"), at the office of Chemical Bank (the
"Agent"), at 270 Park Avenue, New York, New York 10017 (or any other office
designated in a notice from the Agent to the Borrower), (i) on the last day of
each Interest Period, as defined in the Credit Agreement dated as of [ ],
1995 (the "Credit Agreement"), among the Borrower, the Banks named therein and
the Agent, the aggregate unpaid principal amount of all Loans (as defined in
the Credit Agreement) made to the Borrower by the Bank pursuant to the Credit
Agreement to which such Interest Period applies and (ii) on the Maturity Date
(as defined in the Credit Agreement) the lesser of the principal sum of
__________________ Dollars ($______________) and the aggregate unpaid principal
amount of all Loans made to the Borrower by the Bank pursuant to the Credit
Agreement, in lawful money of the United States of America in immediately
available funds, and to pay interest from the date hereof on the principal
amount hereof from time to time outstanding, in like funds, at said office, at
the rate or rates per annum and payable on the dates provided in the Credit
Agreement.
The Borrower promises to pay interest, on demand, on any
overdue principal and, to the extent permitted by law, overdue interest from
their due dates at the rate or rates provided in the Credit Agreement.
The Borrower hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The
<PAGE> 78
2
nonexercise by the holder of any of its rights hereunder in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance.
All borrowings evidenced by this Note and all payments and
prepayments of the principal hereof and interest hereon and the respective
dates and maturity dates thereof shall be endorsed by the holder hereof on the
schedule attached hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof, or otherwise recorded by
such holder in its internal records; PROVIDED, HOWEVER, that the failure of the
holder hereof to make such a notation or any error in such a notation shall not
affect the obligations of the Borrower under this Note.
This Note is one of the Notes referred to in the Credit
Agreement, which, among other things, contains provisions for the acceleration
of the maturity hereof upon the happening of certain events, for optional and
mandatory prepayment of the principal hereof prior to the maturity hereof and
for the amendment or waiver of certain provisions of the Credit Agreement, all
upon the terms and conditions therein specified. This Note shall be construed
in accordance with and governed by the laws of the State of New York and any
applicable laws of the United States of America.
CLEVELAND-CLIFFS INC,
by ______________________
Name:
Title:
[6700-089(RM2)/EXHA.WPF/7N/4334/9M]
<PAGE> 79
3
Loans and Payments
------------------
<TABLE>
<CAPTION>
Loans and Payments
------------------
Amount and Type Maturity Payments Unpaid Principal Name of Person
Date of Loan Date Principal Interest Balance of Note Making Notation
--------------- -------------------- -------------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
</TABLE>
[6700-089(RM2)/EXHA.WPF/7N/4334/9M]
<PAGE> 80
SCHEDULE 2.01
Commitments
<TABLE>
<CAPTION>
Name and Address of Bank Commitment
------------------------ ----------
<S> <C>
CHEMICAL BANK $ 24,000,000
270 Park Avenue
New York, New York 10017
Attention of: Rohan Paul
Telephone: (212) 270-7665
Facsimile: (212) 270-2555
NBD BANK $ 20,000,000
611 Woodward Avenue
Detroit, Michigan 48226
Attention of: Winifred S. Pinet
Telephone: (313) 225-1313
Facsimile: (313) 225-1671
SOCIETY NATIONAL BANK $ 20,000,000
Mail Code: OHO1270606
127 Public Square
Cleveland, Ohio 44114-1306
Attention of: William J. Kysela
Telephone: (216) 689-5654
Facsimile: (216) 689-4981
PNC BANK, NATIONAL ASSOCIATION $ 12,000,000
One Cleveland Center
1375 East Ninth Street, Suite 1250
Cleveland, Ohio 44114
Attention of: James A. Wiehe
Telephone: (216) 348-8590
Facsimile: (216) 348-8594
HUNTINGTON NATIONAL BANK $ 12,000,000
Department Code CM31
917 Euclid Avenue
Cleveland, Ohio 44115
Attention of: Frank B. Gollinger
Telephone: (216) 344-6313
Facsimile: (216) 344-6821
NATIONAL CITY BANK $ 12,000,000
1900 East Ninth Street, 10th Floor
Cleveland, Ohio 44114
Attention: David R. Evans
Telephone: (216) 575-2356
Facsimile: (216) 575-9396
------------
Total . . . . . . . . . . . . . . . $100,000,000
============
</TABLE>
[6700-089(RM1)/S201.WPF/29N/4334/9M]
<PAGE> 1
Exhibit 10(g)
CLEVELAND-CLIFFS INC AND SUBSIDIARIES
-------------------------------------
MANAGEMENT PERFORMANCE INCENTIVE PLAN
-------------------------------------
SUMMARY
-------
Effective January 1, 1994
1. The Management Performance Incentive Plan ("MPI Plan") provides a
significant financial incentive for designated management employees of
Cleveland-Cliffs Inc and subsidiaries (the "Company") to maximize
Company, unit, and personal performance in achieving current results and
longer range objectives. The Plan is designed to place a significant
portion of annual compensation at risk with performance and to provide
above average total compensation for outstanding performance.
2. The MPI Plan is administered by Cleveland-Cliffs Inc's Compensation and
Organization Committee ("Committee") which is composed of non-employee
Directors, none of whom are eligible to participate in the Plan.
3. Participants in the Plan are officers and salaried employees in
designated management positions. The number of designated management
positions is controlled through the salaried position classification
process to maintain an efficient ratio of management to non-management
employees.
4. Each position is classified in a salary grade based on a study of
national compensation data and internal organizational relationships.
Position classifications are periodically reviewed to maintain a
compensation level which is competitive with similar positions in
similar companies. The general objective is to establish salary grades
based on the 50th percentile of survey data.
5. The study of national compensation data includes determination of
typical performance bonus payments for management positions at various
responsibility levels. This data is used to determine a competitive
percentage "target bonus" based upon the salary range midpoint. All
jobs in a salary grade have the same target bonus. The percentage
targets may be revised periodically according to survey data.
6. The Chief Executive Officer ("CEO") approves the classification, salary
range, and percentage target bonus for all management positions except
officer positions of Secretary rank and higher which are approved by the
Committee. The Committee is provided a list of all position
classifications, salary ranges and target bonuses annually.
<PAGE> 2
-2-
7. In January, after consulting with the CEO and considering various
regular and special reports, actual trends and the status of annual
goals, and general industry performance, the Committee determines the
general Company performance for the prior calendar year. On the basis
of this determination, the Committee designates a corresponding
percentage which is applied to the aggregate target bonuses of the
participating employees to generate a General Bonus Pool from which
individual bonuses will be awarded. Such Pool can be zero and cannot
exceed 200 percent of the aggregate target bonuses.
8. Individual bonus awards for officers are determined by the Committee
after consultation with the CEO. Awards for all other participants are
determined by the CEO after consultation with responsible officers and
reviewed by the Committee for conformance to its parameters. Awards
reflect the performance of the participant and of the unit for which the
participant is responsible. A bonus for an individual can vary from 0
to 200 percent of the individual's target bonus.
9. At the discretion of the Committee and subject to the availability of
authorized stock, awards may be made in cash or shares of
Cleveland-Cliffs Inc stock or a combination thereof, and restrictions
may be placed on the vesting of any stock award.
10. Generally, bonus payments to participants will be made by the end of
February for the prior calendar year after audited financial results are
determined.
11. Following designation as a participant in the Plan and prior to the
payment of a bonus, neither the participant nor the estate or anyone
claiming through such participant has any right to share in the bonus
pool for such year. However, the Plan provides, at the sole discretion
of the Committee and the CEO, that awards may be made to a participant
whose employment terminates during the calendar year or to the
participant's beneficiaries when circumstances warrant favorable
consideration for an award for such year.
12. A participant has no right, title or interest in any assets of
Cleveland-Cliffs Inc and subsidiaries by reason of any award made
pursuant to this Plan and such award reflects only an unsecured
contractual obligation to make the payment to the participant of the
approved award under the terms and conditions of the Plan.
13. The Board of Directors may modify or terminate this Plan at any time.
<PAGE> 1
Exhibit 10(y)
FIRST AMENDMENT
TO
SEVERANCE PAY PLAN FOR
KEY EMPLOYEES OF CLEVELAND-CLIFFS INC
WHEREAS, Cleveland-Cliffs Inc ("Cleveland-Cliffs") established the
Severance Pay Plan for Key Employees of Cleveland-Cliffs Inc (the "Plan") to
provide severance benefits for certain Key Employees effective February 1,
1992; and
WHEREAS, Cleveland-Cliffs desires to amend the Plan;
NOW, THEREFORE, effective October 1, 1994, Cleveland-Cliffs hereby
amends the Plan to provide as follows:
1. Section 2 of the Plan is amended to provide as follows:
"2. EFFECTIVE AND TERMINATIONS DATES. This Plan shall be
effective as of February 1, 1992 (the "Effective Date").
The Plan will automatically terminate on January 1, 1995
(the "Termination Date"), if there has been no Change of
Control of Cleveland-Cliffs prior to such date; provided,
however, that Cleveland-Cliffs, by action of its Board of
Directors, may extend such Termination Date."
2. The "Termination Date" set forth in Section 2 of the Plan is
hereby extended from January 1, 1995 to January 1, 1998.
3. Clause (1) of Section 3i of the Plan is amended to provide as
follows:
(1) "Elected officers of Cleveland-Cliffs and Mine General
Managers employed by subsidiaries of Cleveland-Cliffs."
* * *
<PAGE> 2
IN WITNESS WHEREOF, Cleveland-Cliffs Inc has executed this First
Amendment at Cleveland, Ohio, this 18th day of November, 1994.
CLEVELAND-CLIFFS INC
By /s/ R. F. Novak
----------------------------------------
Title: Vice President-Human Resources
<PAGE> 1
Exhibit 10(aa)
FIRST AMENDMENT
TO
CLEVELAND-CLIFFS INC
VOLUNTARY NON-QUALIFIED DEFERRED COMPENSATION PLAN
(as Amended and Restated Effective January 1, 1994)
---------------------------------------------------
WHEREAS, Cleveland-Cliffs Inc ("Cleveland-Cliffs") established the
Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred Compensation Plan (the
"Plan") to provide benefits for certain participants, which Plan was amended
and restated effective January 1, 1994; and
WHEREAS, Cleveland-Cliffs desires to amend the Plan;
NOW, THEREFORE, effective as of the dates hereinafter set forth,
Cleveland-Cliffs hereby amends the Plan to provide as follows:
PART A
------
Effective as of July 1, 1994, Section 2.15 of the Plan is amended to
provide as follows:
"2.15 ELIGIBLE EMPLOYEE. 'Eligible Employee' means a
senior corporate officer of the Company or a full-time salaried
employee of an Employer who has a Management Performance Incentive
Plan Salary Grade EX-28 or above."
PART B
------
Effective as of August 1, 1994, the Plan is amended in the following
respects:
1. Section 2.12 of the Plan is amended to provide as follows:
"2.12 DEFERRAL ACCOUNT. 'Deferral Account' means the
account maintained on the books of the Employer for the purpose of
accounting for (i) the amount of Compensation that each Participant
elects to defer under the Plan, (ii) an Employment Agreement
Contribution (if any) made on behalf of a Participant, and (iii) the
amount of interest credited thereto for each Participant pursuant to
Article V."
<PAGE> 2
2. A new Section 2.17A is added to the Plan to provide as follows:
"2.17A EMPLOYMENT AGREEMENT. 'Employment Agreement' means a
written agreement between an Employer and an Eligible Employee that
provides for the deferral of compensation, and that may also provide
for vesting, the crediting of earnings and other terms and conditions
with respect to such deferred compensation."
3. A new Section 2.17B is added to the Plan to provide as
follows:
2.17B "EMPLOYMENT AGREEMENT CONTRIBUTION. 'Employment
Agreement Contribution' means any amount contributed to the Plan by an
Employer pursuant to an Employment Agreement."
4. The first sentence of Section 3.2 of the Plan is amended to
provide as follows:
"Participation in the Plan shall be limited to Eligible Employees who
elect to participate in the Plan by filing a Participation Agreement
with the Committee, or on whose behalf an Employment Agreement
Contribution is made to the Plan by an Employer."
5. Section 4.1 of the Plan is amended by adding the following
sentence at the end thereof:
"Notwithstanding the foregoing, any Employment Agreement Contribution
shall be deferred in accordance with the terms of the Employment
Agreement."
6. Section 4.3 of the Plan is amended to provide as follows:
"4.3 CREDITING DEFERRED COMPENSATION, MATCHING AMOUNTS AND
EMPLOYMENT AGREEMENT CONTRIBUTIONS. The amount of Compensation that
a Participant elects to defer under the Plan shall be credited by the
Employer to the Participant's Deferral Account semi-monthly. The
amount of the Employment Agreement Contribution (if any) contributed
for a Participant shall be credited by the Employer to the
Participant's Deferral Account in accordance with the terms of the
Employment Agreement. To the extent that the Employer is required to
withhold any taxes or other amounts from a Participant's deferred
Compensation or Employment Agreement Contribution pursuant to any
state, federal or local law, such amounts shall be withheld from the
Participant's Compensation before such amounts are credited hereunder.
The Matching Amounts under the Plan for each Participant shall be
credited by the Employer at the same time that matching contributions
are allocated under the Savings Plan."
7. Clause (ii) of Section 5.2 of the Plan is amended to provide
as follows:
" (ii) the Participant's deferred Compensation, Matching Amounts
and
<PAGE> 3
Employment Agreement Contribution (if any) credited pursuant to
Section 4.3 since the immediately preceding Determination Date and any
earnings and/or income credited to such amounts pursuant to Sections
5.1 and 5.3 as of such Determination Date, minus"
8. Section 5.5 of the Plan is amended to provide as follows:
"5.5 VESTING OF ACCOUNT. Subject to the provisions of any
Employment Agreement relating to an Employment Agreement Contribution
(if any) a Participant shall be 100 percent vested in his or her
Account at all times."
9. The first sentence of Section 6.2 of the Plan is amended to
provide as follows:
"In the event that the Committee, upon written petition of a
Participant, determines in its sole discretion, that the Participant
has suffered an unforseeable financial emergency, the Employer shall
pay to the Participant, as soon as practicable following such
determination, an amount necessary to meet the emergency (the
"Emergency Benefit"), but not exceeding the aggregate balance of such
Participant's vested Deferral Account and Matching Account as of the
date of such payment."
* * *
IN WITNESS WHEREOF, Cleveland-Cliffs Inc has executed this First
Amendment at Cleveland, Ohio, this 18th day of November, 1994.
CLEVELAND-CLIFFS INC
By /s/ R. F. Novak
-------------------------------------
Title: Vice President-Human Resources
<PAGE> 1
Exhibit 10(cc)
SECOND AMENDMENT
TO
CLEVELAND-CLIFFS INC
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
(as Amended and Restated Effective January 1, 1991)
---------------------------------------------------
WHEREAS, Cleveland-Cliffs Inc ("Cleveland-Cliffs") established the
Cleveland-Cliffs Inc Supplemental Retirement Benefit Plan (the "Plan") to
provide benefits (i) for certain participants who have had their benefits under
tax-qualified retirement plans limited by Sections 401(a) and 415 of the
Internal Revenue Code of 1986, as amended, and (ii) for certain executives
under agreements providing for additional service credit and other features for
computing retirement benefits, which Plan was amended and restated effective
January 1, 1991 and subsequently amended on one occasion; and
WHEREAS, Cleveland-Cliffs desires to further amend the Plan;
NOW, THEREFORE, Cleveland-Cliffs hereby amends the Plan, effective as
of the dates hereinafter set forth, to provide as follows:
1. Effective as of January 1, 1994, a new subparagraph D is added to
Paragraph 7 of the Plan, such subparagraph D to provide as follows:
"D. Supplemental Pension Plan Benefits shall be subject to
applicable withholding and such other deductions as shall at the time
of payment be required or appropriate under any Federal, State or Local
law. In addition, Cleveland-Cliffs may withhold from a Participant's
"other income" (as hereinafter defined) any amount required or
appropriate to be currently withheld from such Participant's other
income pursuant to any Federal, State or Local law. For purposes of
this subparagraph D, "other income" shall mean any remuneration
currently paid to a Participant by an Employer."
<PAGE> 2
2. Effective as of July 1, 1994, Paragraph 2H of the Plan is amended
to provide as follows:
"H. 'Participant' shall mean each person (i) who is a participant
in the Pension Plan, (ii) who is a senior corporate officer of
Cleveland- Cliffs or a full-time salaried employee of an Employer who
has an Incentive Bonus Salary Grade of EX-28 or above, and (iii) who as
a result of participation in this Plan is entitled to a Supplemental
Benefit under this Plan. Each person who is a Participant under this
Plan shall be notified in writing of such fact by his Employer, which
shall also cause a copy of the Plan to be delivered to such person."
* * *
IN WITNESS WHEREOF, Cleveland-Cliffs Inc has executed this Second Amendment at
Cleveland, Ohio, this 18th day of November, 1994.
CLEVELAND-CLIFFS INC
By /s/ R. F. Novak
--------------------------------------
Title: Vice President-Human Resources
<PAGE> 1
Exhibit 10(dd)
FOURTH AMENDMENT
TO
TRUST AGREEMENT NO. 5
WHEREAS, Cleveland-Cliffs Inc ("Cleveland-Cliffs") and AmeriTrust
Company National Association entered into Trust Agreement No. 5, formerly known
as Trust Agreement, (the "Agreement") effective October 28, 1987, which
Agreement was amended on three previous occasions;
WHEREAS, Society National Bank (the "Trustee") is the successor in
interest to AmeriTrust Company National Association; and
WHEREAS, Cleveland-Cliffs and the Trustee desire to amend the
Agreement;
NOW, THEREFORE, effective November 1, 1994, Cleveland-Cliffs and the
Trustee hereby amend the Agreement to provide as follows:
1. The first recital on page one of the Agreement is amended to
provide as follows:
"WHEREAS, certain benefits are or may become payable under the
provisions of certain Deferred Compensation Agreements ("Agreements")
between Cleveland-Cliffs, or between The Cleveland-Cliffs Iron Company
and assumed by Cleveland-Cliffs, effective July 1, 1995, and certain
executives ("Executives"), to the persons listed from time to time on
Exhibit A hereto (as provided in Section 9(c) hereof) or to the
beneficiaries of such persons (Executives and Executives' beneficiaries
are referred to herein as "trust beneficiaries"), as the case may be;"
2. Exhibit A to the Agreement, which Exhibit A is attached hereto and
made a part hereof, is amended to provide as hereinafter set forth.
* * *
<PAGE> 2
IN WITNESS WHEREOF, Cleveland-Cliffs and the Trustee have executed this
Fourth Amendment at Cleveland, Ohio, this 18th day of November, 1994.
CLEVELAND-CLIFFS INC
By /s/ R. F. Novak
-------------------------------------
Title: Vice President-Human Resources
SOCIETY NATIONAL BANK
By /s/ M. O. Minar
-------------------------------------
Title: Vice President
/s/ Deanna J. Krizman
-------------------------------------
Trust Officer
<PAGE> 1
Exhibit 10(ee)
SECOND AMENDMENT
TO
TRUST AGREEMENT NO. 7
WHEREAS, Cleveland-Cliffs Inc ("Cleveland-Cliffs") and AmeriTrust
Company National Association entered into Trust Agreement No. 7 (the
"Agreement") effective April 9, 1991, which Agreement was amended on one
previous occasion;
WHEREAS, Society National Bank (the "Trustee") is the successor in
interest to AmeriTrust Company National Association; and
WHEREAS, Cleveland-Cliffs and the Trustee desire to further amend the
Agreement;
NOW, THEREFORE, effective November 1, 1994, Cleveland-Cliffs and the
Trustee hereby amend the Agreement by revising EXHIBIT A thereto, which EXHIBIT
A is attached hereto and made a part hereof, to provide as hereinafter set
forth.
* * *
IN WITNESS WHEREOF, Cleveland-Cliffs and the Trustee have executed
this Second Amendment at Cleveland, Ohio, this 18th day of November,
1994.
CLEVELAND-CLIFFS INC
By /s/ R. F. Novak
-------------------------------------
Title: Vice President-Human Resources
SOCIETY NATIONAL BANK
By /s/ M. O. Minar
-------------------------------------
Title: Vice President
/s/ Deanna J. Krizman
-------------------------------------
Trust Officer
<PAGE> 1
Exhibit 10(ff)
CLEVELAND-CLIFFS INC
--------------------
LONG-TERM PERFORMANCE SHARE PROGRAM,
------------------------------------
DATED MARCH 31, 1994 (SUMMARY DESCRIPTION)
------------------------------------------
1. The Long-Term Performance Share Program ("Performance
Share Program") operates under the Cleveland-Cliffs Inc ("Company") 1992
Incentive Equity Plan ("1992 ICE Plan").
2. The Compensation and Organization Committee
("Committee") of the Board of Directors of the Company, which Committee is
composed of non-employee Directors, administers the Performance Share Program
under which performance shares ("Performance Shares") are awarded under the
1992 ICE Plan.
3. Pursuant to the 1992 ICE Plan, the Performance Share
Program was approved in 1994 to further align the interest of designated key
management employees with the shareholders in increasing return on invested
capital and long-term shareholder value. The Performance Share Program
provides the participants the opportunity to receive Company Shares based on
Company performance against specified objectives.
4. Under the Performance Share Program, the Committee
authorizes grants of Performance Shares, which become wholly or partially
payable to the participant upon the achievement of specified Company objectives
in accordance with the following provisions:
(a) Each grant specifies the number of
Performance Shares to which it pertains.
(b) The performance period, normally a three-year
period, with respect to each Performance Share is determined
by the Committee on the date of grant, and may be subject to
earlier termination in the event of a change in control of the
Company or other similar transaction or event.
(c) Each grant specifies the performance
objectives of the Company and a minimum acceptable level of
achievement below which no payment will be made. Each grant
sets forth a formula for determining the amount of any payment
to be made if performance is at or above the minimum
acceptable level and also specifies the maximum amount of any
payment to be made. The Committee may adjust the objectives
in certain circumstances.
(d) The number of Common Shares that will be
earned will be reduced to the extent necessary to prevent the
value of the Common Shares paid to any participant from
exceeding twice the market value of the Common Shares covered
by the participant's award on the date it was granted.
<PAGE> 2
(e) The Committee may award equivalent cash value
instead of the Company's Common Shares at its discretion.
5. Each Performance Share that is earned entitles the
holder to receive Common Shares of the Company, depending on the degree of
achievement of specified Company objectives. The objectives, weighted equally,
are total shareholder return (share price plus reinvested dividends) and value
added (earnings less the cost of capital employed) over a three-year
performance period. Achievement of the total shareholder return objective is
determined by the Company's shareholder return relative to a predetermined
group of steel, metal and mining companies. Achievement of the value added
objective is determined by comparing the Company's actual and target value
added.
6. The target payout is calculated at 100% of the
Performance Shares awarded and represents the number of Common Shares that
would be earned if a target level of the objectives is achieved by the Company;
maximum payout is calculated at 150% of the performance shares awarded and
represents the number of Common Shares that would be earned if a superior level
of the objectives is achieved by the Company; and threshold payout is
calculated at 25% of the Performance Shares awarded and represents the number
of Common Shares that would be earned if a minimum level of the objectives is
achieved by the Company. If achievement of one objective is below threshold,
achievement of the other objective must be at least at target for any payout to
occur.
<PAGE> 1
Exhibit 11
<TABLE>
Computation of Earnings Per Share
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
(In Millions, Except Per
Share Amounts)
Year Ended December 31
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Earnings per share, as reported:
Average shares outstanding 12.1 12.0 12.0
======= ======= =======
Income before cumulative effect of
changes in accounting principles $ 42.8 $ 54.6 $ 30.8
Cumulative effect on prior years of
changes in accounting principles -- -- (38.7)
------- ------- -------
Net income (loss) $ 42.8 $ 54.6 $ (7.9)
======= ======= =======
Income (loss) per share:
Income before cumulative effect of
changes in accounting principles $ 3.54 $ 4.55 $ 2.57
Cumulative effect on prior years of
changes in accounting principles -- -- (3.23)
------- ------- -------
Net income (loss) $ 3.54 $ 4.55 $ (.66)
======= ======= =======
Primary earnings per share:
Average shares outstanding 12.1 12.0 12.0
Net effect of dilutive stock options -
based on the treasury stock method
using average market price -- 0.1 0.1
------- ------- -------
Average shares and equivalents 12.1 12.1 12.1
======= ======= =======
Income before cumulative effect of
changes in accounting principles $ 42.8 $ 54.6 $ 30.8
Cumulative effect on prior years of
changes in accounting principles -- -- (38.7)
------- ------- -------
Net income (loss) $ 42.8 $ 54.6 $ (7.9)
======= ======= =======
Income (loss) per share:
Income before cumulative effect of
changes in accounting principles $ 3.54 $ 4.51 $ 2.55
Cumulative effect on prior years of
changes in accounting principles -- -- (3.20)
------- ------- -------
Net income (loss) $ 3.54 $ 4.51 $ (.65)
======= ======= =======
</TABLE>
30
<PAGE> 2
<TABLE>
<CAPTION>
(In Millions, Except Per
Share Amounts)
Year Ended December 31
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Fully diluted earnings per share:
Average shares outstanding 12.1 12.0 12.0
Net effect of dilutive stock options -
based on the treasury stock method
using higher of year-end or average
market price -- 0.1 0.1
------- ------- -------
Average fully diluted shares 12.1 12.1 12.1
======= ======= =======
Income before cumulative effect of
changes in accounting principles $ 42.8 $ 54.6 $ 30.8
Cumulative effect on prior years of
changes in accounting principles -- -- (38.7)
------- ------- -------
Net income (loss) $ 42.8 $ 54.6 $ (7.9)
======= ======= =======
Income (loss) per share:
Income before cumulative effect of
changes in accounting principles $ 3.54 $ 4.51 $ 2.55
Cumulative effect on prior years of
changes in accounting principles -- -- (3.20)
------- ------- -------
Net income (loss) $ 3.54 $ 4.51 $ (.65)
======= ======= =======
</TABLE>
Common stock options do not have a material dilutive effect and therefore
were not included in the computation of earnings per share as reported.
31
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS Exhibit 13(a)
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 1994, Cleveland-Cliffs earned $42.8 million, or $3.54 a share. Earnings for
the year 1993 were $31.4 million, or $2.62 per share, excluding a $23.2 million
gain on the settlement of the Company's bankruptcy claim against LTV Steel
Company, Inc. (an integrated steel company subsidiary of The LTV Corporation,
or collectively "LTV"). Including the bankruptcy gain, 1993 earnings were $54.6
million, or $4.55 per share.
<TABLE>
Following is a summary of results for the years 1994, 1993, and 1992:
<CAPTION>
(In Millions, Except Per Share)
----------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income Before Cumulative
Effect of Accounting Changes
- Amount................................... $ 42.8 $ 54.6 $ 30.8
- Per Share................................ 3.54 4.55 2.57
Cumulative Effect of Accounting Changes,
Net of Income Taxes
Other Post Employment Benefits............ (42.5)
Income Taxes.............................. 3.8
------- ------- -------
Total Cumulative Effect............... (38.7)
------- ------- -------
Net Income (Loss)
- Amount................................ $ 42.8 $ 54.6 $( 7.9)
======= ======= =======
- Per Share............................. $ 3.54 $ 4.55 $( .66)
======= ======= =======
</TABLE>
1994 VERSUS 1993
----------------
Revenues were $388.9 million in 1994, an increase of $33.0 million from 1993.
Revenues in 1993 included a $35.7 million pre-tax recovery on the LTV
bankruptcy claim. Without this item, revenues in 1994 were $68.7 million higher
than 1993. Revenues from product sales and services in 1994 totaled $334.8
million, an increase of $66.7 million from 1993, mainly due to higher North
American sales volume and prices and increased Australian sales volume. North
American iron ore sales were 8.2 million tons in 1994 compared to 6.4 million
tons in 1993. Royalties and management fee revenue in 1994 totaled $44.7
million, an increase of $5.0 million due primarily to increased production in
1994 over strike-depressed 1993.
Net income for the year 1994 was $42.8 million, an increase of $11.4 million
from 1993, excluding the $23.2 million gain on the LTV settlement. The
increase was due to higher sales volume and prices in North America, increased
royalties and management fees, higher Australian earnings, and the $5.4 million
after-tax cost of the labor strike in 1993. These gains were partly offset by
higher operating costs, certain non-recurring costs, lower investment income,
and a favorable income tax adjustment in 1993.
32
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
1993 VERSUS 1992
----------------
Revenues were $355.9 million in 1993, an increase of $28.9 million from 1992.
Revenues included a $35.7 million pre-tax recovery on the LTV bankruptcy claim
in 1993 and a $2.4 million residual recovery of a bankruptcy claim against
Wheeling-Pittsburgh Steel Corporation ("Wheeling") in 1992. Without these
items, revenues in 1993 were $320.2 million, down $4.4 million from 1992.
Revenues from product sales and services in 1993 totaled $268.1 million, up
$1.2 million from 1992, mainly due to higher sales volume, partially offset by
lower coal revenues related to the Company's exit from the coal business in
1993 and lower average iron ore sales price. North American pellet sales were
6.4 million tons in 1993 compared with 6.0 million tons in 1992. Royalty and
management fee revenues in 1993 totaled $39.7 million, a decrease of $4.1
million from 1992 due primarily to decreased production as a result of a
six-week labor strike in the third quarter of 1993 at the Empire, Hibbing and
Tilden mines, and higher payments to mineral owners.
Net income for the year 1993, excluding a $23.2 million gain on the LTV
bankruptcy settlement, was $31.4 million, an increase of $2.2 million from the
comparable 1992 period, before a $38.7 million after-tax charge in 1992 for the
cumulative effect of adopting two new accounting standards and a $1.6 million
after-tax residual Wheeling bankruptcy recovery in 1992.
The earnings improvement of $2.2 million reflected a $13.0 million after-tax
provision for doubtful accounts receivable in 1992, higher sales volume,
inventory reduction, and higher Australian earnings, partially offset by an
estimated $5.4 million after-tax cost of the six-week strike, lower sales
margin, a non-recurring state tax credit in 1992, and lower royalties.
In 1993, the Company recorded a $23.2 million, or $1.93 per share, after-tax
gain on the receipt of securities in settlement of its bankruptcy claim against
LTV. In January, 1992, the Company recorded a $38.7 million, or $3.23 per
share, charge for the cumulative effect of adopting new accounting standards
covering retiree medical costs and income taxes. In 1992, the Company received
a $2.4 million supplemental recovery on a prior year settlement of its
bankruptcy claim against Wheeling, which resulted in an after-tax gain of $1.6
million, or 13 cents per share.
Including the special items, year 1993 net income was $54.6 million, versus a
net loss of $7.9 million in 1992.
33
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
NORTHSHORE ACQUISITION
----------------------
On September 30, 1994, Cliffs Minnesota Minerals Company, a subsidiary of the
Company, completed the acquisition of Cyprus Amax Minerals Company's ("Cyprus
Amax") iron ore operations and power plant (renamed Northshore Mining Company
or "Northshore") in Minnesota for $66 million plus net working capital of $28
million. The principal Northshore assets acquired were 4.0 million annual tons
of active capacity for production of standard pellets (equivalent to 3.5
million tons of flux pellet capacity), supported by 6.0 million tons of active
concentrate capacity, a 115 megawatt power generation plant, and an estimated
1.2 billion tons of magnetite crude iron ore reserves, leased mainly from the
Mesabi Trust. Additional payments to Cyprus Amax would be required under
certain expansion conditions. Any such payments would occur over a period of
years under conditions expected to be favorable to the Company and are not
expected to be material in any year.
In January, 1995, the Company announced a $6 million expansion of Northshore.
The expansion, which involves the re-activation of one idle pelletizing line,
is expected to be completed by June, 1995, and increase the mine's annual
production capacity by approximately 25 percent, or .9 million tons. Production
in 1995, originally scheduled to be 3.6 million tons of iron ore is now
scheduled to be 4.1 million tons.
CASH FLOW AND LIQUIDITY
-----------------------
At December 31, 1994, the Company had cash and marketable securities totaling
$141.4 million. In addition, the full amount of a $75.0 million unsecured
revolving credit facility was available.
Since December 31, 1993, cash and marketable securities decreased by $19.6
million. The acquisition of Northshore for $97.3 million ($94 million plus
acquisition costs) was largely offset by cash flow from operating activities
(before changes in operating assets and liabilities), $50.9 million, Weirton
Steel Corporation's ("Weirton") redemption of its preferred stock held by the
Company, $25.0 million, and decreased working capital, $24.7 million. Capital
expenditures were $10.9 million in 1994 versus $5.0 million in 1993. Dividends
in 1994 were $14.8 million. In the fourth quarter of 1994, the Company
increased its quarterly dividend to $.325 per share, raising the annual payout
to $15.7 million.
The working capital decrease was primarily due to a reduction in product
inventories, $16.1 million, and increased payables and accrued expenses, $14.8
million, partially offset by increased trade accounts receivable, $9.3 million,
reflecting higher sales in December, 1994.
North American pellet inventories at December 31, 1994 were .7 million tons or
$16.9 million, a decrease of .1 million tons, or $2.5 million, from December
31, 1993. The decrease occurred despite .7 million tons of pellet purchases and
.5 million tons of inventory acquired in the Northshore purchase.
34
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
<TABLE>
FOLLOWING IS A SUMMARY OF 1994 CASH FLOW:
<CAPTION>
(In Millions)
-------------
<S> <C>
Cash Flow from Operations
Before Changes in Operating Assets and Liabilities............. $ 50.9
Changes in Operating Assets and Liabilities:
Marketable Securities Decrease.............................. 92.3
Other ...................................................... 24.7
------
Net Cash From Operations................................. 167.9
Northshore Acquisition............................................ (97.3)
Dividends......................................................... (14.8)
Capital Expenditures.............................................. (10.9)
Debt Payments..................................................... (4.3)
Weirton Preferred Stock Redemption................................ 25.0
Sale of Long-Term Investments..................................... 5.3
Other (net)....................................................... 1.8
------
Net Increase in Cash and Cash Equivalents...................... 72.7
Decrease in Short-term Marketable Securities...................... (92.3)
------
Net Decrease in Cash and Marketable Securities................. $(19.6)
======
</TABLE>
<TABLE>
FOLLOWING IS A SUMMARY OF KEY LIQUIDITY MEASURES:
<CAPTION>
At December 31
(In Millions)
--------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash and Temporary Investments
Cash and Cash Equivalents ................ $140.6 $ 67.9 $128.6
Marketable Securities..................... .8 93.1 --
------ ------ ------
Total................................. $141.4 $161.0 $128.6
====== ====== ======
Working Capital.............................. $169.5 $186.0 $188.9
====== ====== ======
Ratio of Current Assets to Current
Liabilities................................ 2.7:1 3.7:1 4.1:1
</TABLE>
Additionally, at December 31, 1994, the Company had long-term investments as
follows:
- LTV Common Stock, .8 million shares with a market value of $13.5 million.
- Long-term government and corporate bonds (denominated primarily in
Australian currency), $13.6 million, largely dedicated to fund the
shutdown of the Savage River Mine in Australia.
35
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In October, 1991, the Company invested $25 million in a special nonmarketable
redeemable preferred stock of Weirton with mandatory redemption at par in 2003.
On September 30, 1994, Weirton exercised its right to redeem the preferred
stock for $25 million plus accrued dividends. The redemption of this investment
(previously classified as a held-to-maturity security) did not result in a gain
or loss. The stock paid quarterly dividends totaling $3.1 million per year. In
conjunction with the preferred stock redemption, the Company's iron ore sales
contract with Weirton was extended by two years through 2005. The contract
calls for the Company to supply Weirton with approximately 1.0 million tons of
pellets annually.
NORTH AMERICAN IRON ORE
-----------------------
The North American steel industry experienced high operating rates and improved
financial results in 1993 and 1994 which are expected to continue in 1995. The
Company's steel company partners and customers have generally improved their
financial condition as a result of higher earnings and increased equity
capital.
The improvement in most steel companies' financial positions has significantly
reduced the major near-term business risk previously faced by the Company,
i.e., the potential financial failure and shutdown of one or more of its
significant customers or partners, with the resulting loss of ore sales or
royalty and management fee income. However, if any such shutdown were to occur
without mitigation through replacement sales or cost reduction, it would
represent a significant adverse financial development to the Company. The iron
mining business has high operating leverage because "fixed" costs are a large
portion of the cost structure. Therefore, loss of sales or other income due to
failure of a customer or partner would have an adverse income effect
proportionately greater than the revenue effect.
McLouth Steel Products Company ("McLouth"), a significant customer, continues
to be substantially undercapitalized. The Company has periodically extended
financial support to McLouth in the form of deferred payment terms and other
considerations. Sales to McLouth were 1.5 million tons in 1994 which
represented 18 percent of the Company's sales volume and a higher percentage
contribution to income before fixed cost absorption. Included in the Company's
December 31, 1994 inventory was .2 million tons consigned to McLouth in
accordance with long-standing practice. The Company has no earnings exposure
to consigned inventory and accounts receivable from McLouth as of December 31,
1994.
Sharon Steel Corporation ("Sharon"), which was a significant customer,
suspended its blast furnace operations in September, 1992, and filed for
protection from its creditors under Chapter 11 of the U. S. Bankruptcy Code on
November 30, 1992. No shipments of iron ore were made to Sharon since the
third quarter of 1992. The Company was able to replace the lost Sharon sales in
1993 and 1994. In November, 1994, Sharon liquidated substantially all of its
assets through an approved Bankruptcy Court sale. The Company had filed a
substantial claim against Sharon in the Bankruptcy Court for amounts owed and
contractual damages; however, the Company does not expect to receive any
material proceeds from asset liquidation. All amounts due from Sharon were
previously reserved.
36
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In February, 1994, the Company reached general agreement with Algoma Steel Inc.
("Algoma") and Stelco Inc. to restructure and simplify the Tilden Mine
operating agreement effective January 1, 1994. The principal terms of the new
agreement are (1) the participants' tonnage entitlements and cost-sharing are
based on a 6.0 million ton target normal production level instead of the
previous 4.0 million ton base production level, (2) the Company's interest in
the Tilden Magnetite Partnership has increased from 33.33% to 40.0% with an
associated increase in the Company's obligation for its share of mine costs,
(3) the Company is receiving a higher royalty, (4) the Company has the right to
supply any additional iron ore pellet requirements of Algoma from Tilden or the
Company, and (5) any partner may take additional production with payment of
certain fees to the Partnership. The parties implemented the general agreement
effective January 1, 1994 and are negotiating the detailed provisions of the
definitive agreement. The agreement has not had a material financial effect on
the Company's consolidated financial statements.
On June 28, 1993, LTV, a significant partner of the Company, emerged from
Chapter 11 bankruptcy. In final settlement of its allowed claim, the Company
received 2.3 million shares of LTV Common Stock and 4.4 million Contingent
Value Rights. The settlement, reflected in the Company's year 1993 operating
results, totaled $35.7 million before tax and $23.2 million after-tax. On July
13, 1993, the Company distributed to its shareholders a special dividend
consisting of 1.5 million shares of LTV Common Stock and $12.0 million ($1.00
per share) cash.
Six-year, no strike agreements between the United Steelworkers of America and
three U.S. iron ore mining operations managed by subsidiaries of the Company
were ratified by the union members after a six-week strike that began August 1,
1993. The agreements cover the Empire and Tilden Mines in Michigan and the
Hibbing Mine in Minnesota. The Wabush Mines' contract expired on February 28,
1993; however, the employees continued to work under the terms of the previous
agreement until a new agreement was reached in March, 1994. The new Wabush
agreement expires on February 29, 1996.
North American steel shipments increased from 104 million tons in 1993 to 110
million tons in 1994, the highest level since 1979. Reflecting the continued
high level of steel demand, the six North American mines operated by the
Company have initially scheduled 39.5 million tons of pellet production for
1995 which is approximately 100 percent of active capacity. The Company's share
of scheduled production is 10 million tons. In 1994, total production at the
Company's managed mines was 35.2 million tons and the Company's share was 6.8
million tons. Production schedules are subject to change throughout the year.
The Company expects improved financial results in 1995 due to the full year
contribution of the Northshore acquisition and an improved pricing environment
created by higher worldwide demand for iron ore. North American sales are
expected to approximate 10 million tons, including 8 million tons under
multi-year contracts.
37
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
AUSTRALIA
---------
Savage River Mines in Tasmania, Australia operated at its capacity of 1.5
million tons in 1994 and 1993 with continued satisfactory financial results.
Decreased cost and higher sales volume were partially offset by lower
international pellet prices in 1994 and unfavorable currency exchange effects.
Australian sales are projected to be about 1.5 million tons in 1995. The
international pellet price has increased in 1995.
In October, 1994, the Company announced that Savage River operations would
terminate as scheduled in the first quarter of 1997, the exhaustion date of the
economically recoverable iron ore from surface mining. This is two years beyond
the original exhaustion schedule established when the Company acquired sole
ownership in 1990. A mine life extension study was conducted to evaluate
underground mining of additional ore; however, the projected financial results
did not justify the mining risks and substantial investment. Mine closure costs
have previously been provided in the Capacity Rationalization Reserve and have
been funded.
COAL
----
Sale of the Turner Elkhorn Mining Company and the termination of management and
administrative support of the Chisholm Mine in early 1993 completed the
Company's exit from the coal business.
Pursuant to the Coal Industry Retiree Health Benefit Act of 1992 ("Act"), the
Trustees of the UMWA Combined Benefit Fund have assigned responsibility to the
Company for premium payments with respect to retirees, dependents, and
"orphans" (unassigned beneficiaries), representing less than one-half of one
percent of all "assigned beneficiaries." The Company is making premium payments
under protest and is contesting the assignments that it believes were
incorrect. Premium payments by the Company in 1994 were $1.3 million ($.3
million in 1993). At December 31, 1994, the Company continues to pay premiums
on 338 assigned retirees and dependents and 116 "orphans." Additionally, in
December, 1993, a complaint was filed by the Trustees of the United Mine
Workers of America 1992 Benefit Plan against the Company demanding the payment
of premiums on an additional 79 beneficiaries related to two formerly operated
joint venture coal mines. The Company is actively contesting the complaint.
Monthly premiums are being paid into an escrow account (80% by a former joint
venture participant and 20% by the Company) by joint agreement with the
Trustee, pending outcome of the litigation. Company payments in 1994 were
approximately $.1 million. At December 31, 1994, the Company's coal retiree
reserve was $11 million, of which $.9 million is current. The reserve is
reflected at present value, using a discount rate of 8.5%. The Company's
liability has been adequately covered in its capacity rationalization costs.
Constitutional and other legal challenges to various provisions of the Act by
other former coal producers are pending in the Federal Courts.
38
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
ACTUARIAL ASSUMPTIONS
---------------------
As a result of increases in long-term interest rates, the Company has
re-evaluated the interest rates used to calculate its pension and other
postemployment benefit ("OPEB") obligations. Financial accounting standards
require that the discount rate used to calculate the actuarial present value of
such benefits reflect the rate of interest on high-quality fixed income
securities. The discount rate used to calculate the Company's pension and OPEB
obligations was increased to 8.50% at December 31, 1994 from 7.25% at December
31, 1993. The Company also increased its assumed long-term rate of return on
pension assets from 8% at December 31, 1993 to 8.5% at December 31, 1994.
The increase in interest rates did not affect year 1994 financial results;
however, in 1995 and subsequent years, the Company will realize a non-cash
increase in pension credits and a non-cash decrease in OPEB expense. The
increase in annual net income resulting from the higher discount rate and
increased long-term rate of return assumptions is estimated to approximate $1.5
million.
ENVIRONMENTAL COSTS
-------------------
The Company's policy is to conduct business in a manner that promotes
environmental quality. The Company's obligations for any environmental problems
at wholly-owned active mining operations and idle and closed mining and other
sites have been recognized based on specific estimates for known conditions and
required investigations. Environmental costs of associated companies for active
operations are included in current operating and capital costs. Any potential
insurance recoveries have not been reflected in the determination of the
financial reserve.
At December 31, 1994, the Company has an environmental reserve of $12.0
million, of which $3.6 million is current. At December 31, 1993, the
environmental reserve was $10.3 million. The reserve includes the Company's
obligations related to:
- Federal and state Superfund and Clean Water Act sites where the
Company is named as a potential responsible party, including the
Cliffs-Dow and Kipling sites in Michigan, the Arrowhead Refinery
site in Minnesota, the Summitville mine site in Colorado, and the
Rio Tinto mine site in Nevada, all of which sites are independent
of the Company's iron mining operations. The reserves are based on
engineering studies prepared by outside consultants engaged by the
potential responsible parties. The Company continues to evaluate the
recommendations of the studies and other means for site clean-up.
Significant site clean-up activities have taken place at Cliffs-Dow
in 1993 and 1994. An agreement in principle has been reached among
the federal and state governments and approximately 237 individuals
and companies whereby clean-up at the Arrowhead site will begin in
1995 with significant funding provided by the federal and state
governments. The agreement is expected to be filed with the U.S.
District Court early in 1995. The Company's share of Arrowhead costs
is expected to be approximately $145,000 which includes $31,000 of
funded remediation costs and $114,000 of incurred legal and other
costs.
39
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
- Wholly-owned active and idle operations, including the recently
acquired Northshore mine and Silver Bay power plant in Minnesota and
the idled Republic mine and processing facilities in Michigan. The
Northshore reserve is based on an environmental investigation
conducted by the Company and an outside consultant in connection
with the acquisition and reflects expected future Company
expenditures, primarily for asbestos abatement and power plant fly
ash disposal. The Republic Mine reserve primarily reflects the cost
of underground fuel oil storage tank removal and related soil
remediation.
- Reserves for other sites, including former operations, are based on
the Company's estimated cost of investigation and remediation of
sites where expenditures may be incurred.
Environmental expenditures under current laws and regulations are not expected
to materially impact the Company's consolidated financial statements.
CAPITAL INVESTMENT
------------------
NORTH AMERICAN IRON ORE
-----------------------
The Company and its North American mine partners are substantially increasing
capital expenditures in 1995 to satisfy orebody development requirements and
reduce operating costs. Capital equipment additions, including equipment
acquired through lease, are expected to total approximately $113 million in
1995 at the six Company-managed mines in North America, of which $55 million
will be classified as capital expenditures. The Company's share of the capital
expenditures is expected to approximate $24 million, including the $6 million
Northshore expansion capital. Excluding years of major capacity additions, the
1995 program represents record total capital spending at Company-managed mines.
CORPORATE STRATEGY
------------------
The Company's strategy is to grow its basic iron ore business and to extend its
business scope to produce and supply reduced iron ore feed for steel and iron
production. Reduced iron products contain approximately 90% iron versus 65% for
traditional iron ore pellets and contain less undesirable chemical elements
than most scrap steel feed. The market for reduced iron is presently small, but
is projected to increase at a greater rate than other iron ore products.
The Company continues to explore various technologies and markets for reduced
iron products, including the investigation of domestic and international site
alternatives. Commercial plants are estimated to require capital expenditures
of $75 to $100 million, depending on location and process. Commercial decisions
are expected in 1995 on one or more projects. The Company's total 1995
expenditures are not expected to exceed $25 million.
40
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
CAPITALIZATION
--------------
In 1992, the Company completed a private placement of $75 million of medium
term, unsecured senior notes pursuant to agreements with an insurance company
group. One-third of the notes have an interest rate of 8.5 percent, and
two-thirds have an interest rate of 8.8 percent. The notes require annual
repayments of principal beginning in 1995 and 1996, respectively, with final
maturities of 1999 and 2002, respectively. The aggregate maturities for the
five years succeeding December 31, 1994 are $5 million for 1995 and $12.1
million each for 1996 through 1999.
<TABLE>
Following is a summary of long-term obligations:
<CAPTION>
LONG-TERM OBLIGATIONS AT DECEMBER 31
(In Millions)
-------------------------------------------------------------------------------------
Effectively Serviced Obligations
Share of
Associated Guaranteed Total
Consolidated Companies Total Obligations Obligations
------------ ---------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
1994 $ 75.0 $ 9.2 $ 84.2 $ 13.7 $ 97.9
1993 75.0 13.6 88.6 20.8 109.4
1992 75.1 17.0 92.1 27.9 120.0
</TABLE>
Effective March 1, 1995, the Company terminated its existing $75 million
three-year revolving credit agreement, originally due to expire on April 30,
1995, and entered into a five-year, $100 million agreement. No borrowings are
outstanding under the revolving credit facilities.
At December 31, 1994, guaranteed obligations principally represented the Empire
Mine debt obligations of LTV and Wheeling. The Empire Mine long-term debt is
scheduled to be fully extinguished in December, 1996 (the Company's share of
Empire long-term debt principal payments is $4.3 million in 1994 and 1995 and
$3.9 million in 1996).
The ratio of effectively serviced long-term obligations to shareholders' equity
was .3:1 at December 31, 1994, 1993, and 1992.
In January, 1995, the Company announced a program to periodically repurchase up
to 600,000 shares of its Common Stock in the open market or in negotiated
transactions. The program represents approximately 5% of outstanding shares.
The stock will initially be retained as Treasury Stock.
(The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains two graphs, one entitled, "Cumulative Earnings &
Dividends" and the other entitled "Components of Invested Capital". For a
description of the graph of "Cumulative Earnings & Dividends" see Graph A in
Appendix A to this exhibit, and for a description of the graph of "Components of
Invested Capital" see Graph B in Appendix A to this exhibit.)
41
<PAGE> 11
APPENDIX A - IMAGE AND GRAPHIC MATERIAL
---------------------------------------
Item 7 - Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations (Graphs)
------------------------------
GRAPH A
-------
This graph is captioned "Cumulative Earnings & Dividends". The graph contains
two lines depicting cumulative earnings and cumulative dividends over the
five-year period 1990-1994. Cumulative earnings were $73.8 million, $127.6
million, $158.4 million, $213.0 million and $255.8 million, respectively, for
the years 1990-1994. Cumulative dividends were $9.3 million, $68.4 million,
$82.5 million, $108.9 million, and $123.7 million, respectively, for the years
1990-1994. The graph also indicates that the cumulative payout ratio of
dividends to earnings was 13%, 54%, 52%, 51%, and 48%, respectively, for the
years 1990-1994.
Graph B
-------
<TABLE>
This graph is captioned "Components of Invested Capital". The graph contains
five bars depicting the components of invested capital at December 31, 1990,
1991, 1992, 1993, and 1994, each bar reflecting Effectively Serviced Debt and
Shareholders' Equity, as follows:
<CAPTION>
Amount in (Millions) Percent
---------------------------------------------- --------------------------------------------
Effectively Effectively
Serviced Shareholders' Serviced Shareholders'
December 31 Debt Equity Total Debt Equity Total
----------- ----------- ------------- ------ ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
1990 $82.4 $290.8 $373.2 22% 78% 100%
1991 65.0 290.8 355.8 18 82 100
1992 92.1 269.6 361.7 26 74 100
1993 88.6 280.7 369.3 24 76 100
1994 84.2 311.4 395.6 21 79 100
</TABLE>
41-A
<PAGE> 1
Exhibit 13(b)
REPORT OF INDEPENDENT AUDITORS
------------------------------
Shareholders and Board of Directors
Cleveland-Cliffs Inc
We have audited the accompanying statement of consolidated financial position
of Cleveland-Cliffs Inc and consolidated subsidiaries as of December 31, 1994
and 1993, and the related statements of consolidated income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cleveland-Cliffs
Inc and consolidated subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial statements, in 1992 the
Company changed its methods of accounting for postretirement benefits other
than pensions and income taxes.
ERNST & YOUNG LLP
Cleveland, Ohio
February 14, 1995
42
<PAGE> 1
STATEMENT OF CONSOLIDATED FINANCIAL POSITION Exhibit 13(c)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions)
December 31
-------------------------
1994 1993
------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $140.6 $ 67.9
Marketable securities .8 93.1
------ ------
141.4 161.0
Trade accounts receivable
(net of allowance, $19.5 in 1994 and 1993) 50.3 27.6
Receivables from associated companies 15.6 13.3
Inventories
Finished products 24.5 27.5
Work in process .6
Supplies 14.6 4.2
------ ------
39.7 31.7
Deferred income taxes 14.7 14.1
Other 7.4 6.3
------ ------
TOTAL CURRENT ASSETS 269.1 254.0
PROPERTIES
Plant and equipment 228.5 157.6
Minerals 20.2 15.0
------ ------
248.7 172.6
Allowances for depreciation and depletion (138.3) (137.3)
------ ------
TOTAL PROPERTIES 110.4 35.3
INVESTMENTS IN ASSOCIATED COMPANIES 151.7 152.3
OTHER ASSETS
Long-term investments 27.1 57.4
Deferred charges 7.2 9.2
Deferred income taxes 8.7 6.5
Miscellaneous 42.3 34.4
------ ------
TOTAL OTHER ASSETS 85.3 107.5
------ ------
TOTAL ASSETS $616.5 $549.1
====== ======
</TABLE>
43
<PAGE> 2
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions)
December 31
-------------------------
1994 1993
------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 15.1 $ 11.5
Payables to associated companies 15.6 8.9
Accrued employment costs 21.2 17.7
Accrued expenses 16.3 10.0
Income taxes payable 14.3 14.6
Current portion of long-term obligations 5.0 --
Reserve for capacity rationalization 1.5 1.7
Other 10.6 3.6
------ ------
TOTAL CURRENT LIABILITIES 99.6 68.0
LONG-TERM OBLIGATIONS 70.0 75.0
POST-EMPLOYMENT BENEFIT LIABILITIES 74.4 71.2
RESERVE FOR CAPACITY RATIONALIZATION 25.7 21.7
OTHER LIABILITIES 35.4 32.8
SHAREHOLDERS' EQUITY
Preferred Stock
Class A - no par value
Authorized - 500,000 shares;
Issued-none -- --
Class B - no par value
Authorized - 4,000,000 shares;
Issued-none -- --
Common Shares-par value $1 a share
Authorized - 28,000,000 shares;
Issued - 16,827,941 shares 16.8 16.8
Capital in excess of par value of shares 63.1 61.4
Retained income 343.8 315.8
Foreign currency translation adjustments .9 (.3)
Unrealized gain on available for sale securities,
net of tax 1.5 1.3
Cost of 4,728,081 Common Shares in
treasury (1993 - 4,763,824 shares) (113.4) (114.3)
Unearned compensation (1.3) (.3)
------ ------
TOTAL SHAREHOLDERS' EQUITY 311.4 280.4
------ ------
COMMITMENTS - Note C
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $616.5 $549.1
====== ======
</TABLE>
See notes to consolidated financial statements.
44
<PAGE> 1
STATEMENT OF CONSOLIDATED INCOME Exhibit 13(d)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions, Except Per Share Amounts)
Year Ended December 31
-------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Product sales and service $334.8 $268.1 $266.9
Royalties and management fees 44.7 39.7 43.8
------ ------ ------
Total Operating Revenues 379.5 307.8 310.7
Recoveries on bankruptcy claims -- 35.7 2.4
Investment income (securities) 7.9 9.1 9.6
Other income 1.5 3.3 4.3
------ ------ ------
Total Revenues 388.9 355.9 327.0
COSTS AND EXPENSES
Cost of goods sold and operating expenses 299.9 252.8 241.1
Administrative, selling and general expenses 15.9 15.7 16.9
Bad debt expense -- -- 17.5
Interest expense 6.6 6.6 5.0
Other expenses 9.0 5.1 5.1
------ ------ ------
Total Costs and Expenses 331.4 280.2 285.6
------ ------ ------
INCOME BEFORE INCOME TAXES AND
THE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 57.5 75.7 41.4
Income taxes 14.7 21.1 10.6
------ ------ ------
INCOME BEFORE THE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 42.8 54.6 30.8
Cumulative effect on prior years
of changes in accounting principles -- -- (38.7)
------ ------ ------
NET INCOME (LOSS) $ 42.8 $ 54.6 $ (7.9)
====== ====== ======
INCOME (LOSS) PER COMMON SHARE
Before the cumulative effect
of changes in accounting principles $ 3.54 $ 4.55 $ 2.57
Cumulative effect on prior years
of changes in accounting principles -- -- (3.23)
------ ------ ------
NET INCOME (LOSS) PER COMMON SHARE $ 3.54 $ 4.55 $ (.66)
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
45
<PAGE> 1
STATEMENT OF CONSOLIDATED CASH FLOWS Exhibit 13(e)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions,
Brackets Indicate Cash Decrease)
Year Ended December 31
-------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 42.8 $ 54.6 $ (7.9)
Adjustments to reconcile net income (loss)
to net cash from operations:
Depreciation and amortization:
Consolidated 3.7 2.6 2.8
Share of associated companies 10.7 10.9 11.3
Cumulative effect of change in accounting
principle-other postretirement benefits -0- -0- 64.3
Provision for deferred income taxes (1.8) 2.2 (27.4)
Recovery on bankruptcy claims -0- (31.6) -0-
Provision for doubtful accounts -0- -0- 17.5
Increases to capacity rationalization reserve 3.8 2.5 .5
Other (8.3) (7.4) (11.4)
------ ------ ------
Total before changes in operating assets and liabilities 50.9 33.8 49.7
Changes in operating assets and liabilities:
Marketable securities (increase) decrease 92.3 (93.1) -0-
Inventories and prepaid expenses (increase) decrease 13.6 22.3 (13.9)
Receivables (increase) decrease (11.6) 2.7 (7.0)
Payables and accrued expenses increase (decrease) 22.7 11.5 (2.5)
------ ------ ------
Total changes in operating assets and liabilities 117.0 (56.6) (23.4)
------ ------ ------
Net cash from (used by) operating activities 167.9 (22.8) 26.3
INVESTING ACTIVITIES
Acquisition of Northshore Mining (97.3) -0- -0-
Weirton Preferred Stock Redemption 25.0 -0- -0-
Purchase of property, plant and equipment:
Consolidated (6.9) (2.8) (2.9)
Share of associated companies (4.0) (2.2) (2.3)
Proceeds from sales of assets -0- .3 1.0
Sale (purchase) of long-term investments 5.3 (3.6) (5.5)
------ ------ ------
Net cash (used by) investing activities (77.9) (8.3) (9.7)
FINANCING ACTIVITIES
Proceeds from long-term debt -0- -0- 75.0
Principal payments on long-term debt:
Consolidated -0- (.1) (41.1)
Share of associated companies (4.3) (4.3) (4.4)
Dividends * (14.8) (26.4) (14.1)
Other .6 1.2 1.2
------ ------ ------
Net cash from (used by) financing activities (18.5) (29.6) 16.6
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1.2 -0- (.5)
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72.7 (60.7) 32.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 67.9 128.6 95.9
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $140.6 $ 67.9 $128.6
====== ====== ======
Taxes paid on income $ 17.6 $ 16.6 $ 18.6
Interest paid on debt obligations $ 6.5 $ 6.5 $ 4.0
<FN>
*The 1993 dividends exclude the non-cash distribution of 1.5 million shares
($20.4 million) of the 2.3 million shares of LTV Corporation common stock
received in the 1993 bankruptcy settlement.
</TABLE>
See notes to consolidated financial statements.
46
<PAGE> 1
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY Exhibit 13(f)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions)
---------------------------------------------------------------------------------------------
Capital In Foreign
Excess of Currency Available Common
Common Par Value Retained Translation For Sale Shares Unearned
Shares Of Shares Income Adjustments Securities In Treasury Compensation Total
------ --------- -------- ----------- ---------- ----------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE December 31, 1991 $16.8 $61.1 $330.0 $ .7 $(117.8) $ (.2) $290.6
Net loss (7.9) (7.9)
Cash dividends-$1.18 a share (14.1) (14.1)
Stock plans
Restricted stock/stock options .1 1.6 .1 1.8
Other (1.0) .1 (.9)
----- ----- ------ ---- ---- ------- ----- ------
BALANCE December 31, 1992 16.8 61.2 308.0 (.3) (116.1) (.1) 269.5
Net income 54.6 54.6
Cash dividends:
Regular - $1.20 a share (14.4) (14.4)
Special - $1.00 a share (12.0) (12.0)
Non-cash dividend - $1.70 a share (20.4) (20.4)
Change in unrealized gains,
net of tax 1.3 1.3
Stock plans
Restricted stock/stock options .2 1.8 (.2) 1.8
----- ----- ------ ---- ---- ------- ----- ------
BALANCE December 31, 1993 16.8 61.4 315.8 (.3) 1.3 (114.3) (.3) 280.4
Net income 42.8 42.8
Cash dividends - $1.23 a share (14.8) (14.8)
Change in unrealized gains,
net of tax .2 .2
Stock plans
Restricted stock/stock options .2 .9 1.1
Performance shares 1.5 (1.0) .5
Other 1.2 1.2
----- ----- ------ ---- ---- ------- ----- ------
BALANCE December 31, 1994 $16.8 $63.1 $343.8 $ .9 $1.5 $(113.4) $(1.3) $311.4
===== ===== ====== ==== ==== ======= ===== ======
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Exhibit 13(g)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries, and references to
the "Company" include the Company and consolidated subsidiaries. "Investments
in Associated Companies" are comprised of partnerships and unconsolidated
companies which the Company does not control. Such investments are accounted by
the equity method (see Note C). The Company's equity in earnings of mining
partnerships from which the Company purchases iron ore production is credited
to cost of goods sold upon sale of the product.
BUSINESS: The Company's dominant business is the production and sale of iron
ore pellets. The Company controls, develops, and leases reserves to mine
owners; manages and owns interests in mines; sells iron ore; and owns interests
in ancillary companies providing services to the mines. Iron ore production
activities are conducted in the United States, Canada and Australia. The
Australian operations had total revenues and pre-tax operating profit of $43.5
million and $5.4 million, $41.9 million and $4.4 million, and $40.3 million and
$3.3 million, in 1994, 1993 and 1992, respectively. Total Australian assets,
including long-term investments ($12.9 million, 1994 and $12.4 million, 1993)
to fund eventual shutdown cost, were $38.8 million at December 31, 1994 (1993 -
$29.8 million).
Iron ore is marketed in North America, Europe, Asia, and Australia. The three
largest steel company customers' contribution to the Company's revenues were
14%, 14% and 12% in 1994; 14%, 12% and 11% in 1993; and 13%, 13% and 12% in
1992.
CASH EQUIVALENTS: The Company considers investments in highly liquid debt
instruments with an initial maturity of three months or less to be cash
equivalents.
INVESTMENTS: The Company determines the appropriate classification of debt and
equity securities at the time of purchase and reevaluates such designation as
of each balance sheet date.
Securities are classified as held-to-maturity when the Company has the intent
and ability to hold the securities to maturity. Held-to-maturity securities are
stated at cost and investment income is included in earnings.
The Company classifies certain highly liquid securities as trading securities.
Trading securities are stated at fair value and unrealized holding gains and
losses are included in income.
Securities that are not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized holding gains and losses, net of tax, reported
as a separate component of shareholders' equity.
48
<PAGE> 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
FORWARD CURRENCY EXCHANGE CONTRACTS: The Company had $6 million and $20
million of Australian forward currency exchange contracts at December 31, 1994
and 1993, respectively, and $6 million of Canadian forward currency exchange
contracts at December 31, 1994. These forward exchange contracts are hedging
transactions that have been entered into with the objective of managing the
risk associated with currency fluctuations with respect to the on-going
obligations of the Company's Australian and Canadian operations denominated in
those currencies. Gains and losses are recognized in the same period as the
hedged transaction. The fair value of these currency exchange contracts which
have varying maturity dates to December 30, 1995, is estimated to be $6.4
million for the Australian contracts and $6 million for the Canadian contracts,
based on the December 31, 1994 forward rates.
INVENTORIES: Product inventories, primarily finished products, are stated at
the lower of cost or market. The cost of product inventories is determined
using the last-in, first-out ("LIFO") method. The excess of current cost over
LIFO cost of product inventories was $.9 million and $1.5 million at December
31, 1994 and 1993, respectively. The cost of other inventories is determined by
the average cost method.
PROPERTIES: Depreciation of plant and equipment is computed principally by the
straight-line method based on estimated useful lives. Depreciation is not
reduced when operating units are temporarily idled. Depletion of mineral lands
is computed using the units of production method based upon proven mineral
reserves.
EXPLORATION, RESEARCH AND DEVELOPMENT COSTS: Exploration, research and
continuing development costs of mining properties are charged to operations as
incurred. Development costs which benefit extended periods are deferred and
amortized over the period of benefit. At December 31, 1994, deferred
development costs were less than $1.0 million. Startup costs of major new
facilities are deferred and amortized over five years from commencement of
commercial production.
INCOME TAXES: Effective January 1, 1992, the Company adopted the Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes."
INCOME (LOSS) PER COMMON SHARE: Income or loss per common share is based on
the average number of common shares outstanding during each period.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to current year classifications.
49
<PAGE> 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE A - ACCOUNTING AND DISCLOSURE CHANGES
In December, 1990, the Financial Accounting Standards Board issued Statement
106, "Accounting for Post-retirement Benefits Other than Pensions," which
requires that the projected future expense of providing post-retirement
benefits, such as health care and life insurance, be recognized as employees
render service instead of when the benefits are paid. The Statement requires
the assumptions that present benefit plans continue at escalating costs. The
Company adopted the provisions of the new standard in its financial statements
for the year ended December 31, 1992. The cumulative effect as of January 1,
1992 of adopting Statement 106 decreased 1992 net income by $42.5 million, or
$3.54 per share (after deferred income tax benefit of $21.8 million).
In February, 1992, the Financial Accounting Standards Board issued Statement
109, "Accounting for Income Taxes." Under Statement 109, the liability method
is used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on temporary differences between financial
reporting and tax bases of assets and liabilities and are measured using
currently enacted tax rates and laws applicable when the differences are
expected to reverse. The Company adopted the provisions of the new standard in
its financial statements for the year ended December 31, 1992. The cumulative
effect as of January 1, 1992 of adopting Statement 109 increased net income by
$3.8 million, or $.31 per share.
In October, 1994, the Financial Accounting Standards Board issued Statement
119, entitled, "Disclosure about Derivative Financial Instruments," which
requires expanded disclosure about such instruments. The Company's exposure to
risk associated with derivative instruments is limited to forward currency
exchange contracts (see Accounting Policies).
NOTE B - NORTHSHORE MINE AND POWER PLANT ACQUISITION
On September 30, 1994, Cliffs Minnesota Minerals Company, a subsidiary of
Cleveland-Cliffs Inc, completed the acquisition of Cyprus Amax Minerals
Company's ("Cyprus Amax") iron ore operation and power plant (renamed
Northshore Mining Company or "Northshore") in Minnesota for $66 million, plus
net working capital of $28 million. The principal Northshore assets are 4
million annual tons of active capacity for production of standard pellets
(equivalent to 3.5 million tons of flux pellet capacity), supported by 6
million tons of active concentrate capacity, a 115 megawatt power generation
plant, and an estimated 1.2 billion tons of magnetite crude iron ore reserves,
leased mainly from the Mesabi Trust. Northshore has a long-term contract to
sell 40 megawatts of excess capacity to an electric utility with approximately
17 years remaining.
50
<PAGE> 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
The acquisition has been accounted for as a purchase transaction, and the
balance sheet of Northshore has been consolidated on the basis of a preliminary
allocation of the purchase price. The purchase price consisted of:
<CAPTION>
(In Millions)
-------------
<S> <C>
Cash $ 94.3
Acquisition Costs 3.0
------
Purchase Price $ 97.3
======
</TABLE>
<TABLE>
The purchase price has been initially allocated as follows:
<CAPTION>
(In Millions)
-------------
<S> <C>
Assets
------
Current Assets $ 36.1
Property, Plant and Equipment 68.2
Other Assets 6.5
------
Total Assets 110.8
Liabilities
-----------
Current Liabilities 9.1
Long-Term Liabilities 4.4
------
Total Liabilities 13.5
------
Purchase Price $ 97.3
======
</TABLE>
The final allocation of the purchase price will be made when the evaluation of
fair values has been finalized.
Additional payments to Cyprus Amax would be required under certain expansion
conditions. Any payments would occur over a period of years under conditions
expected to be favorable to the Company and are not expected to be material in
any year.
<TABLE>
Pro forma results of the Company's operations, assuming the acquisition had
occurred at the beginning of 1993, are shown in the following table.
<CAPTION>
Pro Forma
(Unaudited)
-------------------------
1994 1993*
------ ------
<S> <C> <C>
Total Revenues (Millions) $466.7 $415.0
====== ======
Net Income
----------
Amount (Millions) $ 47.0 $ 36.5
====== ======
Per Common Share $ 3.89 $ 3.04
====== ======
<FN>
* Year 1993 results exclude the Company's $35.7 million before-tax ($23.2
million after-tax or $1.93 per share) recovery on the settlement of the
Company's bankruptcy claim against LTV Steel Company, Inc. (an integrated
steel company subsidiary of The LTV Corporation, or collectively "LTV").
</TABLE>
51
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The pro forma results have been prepared for illustrative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
actually been made at the beginning of 1993, nor of results which may occur in
the future. Actual results could be significantly different under the
Company's ownership due to, among other matters, differences in marketing,
operating and investment actions which have been or may be taken by the
Company.
NOTE C - INVESTMENTS IN ASSOCIATED COMPANIES
The Company's investments in associated companies are accounted by the equity
method and consist primarily of its 22.5625% interest in Empire Iron Mining
Partnership ("Empire"), 15% interest in Hibbing Taconite Company ("Hibbing"),
33.33% interest in Tilden Magnetite Partnership ("Tilden Magnetite"), 60%
interest in Tilden Mining Company ("Tilden"), and 7.01% interest (5.2% in 1992)
in Wabush Mines ("Wabush"). These iron ore mining ventures are managed by the
Company in North America. The other interests in these ventures are owned by
U.S., Canadian and European steel companies. The Company's investments in
associated companies also include interests in certain inactive iron ore mining
ventures and mining service companies.
Following is a summary of combined financial information of the operating iron
ore mining ventures.
<TABLE>
<CAPTION>
(In Millions)
-------------------------------
1994 1993 1992
-------------------------------
<S> <C> <C> <C>
INCOME
Gross revenue $968.2 $896.5 $967.4
Equity income 99.5 82.2 91.7
FINANCIAL POSITION
Properties - net $774.5 $812.4 $848.3
Other assets 107.1 95.8 114.1
Debt obligations (39.8) (61.0) (91.1)
Other liabilities (147.4) (123.1) (124.5)
------ ------ ------
Net assets $694.4 $724.1 $746.8
====== ====== ======
Company's equity in
underlying net assets $253.6 $266.8 $278.8
Company's investment $151.7 $152.2 $166.8
</TABLE>
The Company manages and operates all of the iron ore ventures and leases or
subleases mineral rights to certain ventures. In addition, the Company is
required to purchase its applicable current share, as defined, of the
production decided by the venture participants. The Company purchased $247.2
million in 1994 (1993-$196.0 million; 1992-$214.4 million) of iron ore from
certain associated companies. During 1994, the Company earned royalties and
management fees of $44.7 million (1993-$39.5 million; 1992-$41.9 million) from
iron ore mining ventures of which $12.7 million in 1994 (1993-$10.7 million;
1992-$12.8 million) was paid by the Company as a participant in the ventures.
52
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
Costs and expenses incurred by the Company, on behalf of the ventures, are
charged to such ventures in accordance with management and operating
agreements. The Company's equity in the income of iron ore mining ventures is
credited to the cost of goods sold and includes the amortization to income of
the excess of the Company's equity in the underlying net assets over its
investment on the straight-line method based on the useful lives of the
underlying assets. The difference between the Company's equity in underlying
net assets and recorded investment results from the assumption of interests
from former participants in the mining ventures and from acquisition. The
Company's equity in the income of iron ore mining ventures was $19.5 million in
1994 (1993-$23.5 million; 1992-$32.8 million).
In February, 1994, the Company reached general agreement with Algoma Steel Inc.
("Algoma") and Stelco Inc. to restructure and simplify the Tilden Mine
operating agreement effective January 1, 1994. The principal terms of the new
agreement are (1) the participants' tonnage entitlements and cost-sharing are
based on a 6.0 million ton target normal production level instead of the
previous 4.0 million ton base production level, (2) the Company's interest in
the Tilden Magnetite Partnership has increased from 33.33% to 40.0% with an
associated increase in the Company's obligation for its share of mine costs,
(3) the Company is receiving a higher royalty, (4) the Company has the right to
supply any additional iron ore pellet requirements of Algoma from Tilden or the
Company, and (5) any partner may take additional production with payment of
certain fees to the Partnership. The parties implemented the general agreement
effective January 1, 1994 and are negotiating the detailed provisions of the
definitive agreement. The agreement has not had a material financial effect on
the Company's consolidated financial statements.
On June 28, 1993, LTV emerged from bankruptcy. The Company continues to
guarantee the partnership debt applicable to LTV's remaining 25% interest in
Empire which at December 31, 1994 was $9.1 million.
The Company's effectively serviced share of long-term obligations of associated
companies, including current portion, was $9.2 million as of December 31, 1994
(1993-$13.6 million). In addition, the Company guaranteed $13.7 million (which
includes the previously mentioned $9.1 million LTV guarantee) of Empire
long-term obligations which are effectively serviced by LTV and
Wheeling-Pittsburgh Steel Corporation. The fair value of the guarantees is
nominal because advances against the guarantees would be supported by ownership
interests in Empire. Maturities of the Company's share of Empire long-term
obligations for the two years after December 31, 1994 are $4.3 million in 1995
and a final $3.9 million in 1996. The Company's share of plant and equipment
and other property interests which secure the effectively serviced obligations
was $45.5 million at December 31, 1994.
53
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE D - INVESTMENTS
The Company elected early adoption of Financial Accounting Standards Board
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities," in 1993. Following is a summary of investment securities:
<TABLE>
<CAPTION>
(In Millions)
---------------------------------------------
Gross Estimated
Unrealized Fair
Cost Gains (Losses) Value
---- -------------- ---------
<S> <C> <C> <C>
December 31, 1994
-----------------------------------
Long-Term Investments
---------------------
Available-for-Sale
-------------------
Debt Securities $ .7 $ -- $ .7
LTV Common Stock 11.2 2.3 13.5
----- ----- -----
11.9 2.3 14.2
Held-to-Maturity
-----------------
Australian Government Securities 12.9 (.3) 12.6
----- ----- -----
Total Long-Term Investments $24.8 $ 2.0 $26.8
===== ===== =====
Marketable Securities
---------------------
Available-for-Sale
------------------
Debt Securities $ .8 $ -- $ .8
===== ===== =====
December 31, 1993
-----------------------------------
Long-Term Investments
---------------------
Available-for-Sale
-------------------
Debt Securities $ 6.8 $ .1 $ 6.9
LTV Common Stock 11.2 2.0 13.2
----- ----- -----
18.0 2.1 20.1
Held-to-Maturity
-----------------
Weirton Preferred Stock 25.0 -- 25.0
Australian Government Securities 12.4 .9 13.3
----- ----- -----
37.4 .9 38.3
----- ----- -----
Total Long-Term Investments $55.4 $ 3.0 $58.4
===== ===== =====
Marketable Securities
---------------------
Trading
-------
Debt and Equity Securities $93.0 $ .1 $93.1
===== ===== =====
</TABLE>
54
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The contractual maturities of the Available-for-Sale and Held-to-Maturity
securities at December 31, 1994 and 1993 are shown below.
<TABLE>
<CAPTION>
December 31, 1994 December 31,1993
(In Millions) (In Millions)
--------------------- -------------------
Estimated Estimated
Fair Fair
Cost Value Cost Value
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Available-for-Sale
------------------
Debt Instruments:
Due in one year or less $ .8 $ .8 $ -- $ --
Due after one year through three years -- -- .5 .5
Due after three years .7 .7 6.3 6.4
----- ----- ----- -----
1.5 1.5 6.8 6.9
LTV Common Stock 11.2 13.5 11.2 13.2
----- ----- ----- -----
$12.7 $15.0 $18.0 $20.1
===== ===== ===== =====
Held-to-Maturity
----------------
Debt Instruments:
Due in one year or less $ 8.7 $ 8.6 $ .7 $ .7
Due after one year through three years 4.2 4.0 11.7 12.6
----- ----- ----- -----
12.9 12.6 12.4 13.3
Weirton Preferred Stock -- -- 25.0 25.0
----- ----- ----- -----
$12.9 $12.6 $37.4 $38.3
===== ===== ===== =====
</TABLE>
Expected maturities may differ from contractual maturities.
In October, 1991, the Company invested $25 million in a special nonmarketable
redeemable preferred stock of Weirton Steel Corporation ("Weirton") with
mandatory redemption at par in 2003. On September 30, 1994, Weirton exercised
its right to redeem the preferred stock for $25 million plus accrued dividends.
The redemption of this investment (previously classified as a held-to-maturity
security) did not result in a gain or loss. The stock paid quarterly dividends
totaling $3.1 million per year. In conjunction with the preferred stock
redemption, agreement was reached to extend the Company's iron ore sales
contract with Weirton by two years through 2005. The contract calls for the
Company to supply Weirton with approximately 1.0 million tons of pellets
annually.
NOTE E - RESERVE FOR CAPACITY RATIONALIZATION
The Company initially established a reserve of $70 million in 1983 to provide
for expected costs of reorienting its mining joint ventures and facilities to
adjust to changed market conditions. During 1990, the Company increased the
reserve by $24.7 million as a result of restructuring Savage River Mines. In
1992 and 1993, $5.7 million and $5.6 million, respectively, were charged to the
reserve. During 1994, $3.8 million was credited to the reserve, primarily due
to foreign currency effects on the Australian closedown reserve. The balance at
December 31, 1994 was $34.3 million, with $7.1 million classified as a
reduction of other current assets.
55
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The reserve balance is principally for the eventual shutdown of Savage River
Mines, scheduled for early 1997, and the holding cost and eventual permanent
shutdown of the Republic Mine. The year of Republic Mine permanent shutdown has
not been determined. The Republic Mine is a potential site for a direct reduced
iron project. The Savage River Mines shutdown provision has been funded.
NOTE F - LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
(In Millions)
December 31
---------------------
1994 1993
----- -----
<S> <C> <C>
Term notes $75.0 $75.0
Other -- --
----- -----
Total 75.0 75.0
Less current portion 5.0 --
----- -----
$70.0 $75.0
===== =====
</TABLE>
In 1992, the Company completed a $75.0 million, medium-term, unsecured senior
note agreement with an insurance company group. One-third of the notes have an
interest rate of 8.5 percent, and two-thirds have an interest rate of 8.8
percent. The notes require annual repayments of principal beginning in 1995 and
1996, respectively, with final maturities in 1999 and 2002, respectively.
Aggregate maturities of long-term obligations in the five years succeeding
December 31, 1994 are $5.0 million for 1995 and $12.1 million in each of the
years 1996 through 1999.
The fair value of the Company's long-term debt (which had a carrying value of
$75.0 million) at December 31, 1994, was estimated at $73.6 million based on a
discounted cash flow analysis and estimates of current borrowing rates.
The senior unsecured note agreement requires the Company to maintain a minimum
consolidated adjusted net worth, excluding the effects of adoption of FAS 106
($218.2 million at December 31, 1994), an interest coverage ratio, and a
leverage ratio. The Company was in compliance with these covenants at December
31, 1994.
Effective March 1, 1995, the Company will terminate its existing $75 million
three-year revolving credit agreement, orginally due to expire on April 30,
1995, and will enter into a five-year, $100 million agreement. No borrowings
are outstanding under the revolving credit facilities.
NOTE G - RETIREMENT BENEFITS
Pensions
--------
The Company and its associated companies sponsor defined benefit pension plans
covering substantially all employees. The plans are noncontributory and
benefits generally are based on employees' years of service and average
earnings for a defined period prior to retirement. Pension obligations are
funded to the extent necessary to meet Federal requirements.
56
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
Pension costs, including the Company's proportionate share of the costs of
associated companies, was $.2 million in 1994 and credits of $2.7 million and
$2.1 million, in 1993 and 1992, respectively. The costs (credits) included
credits of $3.4 million, $3.2 million, and $3.0 million in 1994, 1993, and
1992, respectively, related to an idled operation which increased the Capacity
Rationalization Reserve and were not credited to income. Components of the
pension costs (credits) were as follows:
<TABLE>
<CAPTION>
(In Millions)
------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 3.7 $ 3.0 $ 3.1
Interest cost 14.4 13.4 13.1
Actual loss (return) on plan assets 1.5 (27.7) (10.9)
Net amortization and deferral (19.4) 8.6 (7.4)
----- ------ ------
$ .2 $ (2.7) $ (2.1)
===== ====== ======
</TABLE>
Most of the Company's pension funds are held in diversified collective trusts
with the funds contributed by partners in the mining ventures. Plan assets
principally include diversified marketable equity securities and corporate and
government debt securities, which are selected by professional asset managers.
The following table presents a reconciliation of the funded status of the
Company's plans, including its proportionate share of the plans of associated
companies, at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
(In Millions)
-------------------------------
1994 1993
--------- ---------
<S> <C> <C>
Plan assets at fair value $228.4 $239.6
Actuarial present value of benefit
obligation:
Vested benefits 156.7 168.8
Nonvested benefits 23.4 24.3
------ ------
Accumulated benefit obligation 180.1 193.1
Effect of projected compensation levels 13.3 21.8
------ ------
Projected benefit obligation 193.4 214.9
------ ------
Plan assets in excess of projected
benefit obligation 35.0 24.7
Unrecognized prior service costs 11.1 10.2
Unrecognized net asset at date of adoption
of FAS 87, net of amortization (34.1) (36.7)
Unrecognized net loss 9.0 22.2
------ ------
Prepaid cost $ 21.0 $ 20.4
====== ======
</TABLE>
57
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The weighted average discount rate and rate of increase in compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 8.5% and 4.0% at December 31, 1994 (7.25% and 4.0% at December
31, 1993), respectively. The expected long-term rate of return assumption
utilized for determining pension cost (credit) for the years 1994, 1993 and
1992 was 8%, 9% and 9% respectively. The assumption was changed to 8.5% on
December 31, 1994 for year 1995 pension cost (credit) determination.
In the event of plan termination, the sponsors could be required to fund
shutdown and early retirement obligations which are not included in the
accumulated benefit obligation.
Other Postretirement Benefits
-----------------------------
In addition to the Company's defined benefit pension plans, the Company and its
managed associated companies currently provide retirement health care and life
insurance benefits to most full-time employees who meet certain length of
service and age requirements. These benefits are provided through programs
administered by insurance companies whose charges are based on the benefits
paid during the year. If such benefits are continued, most active employees
would become eligible for these benefits when they retire.
In 1992, the Company adopted Financial Accounting Standard 106, "Accounting for
Postretirement Benefits Other than Pensions" (see Note A).
The following table presents a reconciliation of the funded status of the
Company's related plans, including its proportionate share of the plans of
associated companies, at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
(In Millions)
------------------------------
1994 1993
--------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $46.7 $55.4
Fully eligible active plan participants 2.2 5.2
Other active plan participants 16.8 21.6
----- -----
65.7 82.2
Plan assets (10.4) 0
----- -----
Accumulated postretirement benefit cost
obligation in excess of plan assets 55.3 82.2
Unrecognized prior service credit .1 0
Unrecognized gain (loss) 17.3 (11.8)
----- -----
Accrued postretirement benefit cost $72.7 $70.4
===== =====
</TABLE>
58
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
Net periodic postretirement benefit cost, including the Company's proportionate
share of the costs of associated companies, includes the following components:
<CAPTION>
(In Millions)
-----------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Service cost $1.1 $1.2 $1.0
Interest cost 5.6 5.7 5.5
Return on plan assets (.5) -- --
Net amortization and deferral .1 -- --
---- ---- ----
Net periodic postretirement benefit cost $6.3 $6.9 $6.5
==== ==== ====
</TABLE>
Consistent with prior years, the weighted average annual assumed rate of
increase in the per capita cost of Company-provided benefits was 13% for 1992
and 1993, 11% for 1994, 9% for 1995, decreasing to 5 percent for 1997 and
remaining at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. For example, changing the
assumed health care cost trend rate by one percentage point in each year would
change the accumulated postretirement benefit obligation, as of December 31,
1994 by $15.5 million, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1994 by $1.4
million. Amounts include the Company's proportionate share of the costs of
associated companies. Plan assets include $9.3 million of deposits, relating to
funded life insurance contracts, at January 1, 1994, that the Company
determined were available to fund retired employees' life insurance
obligations. As part of the 1993 labor contracts at Empire, Hibbing, and Tilden
Magnetite, Voluntary Employee Benefit Association Trusts ("VEBAs") have been
established. Funding of the VEBAs began in 1994 to cover a portion of the
postretirement benefit obligations of these associated companies. As a
participant, the Company's minimum annual contribution is $.7 million per year.
The Company's estimated actual contribution will approximate $1.3 million per
year based on its share of tons produced. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation was 8.5%
at December 31, 1994 (7.25% and 8.5% at December 31, 1993 and 1992,
respectively). The expected long-term rate of return on plan assets was 5.5%
in 1994.
59
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE H - INCOME TAXES
<TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1994, 1993 and 1992 are as follows:
<CAPTION>
(In Millions)
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Post-retirement benefits other than pensions $21.4 $21.1 $22.5
Other liabilities 19.3 10.6 5.2
Deferred development 9.4 7.1 3.7
Reserve for capacity rationalization 6.7 6.9 9.9
Accounts receivable 4.1 3.9 3.1
Current liabilities 4.4 3.7 3.3
Other assets 3.2 -- --
Product inventories 2.5 4.0 7.0
Plant and equipment -- 1.5 4.3
All other .1 2.1 5.2
----- ----- -----
Total deferred tax assets 71.1 60.9 64.2
Deferred tax liabilities:
Investment in associated companies 26.2 28.9 34.0
All other 21.5 11.4 6.7
----- ----- -----
Total deferred tax liabilities 47.7 40.3 40.7
----- ----- -----
Net deferred tax assets $23.4 $20.6 $23.5
===== ===== =====
</TABLE>
<TABLE>
The components of provision for income taxes before accounting changes are as
follows:
<CAPTION>
(In Millions)
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current $16.5 $19.0 $12.4
Deferred (1.8) 2.1 (1.8)
----- ----- -----
14.7 $21.1 $10.6
===== ===== =====
</TABLE>
The provision for income taxes included Australian federal income taxes of $1.9
million, $.9 million, and $.6 million for the years 1994, 1993 and 1992,
respectively.
60
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
The reconciliation of effective income tax rate and United States statutory
rate is as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
Increase (decrease) due to:
Percentage depletion in excess
of cost depletion (7.9) (4.5) (10.9)
Effect of foreign taxes .2 -- .2
Prior years' tax adjustment ( .9) (2.9) 2.2
Corporate dividends received (1.0) (1.0) (1.8)
Other items - net .2 1.2 1.9
---- ---- ----
Effective tax rate 25.6% 27.8% 25.6%
==== ==== ====
</TABLE>
NOTE I - BANKRUPTCY SETTLEMENT
Following a 1986 filing, LTV emerged from bankruptcy in June, 1993. In final
settlement of its allowed claim, the Company received 2.3 million shares of LTV
Common Stock and 4.4 million Contingent Value Rights, valued at $31.6 million
and $4.1 million, respectively, resulting in a total gain in 1993 of $35.7
million ($23.2 million after-tax, or $1.93 per share). On July 13, 1993, the
Company distributed to its common stockholders, a special dividend of 1.5
million shares of LTV Common Stock, valued at $20.4 million, and $12.0 million
($1.00 per share) cash. The Company has retained the remaining .8 million
shares of LTV stock as an investment.
NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and fair value of the Company's financial instruments at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
(In Millions)
------------------------
Carrying Fair
Amount Value
-------- -------
<S> <C> <C>
Cash and cash equivalents $140.6 $140.6
Marketable securities:
Available-for-Sale 12.7 15.0
Held-to-Maturity 12.9 12.6
------ ------
Total securities 25.6 27.6
Long-term debt 75.0 73.6
</TABLE>
The Company also has forward currency contracts at December 31, 1994 of $12.0
million with a fair value of $12.4 million.
61
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE K - STOCK PLANS
The 1987 Incentive Equity Plan authorizes the Company to make grants and awards
of stock options, stock appreciation rights and restricted or deferred stock
awards to officers and key employees, for up to 750,000 Common Shares (plus an
additional 89,045 Common Shares reserved for issuance, but not issued, under
the Company's 1979 Restricted Stock Plan). The 1992 Incentive Equity Plan
authorizes the Company to issue up to 595,000 Common Shares upon the exercise
of Options Rights, as Restricted Shares, in payment of Performance Shares or
Performance Units that have been earned, as Deferred Shares, or in payment of
dividend equivalents paid with respect to awards made under the Plan. Such
shares may be shares of original issuance or treasury shares or a combination
of both. Stock options may be granted at a price not less than the fair market
value of the stock on the date the option is granted and must be exercisable
not later than ten years and one day after the date of grant. Stock
appreciation rights may be granted either at or after the time of grant of a
stock option. Common shares may be awarded or sold to certain employees with
restrictions as to disposition over specified periods. The market value of
restricted stock awards and Performance Shares is charged to expense over the
vesting period. Option prices were adjusted in 1991 and 1993 to recognize the
effect of special dividends to shareholders.
<TABLE>
Stock option, restricted stock award, and performance share activities are
summarized as follows:
<CAPTION>
1994 1993 1992
------------------------ --------------------- -----------------------
Shares Price Shares Price Shares Price
-------- ----------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stock options:
Options outstanding
beginning of year 105,125 $ 8.51-34.80 160,650 $6.68-37.50 229,433 $6.68-28.13
Granted 5,500 35.50-37.13 5,000 32.56 5,000 37.50
Exercised (27,943) 8.51-34.80 (60,525) 6.68-26.31 (66,783) 6.68-26.31
Cancelled (500) 35.50 -0- -- (7,000) 21.77
-------- -------- --------
Options outstanding at end of year 82,182 8.51-37.13 105,125 8.51-34.80 160,650 6.68-37.50
Options exercisable at end of year 82,182 8.51-37.13 105,125 8.51-34.80 114,275 6.68-37.50
Restricted awards:
Awarded and restricted at beginning
of year 20,218 10,990 20,083
Awarded during the year 8,000 15,277 500
Vested (14,954) (6,049) (9,593)
Cancelled -0- -0- -0-
-------- -------- --------
Awarded and restricted at end of year 13,264 20,218 10,990
Performance shares:
Allocated beginning of year -0-
Allocated during the year 42,067
Forfeited (750)
--------
Allocated end of year 41,317
Reserved for future grants or awards at end
of year 521,907 576,224 596,501
</TABLE>
62
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE L - SHAREHOLDERS' EQUITY
As of December 31, 1994, the Company is authorized to issue up to 500,000
shares of Class A voting preferred stock, without par value, and up to
4,000,000 shares of Class B non-voting preferred stock, without par value.
A share purchase right ("Right") is attached to each of the Company's Common
Shares outstanding as of December 31, 1993, or subsequently issued. Each Right
entitles the holder to buy from the Company eleven one-thousandths (.011) of
one Common Share at an exercise price per whole share of $39.11. The Rights
become exercisable if a person or group acquires, or tenders for, 20% or more
of the Company's Common Shares. The Company is entitled to redeem the Rights at
5 cents per Right at any time until ten days after any person or group has
acquired 20% of the Common Shares and in certain circumstances thereafter. If a
party owning 20% or more of the Company's Common Shares merges with the Company
or engages in certain other transactions with the Company, each Right, other
than Rights held by the acquiring party, entitles the holder to buy $78.22
worth of the shares of the surviving company at a 50% discount. The Rights
expire on September 18, 1997 and are not exercisable until the occurrence of
certain triggering events, which include the acquisition of, or a tender or
exchange offer for, 15% or more of the Company's Common Shares. There are
168,279 Common Shares reserved for these Rights.
In January, 1995, the Company announced a program of periodic repurchases of up
to 600,000 shares of its Common Stock in the open market or in negotiated
transactions. This represents about 5% of the approximately 12.1 million Common
shares outstanding. The stock will initially be retained as Treasury Stock.
NOTE M - LITIGATION
The Company and its associated companies are periodically involved in
litigation incidental to their operations. Management believes that any pending
litigation will not result in a material liability in relation to the Company's
consolidated financial statements.
63
<PAGE> 1
QUARTERLY RESULTS OF OPERATIONS - (Unaudited) Exhibit 13(h)
(In Millions Except Per Share Amounts)
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------------
Quarters
-----------------------------------------------------
First Second Third Fourth Year
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Revenues $49.5 $ 85.0 $111.0 $143.4 $388.9
Gross Profit 8.6 19.6 23.6 27.8 79.6
Net Income
Amount 2.2 10.4 14.8 15.4 42.8
Per Common Share .18 .86 1.23 1.27 3.54
</TABLE>
Fourth quarter results of operations included Northshore beginning October 1,
1994.
<TABLE>
1993
--------------------------------------------------------------------
Quarters
-----------------------------------------------------
First Second Third Fourth Year
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Revenues $43.3 $121.7 $ 87.6 $103.3 $355.9
Gross Profit 3.4 19.2 12.3 20.1 55.0
Net Income (Loss)
Amount (.1) 33.5 7.2 14.0 54.6
Per Common Share (.01) 2.79 .60 1.17 4.55
</TABLE>
Second quarter results included income of $34.8 million pre-tax ($23.0 million
after tax) from the LTV bankruptcy recovery; third quarter results included the
effect of the six-week strike, $6.9 million pre-tax ($5.4 million after tax);
and fourth quarter results included a $1.3 million tax credit representing a
prior year adjustment.
--------------------------------------------------------------------------------
COMMON SHARE PRICE PERFORMANCE AND DIVIDENDS
<TABLE>
<CAPTION>
Price Performance
---------------------------------------------------
1994 1993 Dividends
--------------------- --------------------- --------------------
High Low High Low 1994 1993
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $45-1/2 $36-3/8 $36-7/8 $32-1/2 $ .30 $ .30
Second Quarter 42-7/8 34-3/8 34-7/8 31-1/2 .30 .30
Third Quarter 42-1/8 35-5/8 35-5/8 28-3/4 .30 3.00*
Fourth Quarter 40-1/8 34 37-1/2 31 .325 .30
------ -----
Year 45-1/2 34 37-1/2 28-3/4 $1.225 $3.90
====== =====
<FN>
*Includes a $2.70 per share special dividend.
</TABLE>
64
<PAGE> 1
INVESTOR AND CORPORATE INFORMATION Exhibit 13(i)
STOCK EXCHANGE INFORMATION
The principal market for Cleveland-Cliffs Inc common shares (ticker symbol CLF)
is the New York Stock Exchange. The common shares are also listed on the
Chicago Stock Exchange.
65
<PAGE> 1
<TABLE>
Exhibit 13(j)
11-YEAR SUMMARY OF FINANCIAL AND OTHER STATISTICAL DATA
Cleveland-Cliffs Inc and Consolidated SubsidiarIes
<CAPTION>
1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL
(In Millions Except Per Share Amounts)
For The Year
Net Income (Loss):
Continuing Operations (a) $ 42.8 $ 54.6 $ (7.9) $ 53.8
Discontinued Operations - - - -
----------------------------------------------------
Total 42.8 54.6 (7.9) 53.8
Net Income (Loss) Per Common Share:
Continuing Operations (a) 3.54 4.55 (.66) 4.55
Discontinued Operations - - - -
----------------------------------------------------
Total 3.54 4.55 (.66) 4.55
Revenues From Continuing Operations (a) 388.9 355.9 327.0 363.3
Cash Dividends:
Per Common Share 1.23 2.20 1.18 5.03
Per Preferred Share - - - -
Non-Cash Dividends:
Per Common Share - 1.70 (b) - -
Capital Expenditures (c) 10.9 5.0 5.2 7.3
At Year-End
Working Capital 169.5 186.0 188.9 139.7
Total Assets 616.5 549.1 537.2 478.7
Long-Term Debt:
Consolidated 75.0 75.0 75.1 41.2
Effectively Serviced (c) 84.2 88.6 92.1 65.0
Shareholders' Equity 311.4 280.4 269.5 290.8
Book Value Per Common Share 25.74 23.25 22.47 24.40
<FN>
(a) Results have been affected by the acquisition of Northshore in 1994
and non-recurring items including net bankruptcy recoveries of $23.2
million and $47.1 million in 1993 and 1990, respectively, and a $38.7
million after-tax charge for accounting changes in 1992. See Management's
Discussion and Analysis.
(b) Non-cash distribution of 1.5 million shares ($20.4 million) of LTV
Corporation common stock.
(c) Includes the Company's share of associated companies.
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPERATIONS
Iron Ore Production From Mines Managed by Cliffs
(Millions of Gross Tons)
<S> <C> <C> <C> <C>
United States 30.6 27.8 28.4 27.6
Canada 4.6 4.5 4.5 4.5
Australia 1.5 1.5 1.5 1.3
----------------------------------------------------
Total 36.7 33.8 34.4 33.4
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OTHER INFORMATION
Common Shares Outstanding (Millions):
<S> <C> <C> <C> <C>
Average For Year 12.1 12.0 12.0 11.8
At Year-End 12.1 12.1 12.0 11.9
Common Shares Sales Price Range:
High $45 1/2 $37 1/2 $40 3/8 $36 1/2
Low 34 28 3/4 29 1/2 25
Employees At Year-End (d) 6,309 5,973 6,388 6,500
<FN>
(d) Includes employees of managed mining ventures.
At December 31, 1994, the Company had 3,429 record holders of its common shares.
</TABLE>
66
<PAGE> 2
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL
(In Millions Except Per Share Amounts)
For The Year
Net Income (Loss):
Continuing Operations (a) $ 73.8 $ 62.5 $ 42.6 $ 30.2 $ (19.0) $ 28.3 $ 24.8
Discontinued Operations - (1.9) (3.4) (17.5) (22.7) (11.1) (.7)
------------------------------------------------------------------------------------
Total 73.8 60.6 39.2 12.7 (41.7) 17.2 24.1
Net Income (Loss) Per Common Share:
Continuing Operations (a) 6.31 5.37 3.12 1.88 (1.94) 2.13 2.00
Discontinued Operations - (.17) (.26) (1.31) (1.82) (.90) (.06)
------------------------------------------------------------------------------------
Total 6.31 5.20 2.86 .57 (3.76) 1.23 1.94
Revenues From Continuing Operations (a) 400.2 372.4 317.5 412.0 241.0 267.9 321.3
Cash Dividends:
Per Common Share .80 .40 - - .35 1.00 1.00
Per Preferred Share - - 2.00 2.00 2.00 .68 -
Non-Cash Dividends:
Per Common Share - - .79 - - - -
Capital Expenditures (c) 11.2 14.6 8.4 2.0 3.4 4.4 10.5
At Year-End
Working Capital 169.8 104.7 45.0 220.3 110.0 114.0 77.3
Total Assets 510.9 415.2 390.6 665.6 527.2 511.7 481.5
Long-Term Debt:
Consolidated 53.0 71.3 119.6 153.5 80.5 35.4 50.0
Effectively Serviced (c) 82.4 93.4 145.7 183.5 305.3 200.9 234.9
Shareholders' Equity 290.8 226.0 168.6 395.4 325.5 363.9 316.7
Book Value Per Common Share 24.88 19.36 14.53 21.02 22.16 25.24 25.52
<FN>
(a) Results have been affected by the acquisition of Northshore in 1994
and non-recurring items including net bankruptcy recoveries of $23.2
million and $47.1 million in 1993 and 1990, respectively, and a $38.7
million after-tax charge for accounting changes in 1992. See Management's
Discussion and Analysis.
(b) Non-cash distribution of 1.5 million shares ($20.4 million) of LTV
Corporation common stock.
(c) Includes the Company's share of associated companies.
</TABLE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPERATIONS
Iron Ore Production From Mines Managed by Cliffs
(Millions of Gross Tons)
<S> <C> <C> <C> <C> <C> <C> <C>
United States 25.5 31.0 31.1 27.1 10.6 12.5 12.9
Canada 6.2 8.3 7.9 7.2 2.0 2.1 2.1
Australia 2.2 2.3 2.4 2.0 - 14.7 15.3
------------------------------------------------------------------------------------
Total 33.9 41.6 41.4 36.3 12.6 29.3 30.3
</TABLE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OTHER INFORMATION
Common Shares Outstanding (Millions):
<S> <C> <C> <C> <C> <C> <C> <C>
Average For Year 11.7 11.6 13.2 13.4 12.4 12.4 12.4
At Year-End 11.7 11.7 11.6 16.4 12.4 12.4 12.4
Common Shares Sales Price Range:
High $ 35 $ 34 $ 28 $21 3/8 $19 3/8 $22 1/4 $ 26
Low 19 5/8 25 3/4 14 1/4 9 1/4 6 16 5/8 17
Employees At Year-End (d) 6,695 7,522 7,638 8,328 8,972 6,387 7,248
<FN>
(d) Includes employees of managed mining ventures.
At December 31, 1994, the Company had 3,429 record holders of its common shares
</TABLE>
67
<PAGE> 1
Exhibit 21
Subsidiaries of Cleveland-Cliffs Inc
------------------------------------ Jurisdiction
of
Incorporation
or
Name of Subsidiary Organization
------------------ ------------
Cleveland-Cliffs Company (1) Ohio
Cleveland-Cliffs Ore Corporation (1), (2), (3) Ohio
Cliffs Biwabik Ore Corporation (2) Minnesota
Cliffs Copper Corp. Ohio
Cliffs Empire, Inc. (1), (4) Michigan
Cliffs Engineering, Inc. (1) Colorado
Cliffs Forest Products Company (1) Michigan
Cliffs Fuel Service Company (1) Michigan
Cliffs IH Empire, Inc. (1) Michigan
Cliffs Marquette, Inc. (1), (3) Michigan
Cliffs MC Empire, Inc. (1), (4) Michigan
Cliffs Mining Company Delaware
Cliffs Mining Services Company Delaware
Cliffs Minnesota Minerals Company Minnesota
Cliffs Oil Shale Corp. (1) Colorado
Cliffs of Canada Limited (1) Ontario, Canada
Cliffs Reduced Iron Corporation Delaware
Cliffs Resources, Inc. (7) Delaware
Cliffs Synfuel Corp. (1) Utah
Cliffs Tilden, Inc. (1), (2) Michigan
Cliffs TIOP, Inc. (1), (8), (9) Michigan
Empire-Cliffs Partnership (4) Michigan
Empire Iron Mining Partnership (10) Michigan
Escanaba Properties Company (1), (11) Michigan
Escanaba Properties Partnership (11) Michigan
Hibbing Taconite Company, a joint venture (12) Minnesota
J&L-Cliffs Ore Partnership (2), (13) Ohio
Kentucky Coal Company Delaware
Lake Superior & Ishpeming Railroad Company (7) Michigan
Lasco Development Company (7) Michigan
Marquette Iron Mining Partnership (3) Michigan
Mattagami Mining Co. Limited (14) Ontario, Canada
Mesabi Radio Corporation (14) Minnesota
Minerais Midway Ltee-Midway Ore Company Ltd. (14) Quebec, Canada
Mines Hilton Ltee-Hilton Mines, Ltd. (14) Quebec, Canada
Northshore Mining Company (5) Delaware
Northshore Sales Company (6) Ohio
Northwest Iron Co. Ltd. (15) Delaware
Peninsula Land Corporation (14) Michigan
---------------
See footnote explanation on pages 69-70.
68
<PAGE> 2
Jurisdiction
of
Incorporation
or
Name of Subsidiary Organization
------------------ ------------
Pickands Erie Corporation (14) Minnesota
Pickands Hibbing Corporation (14) Minnesota
Pickands Mather & Co. International Delaware
Pickands Mather Services Inc. (14) Delaware
Pickands Radio Co. Ltd. (14) Quebec, Canada
Robert Coal Company (16) Delaware
Savage River Motor Inn Pty. Ltd. (17) Tasmania
Seignelay Resources, Inc. (14) Delaware
Silver Bay Power Company (6) Delaware
Syracuse Mining Company (14) Minnesota
Tetapaga Mining Company Limited (1) Ohio
Tilden Iron Ore Partnership (6), (13) Michigan
Tilden Magnetite Partnership (9) Michigan
Tilden Mining Company, a joint venture (2), (8), (13) Michigan
The Cleveland-Cliffs Iron Company Ohio
The Cleveland-Cliffs Steamship Company (1) Delaware
The Mesaba-Cliffs Mining Company (18) Minnesota
Virginia Eastern Shore Land Co. (1) Delaware
---------------
(1) The named subsidiary is a wholly-owned subsidiary of The
Cleveland-Cliffs Iron Company, which in turn is a wholly-owned
subsidiary of Cleveland-Cliffs Inc.
(2) J&L-Cliffs Ore Partnership is an Ohio partnership and a 36% associate
in the Tilden Mining Company, a joint venture. Cleveland-Cliffs Ore
Corporation and Cliffs Tilden, Inc., wholly-owned subsidiaries of The
Cleveland-Cliffs Iron Company, have a combined 100% interest in the
J&L-Cliffs Ore Partnership. Cleveland-Cliffs Ore Corporation also
owns 100% of Cliffs Biwabik Ore Corporation.
(3) Marquette Iron Mining Partnership is a Michigan partnership.
Cleveland-Cliffs Ore Corporation and Cliffs Marquette, Inc.,
wholly-owned subsidiaries of The Cleveland-Cliffs Iron Company, have
a combined 100% interest in Marquette Iron Mining Partnership.
(4) Empire-Cliffs Partnership is a Michigan partnership. Cliffs MC
Empire, Inc. and Cliffs Empire, Inc., wholly-owned subsidiaries of
The Cleveland-Cliffs Iron Company, have a combined 100% interest in
Empire-Cliffs Partnership.
(5) The named subsidiary is a wholly-owned subsidiary of Cliffs Minnesota
Minerals Company, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
69
<PAGE> 3
(6) The named subsidiary is a wholly-owned subsidiary of Northshore
Mining Company, which in turn is a wholly-owned subsidiary of Cliffs
Minnesota Minerals Company.
(7) Cliffs Resources, Inc. owns a 99.3% interest in Lake Superior &
Ishpeming Railroad Company. Lasco Development Company is a
wholly-owned subsidiary of Lake Superior & Ishpeming Railroad
Company.
(8) Tilden Iron Ore Partnership is a Michigan partnership and a 64%
associate in the Tilden Mining Company, a joint venture. Cliffs TIOP,
Inc., a wholly-owned subsidiary of The Cleveland-Cliffs Iron Company,
has a 37.5% interest in the Tilden Iron Ore Partnership.
(9) Tilden Magnetite Partnership is a Michigan partnership. Cliffs TIOP,
Inc., a wholly-owned subsidiary of The Cleveland-Cliffs Iron Company,
has a 33.333% interest in the Tilden Magnetite Partnership.
(10) Empire Iron Mining Partnership is a Michigan partnership. The
Cleveland-Cliffs Iron Company has a 22.56% indirect interest in the
Empire Iron Mining Partnership.
(11) Escanaba Properties Partnership is a Michigan partnership. Escanaba
Properties Company, a wholly-owned subsidiary of The Cleveland-Cliffs
Iron Company, has a 87.5% interest in the Escanaba Properties
Partnership.
(12) Cliffs Mining Company has a 10% and Pickands Hibbing Corporation has
a 5% interest in Hibbing Taconite Company, a joint venture.
(13) Tilden Mining Company is a joint venture in which Tilden Iron Ore
Partnership is a 64% associate and J&L-Cliffs Ore Partnership is a
36% associate.
(14) The named subsidiary is a wholly-owned subsidiary of Cliffs Mining
Company, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
(15) Cliffs Mining Company owns a 72.4% interest in Northwest Iron Co.
Ltd.
(16) The named subsidiary is a wholly-owned subsidiary of Kentucky Coal
Company, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
(17) The named subsidiary is a wholly-owned subsidiary of Pickands Mather
& Co. International, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
(18) The Cleveland-Cliffs Iron Company owns a 86.4% interest in The
Mesaba-Cliffs Mining Company.
70
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Post-Effective Amendment
Number 1 to the Registration Statement (Form S-8 No. 33-4555) pertaining to the
Restricted Stock Plan of Cleveland-Cliffs Inc, in the Registration Statement
(Form S-8 No. 33-208033) pertaining to the 1987 Incentive Equity Plan of
Cleveland-Cliffs Inc and the related prospectus and in the Registration
Statement (Form S-8 No. 33-48357) pertaining to the 1992 Incentive Equity Plan
and the related prospectus and in the Registration Statement (Form S-8 No.
33-56661) pertaining to the Northshore Mining Company and Silver Bay Power
Company Retirement Savings Plan and the related prospectus of our report dated
February 14, 1995, with respect to the consolidated financial statements and
schedule of Cleveland-Cliffs Inc and consolidated subsidiaries included in this
Annual Report (Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Cleveland, Ohio
March 24, 1995
71
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors and officers
of Cleveland-Cliffs Inc, an Ohio corporation ("Company"), hereby constitute and
appoint M. Thomas Moore, John S. Brinzo, Frank L. Hartman, and John E. Lenhard
and each of them, their true and lawful attorney or attorneys-in-fact, with
full power of substitution and revocation, for them and in their name, place
and stead, to sign on their behalf as a Director or officer of the Company, or
both, as the case may be, an Annual Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended
December 31, 1994, and to sign any and all amendments to such Annual Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney or attorneys-in-fact, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorney or attorneys-in-fact or any of them or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Executed as of the 14th day of March, 1995.
/s/M. T. Moore /s/A. Schwartz
------------------------------ -----------------------------
M. T. Moore A. Schwartz, Director
Chairman, President and Chief
Executive Officer and Director
(Principal Executive Officer) /s/S. K. Scovil
-----------------------------
S. K. Scovil, Director
/s/R. S. Colman
------------------------------
R. S. Colman, Director /s/J. H. Wade
-----------------------------
J. H. Wade, Director
/s/J. D. Ireland III
------------------------------
J. D. Ireland III, Director /s/A. W. Whitehouse
-----------------------------
A. W. Whitehouse, Director
/s/G. F. Joklik
------------------------------
G. F. Joklik, Director /s/J. S. Brinzo
-----------------------------
J. S. Brinzo
Senior Executive-Finance
/s/E. B. Jones (Principal Financial Officer)
------------------------------
E. B. Jones, Director
/s/R. Emmet
-----------------------------
/s/L. L. Kanuk R. Emmet
------------------------------ Vice President and Controller
L. L. Kanuk, Director (Principal Accounting Officer)
/s/S. B. Oresman
------------------------------
S. B. Oresman, Director
72
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from statements of consolidated income, consolidated financial
position and computation of earnings per share and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000764065
<NAME> Cleveland-Cliffs Inc
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-01-1994
<PERIOD-END> Dec-31-1994
<CASH> 140
<SECURITIES> 1
<RECEIVABLES> 66
<ALLOWANCES> 20
<INVENTORY> 40
<CURRENT-ASSETS> 269
<PP&E> 248
<DEPRECIATION> (138)
<TOTAL-ASSETS> 617
<CURRENT-LIABILITIES> 100
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 294
<TOTAL-LIABILITY-AND-EQUITY> 617
<SALES> 335
<TOTAL-REVENUES> 389
<CGS> 300
<TOTAL-COSTS> 315
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 58
<INCOME-TAX> 15
<INCOME-CONTINUING> 43
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43
<EPS-PRIMARY> 3.54
<EPS-DILUTED> 3.54
</TABLE>
<PAGE> 1
Exhibit 99(a)
<TABLE>
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(Dollars in Millions)
<CAPTION>
Additions
----------------------
Charged
Balance at to Cost Charged Balance at
Beginning and to Other End
Classification Of Year Expenses Accounts Deductions Of Year
-------------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Reserve for Capacity
Rationalization $30.5 $ -- $6.9 $3.1 $34.3
Allowance for Doubtful
Accounts 19.5 -- -- -- 19.5
Other 13.7 .4 5.8 1.3 18.6
Year Ended December 31, 1993:
Reserve for Capacity
Rationalization $36.1 $ -- $1.3 $6.9 $30.5
Allowance for Doubtful
Accounts 20.8 -- -- 1.3 19.5
Other 8.3 -- 5.4 -- 13.7
Year Ended December 31, 1992:
Reserve for Capacity
Rationalization $35.6 $ -- $4.9 $4.4 $36.1
Allowance for Doubtful
Accounts 3.1 17.5 0.2 -- 20.8
Other 12.0 3.5 -- 7.2 8.3
</TABLE>
Additions charged to other accounts in 1994, 1993 and 1992 were charged to
revenues.
Deductions to the reserve for capacity rationalization represent charges
associated with idle expense in 1994, 1993 and 1992.
73
