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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1996
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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF 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
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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 17, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price of $41.75 per share
as reported on the New York Stock Exchange - Composite Index was $459,100,368
(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 11,389,541 as of March 17, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's 1996 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 13, 1997 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, three major operating
subsidiaries, The Cleveland-Cliffs Iron Company ("CCIC"), Cliffs Mining Company
("CMC") (formerly known as Pickands Mather & Co.), and Northshore Mining Company
("Northshore"). A fourth operating subsidiary, Pickands Mather & Co.
International ("PMI"), terminated operations at the end of 1996. 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
1996 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 1994-1996, 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, 1996, 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 "Summary of Financial and Other Statistical Data" in the
Company's Annual Report to Security Holders for the year ended December 31,
1996, which 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 1.45 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 42.1 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
99.5% 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, Quebec, where they
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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 7.7% 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 to steel manufacturers pursuant to
multi-year contracts, usually with price escalation provisions, or one-year
contracts. 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 1996, the North
American mines operated at or near capacity levels.
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 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 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 are required as a result of certain favorable expansion conditions which
payments would not be material in any year. In June, 1995, a $6 million pellet
expansion project at Northshore, which involved the re-commissioning of an idled
pelletizing unit, was completed. On an annualized basis, the expansion added
approximately 900,000 tons of pellets, a 23% expansion of Northshore capacity.
Production in 1996 was 4.3 million tons of standard and flux pellets.
In 1992, the Company purchased $1.0 million worth of steel from LCG
Funding Corporation, an entity owned by the principal owner of Sharon Steel
Corporation ("Sharon"), which had filed for protection under Chapter 11 of the
U.S. Bankruptcy laws, 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 in 1995, the Company filed suit against Castle Harlan, Inc. and
LCG Funding Corporation in Federal District Court. During 1995, the Company,
Castle Harlan, Inc. and LCG Funding Corporation settled the legal proceedings
out of court and full payment of the loss was made to the Company in 1996.
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On September 29, 1995, McLouth Steel Products Company ("McLouth")
petitioned for protection under Chapter 11 of the U.S. Bankruptcy Code. At the
time of the bankruptcy filing, the Company had an unreserved receivable from
McLouth of $5.0 million, secured by liens on certain McLouth fixed assets.
Reserves of $3.4 million have been recorded against the receivable. On March 15,
1996, McLouth announced that it had begun a shutdown of its operations due to
inadequate funds. The Company had supplied 300,000 tons of pellets to McLouth in
1996 prior to shutdown. The Company reserved all financial exposure from the
McLouth shutdown, except the remaining unreserved receivable which is secured by
first liens on property and equipment. On June 26, 1996, the bankruptcy court
approved the sale of McLouth's assets and an agreement to settle secured claims,
including the Company's secured claim. Based on the terms of the agreement, the
Company expects to recover the carrying value of its secured claim. Proceeds
from the sale of McLouth's assets will be used primarily to satisfy
administrative claims, including the Company's administrative claim. The
Company's total shipments in 1996 were not affected by McLouth's bankruptcy
filing or the shutdown of its operations. Although sales to McLouth in 1996 were
only 300,000 tons prior to shutdown in the first quarter, compared to 1.3
million tons in all of 1995, sales of the remaining available tons in 1996 were
made to other customers.
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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 full production rates, which could be affected, among other things, by
future industry conditions, geological 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 expected quality of ore reserves could
decrease capacity or accelerate exhaustion dates. Technological progress could
alleviate such factors or increase capacity or mine life.
<TABLE>
<CAPTION>
Company's Current
Current Pellet Production Current Operating Implied
Operating ------------------------ Annual Continuously Exhaustion
Name and Location Type of Ore Interest 1994 1995 1996 Capacity Since Date (1)
- ----------------- -------------- -------- ------ ------ ----- -------- ------------ ----------
(Tons in Thousands)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mining Ventures
- ---------------
Michigan
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Marquette Range
- Empire Iron Mining
Partnership (3) Magnetite 22.56% 7,306 7,910 8,084 8,000 1963 2019
- Tilden Mining Hematite and
Company L.C.(3) Magnetite 40.00%(4) 6,246 6,186 6,702 7,000(4) 1974 2036
Minnesota
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Mesabi Range
- Hibbing Taconite
Joint Venture (5) Magnetite 15.00% 8,355 8,615 8,120 8,270 1976 2028
- LTV Steel Mining
Company (5) Magnetite 0.00% 7,809 7,757 7,457 8,000 1957 2049
Canada
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Wabush Mines
(Newfoundland and Specular
Quebec) (5)(6) Hematite 7.69% 4,654 5,295 5,309 6,000(6) 1965 2042
Wholly-Owned Entities
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Minnesota
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Mesabi Range
- Northshore Mining
Company (7) Magnetite 100.00% 865(7) 3,791 4,252 4,800(8) 1989 2072
Australia
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- Savage River
Mines (9)
(Tasmania) Magnetite 100.00% 1,483 1,557 1,583 (9) 1967(9) 1996(9)
------ ------ ------
TOTAL 36,718 41,111 41,507 42,070
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</TABLE>
(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) As a result of the restructuring of the Tilden Mining Company and the Tilden
Magnetite Partnership into the Tilden Mining Company L.C., effective as of
January 1, 1994, CCIC's entitlement ownership in the Tilden Mine increased
from 33.3% to 40.0%. As a result of these arrangements, annual production
capacity is targeted at a minimum of 6 million tons annually (7 million tons
are initially nominated for 1997), and could be increased to 8 million tons,
depending on type of ore production. The predominant ore reserves are
hematite.
(5) CMC received no royalty payments with respect to such mine, but did receive
management fees.
(6) In 1991, the mine's annual production capacity was reduced to 4.5 million
tons per year and was increased to 6 million tons in 1996. For both the
years 1995 and 1996, annual production was increased to 5.3 million tons and
5.7 million tons.
(7) Acquired by the Company on September 30, 1994. Pellet production for
Northshore for the three months ending December 31, 1994 was 865,000
tons.Pellet production for Northshore for the years ending 1994, 1995 and
1996 was 3,481,000 tons, 3,791,000 tons and 4,252,000 tons, respectively.
(8) Includes 900,000 annual tons of expansion completed in June, 1995.
(9) Savage River Mines will terminate shipments in the first quarter of 1997.
(See discussion on page 6.)
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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 and
Northshore Mine, 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 and expansion of Northshore, the Company's managed
capacity has increased to approximately 42.1 million tons, or 48% of total
pellet capacity in North America, and the Company's annual North American pellet
sales capacity increased in 1996 from 10.7 to 10.8 million tons. In 1996, the
Company produced 10.4 million tons of pellets in North America for its own
account.
In 1996, the Company produced 29.5 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,
Algoma, Inland Steel Company, LTV and Stelco, aggregated 26.3 million gross
tons, or 89.5%. The largest such participant accounted for 32.2% of such
production.
During 1996, 100% of the Company's sales of iron ore and pellets, that
were produced in the United States and Canada for its own account or purchased
from others, were to 13 U.S., Canadian and European iron and steel manufacturing
companies.
In 1996, AK Steel, Weirton Steel Company, and WCI, directly and
indirectly accounted for 15%, 12%, and 11%, 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. Production at Savage
River Mines was terminated prior to year-end 1996 due to exhaustion of the
economically recoverable iron ore from surface mining. Remaining inventory is
expected to be shipped during the first quarter of 1997. No significant earning
contribution is expected in 1997. The mine operated two years beyond the
original schedule established when the Company acquired full ownership in 1990.
Termination costs have been provided in the capacity rationalization reserve.
The Company's subsidiary, Pickands Mather & Co. International ("PMI"),
received notice from the Tasmanian government in 1996 asserting certain
environmental obligations in connection with rehabilitating the Savage River
Mine site. PMI has asserted that all obligations to rehabilitate the mine and
plant sites are specified in the Rehabilitation Plan agreement between the
State of Tasmania and PMI, which
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agreement was formalized in June, 1990 by an Act of Parliament and was
a condition of PMI's acquisition of interests in the mine from Japanese steel
companies. PMI has provided reserves for all environmental and other
rehabilitation obligations specified in the Rehabilitation Plan.
On December 5, 1996, PMI and the State of Tasmania entered into a Deed
of Arrangement whereby the assets (including $8.7 million in cash) and all
environmental and rehabilitation obligations of the Savage River Mines will be
transferred to the Tasmanian government. The transfer is contingent on certain
events which are anticipated to be completed in March, 1997.
RAIL TRANSPORTATION. The Company, through a wholly-owned subsidiary,
owns a 99.5% 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 1996, 86.1% 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 Surface Transportation Board of the Department of Transportation.
Other Activities and Resources
------------------------------
REDUCED IRON. The Company's strategy is to grow its basic iron ore
business domestically and internationally 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.
On April 15, 1996, the Company announced an international joint venture
to produce and market premium quality reduced iron briquettes for the steel
industry, and all definitive project agreements were signed in May, 1996. The
venture's participants, through subsidiaries, are the Company, through Cliffs
Reduced Iron Corporation, (46.5 percent), The LTV Corporation, (46.5 percent),
and Lurgi AG of Germany, (7 percent). The Company, through Cliffs Reduced Iron
Management Company, manages the $150 million reduced iron project, located in
Trinidad and Tobago, and will be responsible for sales by the venture company,
Cliffs and Associates Limited. The Company's share of capital expenditures is
estimated to be $70 million, of which $13.1 million was spent in 1996 and $46
million is expected to be spent in 1997. No project financing will be utilized.
The plant is designed to produce at least 500,000 metric tons of
briquettes per year. The product will be initially marketed in the United
States. Initial construction of the facilities has begun and startup is
scheduled for the fourth quarter 1998. Approximately 500 people will be employed
at peak construction. The plant will employ about 75 people upon completion.
The Company is studying the feasibility of a midwestern U.S. project to
produce "pig iron" from North American iron ore with coal instead of natural gas
as the reductant. Markets for the product would be primarily electric furnaces
and foundries.
During 1995, the Company suspended its iron carbide development
activities but continues to believe that iron carbide has long-term potential.
The Company is a joint holder of iron carbide process licenses in Venezuela with
North Star Steel and in Australia with Mitsubishi Corporation.
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OIL SHALE. Cliffs Synfuel Corp., a wholly-owned subsidiary of the
Company, owns oil shale properties in the United States which contain an
estimated one billion barrels of recoverable shale oil with associated
conditional water rights. While commercialization of U.S. oil shale is currently
uneconomical, the Company's holding costs are minimal. If oil prices rise
significantly and new technology being applied to other world oil shale deposits
is successful, the Company's property could have substantial value.
Cliffs Oil Shale Corp., another wholly-owned subsidiary of the Company,
owns a 15% interest in a smaller Colorado oil shale property. The remaining 85%
is owned by a Mobil Corporation subsidiary.
Credit Agreement and Senior Notes
---------------------------------
In 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. In 1996, the Credit Agreement
was amended to extend the expiration date by one year to March 1, 2001. Interest
on borrowings will be based on various interest rates as defined in the Credit
Agreement and as selected by the Company pursuant to the terms of the Credit
Agreement. There were no borrowings under either of the revolving credit
facilities.
In 1995, the Company placed privately with a group of institutional
lenders $70 million 7% Senior Notes, due December 15, 2005, the proceeds of
which Senior Notes were used to retire the Company's $20 million 8.51% Senior
Notes and $50 million 8.84% Senior Notes.
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 USS Corporation, Iron Ore Company of Canada, Quebec Cartier
Mining Company, and Evtac Mining Company, 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
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preservation resulted in the Company's North American capital expenditures
of $3,674,000 in 1995 and $6,072,000 in 1996. It is estimated that approximately
$6,506,000 will be spent in 1997 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 certain other potentially responsible parties have
agreed upon allocation of the costs for investigation and remediation. 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 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 largely implemented
remedial action satisfactory to the U.S. EPA at an estimated total cost of $8
million, of which the Company's share is $1.7 million. Upon the advice of
counsel, the Company believes it has a right to continued contribution from the
other potentially responsible parties for the costs of any further remedial
action required 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 (now the Michigan Department of
Environmental Quality). The Company and certain other potentially responsible
parties have agreed upon allocation of investigation and remediation costs at
this site. The Company is participating in a RI/FS of this site. That study has
been completed and is being reviewed by the Michigan Department of Environmental
Quality. The Company has joined with the other potentially responsible parties
in an interim removal action at the site which has been completed at an
estimated total cost of $18 million, of which the Company's share is $4.5
million. The Company has sufficient financial reserves at December 31, 1996 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, 1996, CCIC and CMC and the North American
independent mining ventures had 5,198 employees, of which 4,282 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 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 the United Steelworkers covering
the period to July 31, 1999, but with provisions for a limited economic reopener
on August 1, 1996. During the year, the labor economic reopeners at the Hibbing
Taconite, Tilden and Empire Mines were settled based on the pattern of recent
steel company settlements. 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 was to expire on March
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1, 1996. A new labor agreement was completed at Wabush Mines effective
March 1, 1996 and will expire March 1, 1999.
As of December 31, 1996, Northshore had 531 employees, of which 385
were hourly employees, none of whom are represented by a union.
As of December 31, 1996, Cliffs Reduced Iron Management Company had 2
salaried employees.
In addition, as of December 31, 1996, Cleveland-Cliffs Inc and its
wholly-owned subsidiary, Cliffs Mining Services Company, had 280 salaried
executive, managerial, administrative and technical employees.
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 term of these
contracts covered 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. In January, 1996, CCIC, as managing agent
for the Empire and Tilden Mines, entered into new seven-year power supply
contracts with WEPCo, which included the two years remaining on the previous
contracts. Various terms and conditions of the power contracts were revised to
better accommodate the operation of those Mines. The new power supply contracts
became effective March 1, 1996.
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. In December, 1995, a contract amendment
became effective, extending the contract an additional year and lowering firm
demand requirements. 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 the majority 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. Effective May
1, 1995, the interchange agreement was extended to April 30, 2000 to provide
additional backup power and other cost-effective services.
Silver Bay Power Company, an indirect 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 40 megawatts
of excess power capacity to Northern States Power Company. The contract with
Northern States Power extends to the year 2011. Effective November 1, 1995, the
interchange agreement was extended to October 31, 2000 to provide additional
backup power and other cost-effective services.
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.
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 1996, requiring use of alternate fuels.
10
<PAGE> 11
Empire and Tilden Mines have the capability of burning natural gas,
oil, or, to a lesser extent, coal. Wabush Mines has the capability of burning
oil or, to a lesser extent, coal. Hibbing Taconite, Northshore and LTV Steel
Mining Company have the capability of burning natural gas and oil. During 1996
the U.S. mines burned natural gas as their primary fuel due to favorable
pricing. Wabush 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 arrows 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.
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. In 1996, CCIC and other responsible parties entered into an
Administrative Order on Consent (AOC) with the Nevada Division of Environmental
Protection (NDEP), which provides for the completion of remedial action to occur
in 1996 and 1997. CCIC and the other responsible parties have entered into a
Participation Agreement to equitably share the cost of the remediation. The
total projected cost of remediation is $2,335,000 of which CCIC's share is
$525,000.
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 conducted no
production activities at the Summitville mine site. In 1996, CCIC and one of the
other venturers reached a de minimis settlement agreement with U.S. EPA, which
became final in February, 1997, on payment of the $700,000 settlement amount of
which CCIC's share was $350,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE> 14
EXECUTIVE OFFICERS OF THE REGISTRANT
Position with the Company
as of March 17, 1997
--------------------
<TABLE>
<CAPTION>
Name Age
---- ---
<S> <C> <C>
M. T. Moore Chairman, President and Chief 62
Executive Officer
J. S. Brinzo Executive Vice President-Finance 55
W. R. Calfee Executive Vice President-Commercial 50
T. J. O'Neil Executive Vice President-Operations 56
J. W. Sanders Senior Vice President-Technical 54
A. S. West Senior Vice President-Sales 60
</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.
The business experience of the persons named above for the last five years
is as follows:
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 Executive Vice President-Finance, Company,
September 1, 1989 to September 30, 1993.
Senior Executive-Finance, Company,
October 1, 1993 to September 30, 1995.
Executive Vice President-Finance, Company,
October 1, 1995 to date.
W. R. Calfee Senior Executive Vice President, Company,
September 1, 1989 to September 30, 1993.
Senior Executive-Commercial, Company,
October 1, 1993 to September 30, 1995.
Executive Vice President-Commercial, Company
October 1, 1995 to date.
T. J. O'Neil Senior Vice President-Technical, Company,
November 18, 1991 to September 30, 1994.
Executive Vice President-CCI Operations and
Technology, Company, October 1, 1994
to September 30, 1995.
Executive Vice President-Operations, Company,
October 1, 1995 to date.
14
<PAGE> 15
J. W. Sanders Senior Vice President and General Manager,
Copper Range Company,
June, 1991 to June, 1994.
President and Chief Operating Officer, Copper
Range Company, July, 1994 to
September 30, 1995.
Senior Vice President-Technical, Company,
October 1, 1995 to date.
A. S. West Senior Vice President-Sales, Company,
July 1, 1988 to date.
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, 1996 contained in the
material under the headings, "Common Share Price Performance and Dividends",
"Investor and Corporate Information" and "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, 1996 contained in the
material under the headings, "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, 1996 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, 1996 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 24, 1997, 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 24, 1997 from the material under the headings "Executive
Compensation (excluding the Compensation Committee Report on Executive
Compensation)", "Pension Benefits", and the first seven 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 24, 1997, from the material under the heading "Securities
Ownership of Management and Certain Other Persons".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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, 1996, are incorporated herein by reference from Item 8 and made a part
hereof:
Statement of Consolidated Financial Position -
December 31, 1996 and 1995
Statement of Consolidated Income - Years ended
December 31, 1996, 1995 and 1994
Statement of Consolidated Cash Flows - Years ended
December 31, 1996, 1995 and 1994
Statement of Consolidated Shareholders' Equity - Years
ended December 31, 1996, 1995 and 1994
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 20-26
which is incorporated herein by reference.
(b) There were no reports on Form 8-K filed during the three months
ended December 31, 1996.
(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 26, 1997
18
<PAGE> 19
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.
Signatures Title Date
- ---------- ----- ----
M. T. Moore Chairman, March 26, 1997
President and Chief
Executive Officer and
Principal Executive Officer
and Director
J. S. Brinzo Executive Vice President- March 26, 1997
Finance and Principal
Financial Officer
R. Emmet Vice President and March 26, 1997
Controller and Principal
Accounting Officer
R. S. Colman Director March 26, 1997
J. D. Ireland, III Director March 26, 1997
G. F. Joklik Director March 26, 1997
E. B. Jones Director March 26, 1997
F. R. McAllister Director March 26, 1997
J. C. Morley Director March 26, 1997
S. B. Oresman Director March 26, 1997
J. H. Wade Director March 26, 1997
A. W. Whitehouse Director March 26, 1997
By: /s/ John E. Lenhard
-------------------------------------
(John E. Lenhard, as Attorney-in-Fact)
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 26,
1996 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 26, 1996 and incorporated by
reference) Not Applicable
Instruments defining rights of security
holders, including indentures
-----------------------------
4(a) Form of Common Stock Certificate Filed Herewith
4(b) Rights Agreement, dated September 8, 1987, and
amended and restated as of November 19, 1991, by
and between Cleveland-Cliffs Inc and KeyBank National
Association (successor to Ameritrust Company
National Association) (filed as Exhibit 4(l) to
Form 10-K of Cleveland-Cliffs Inc filed on March
26, 1996 and incorporated by reference) Not Applicable
4(c) Credit Agreement, dated as of March 1, 1995 among
Cleveland-Cliffs Inc, the Banks named therein and
Chase Manhattan Bank, as Agent (successor to Chemical
Bank) (filed as Exhibit 4(o) to Form 10- K of
Cleveland-Cliffs Inc, filed on March 27, 1995 and
incorporated by reference) Not Applicable
4(d) Amendment dated as of July 19, 1996, to the Credit
Agreement dated as of March 1, 1995, among Cleveland-
Cliffs Inc, the banks named therein and Chase Manhattan
Bank, as Agent (filed as Exhibit 4(a) to Form 10-Q of
Cleveland-Cliffs Inc filed on November 13, 1996 and
incorporated by reference) Not Applicable
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
4(e) Note Agreement, dated as of December 15, 1995 among
Cleveland-Cliffs Inc and each of the Purchasers named
in Schedule I thereto (filed as Exhibit 4(n) to
Form 10-K of Cleveland-Cliffs Inc filed on March 26,
1996 and incorporated by reference) Not Applicable
Material Contracts
------------------
10(a) * Cleveland-Cliffs Inc Supplemental Retirement Benefit
Plan Amended and Restated, effective January 1, 1995
(filed as Exhibit 10(b) to Form 10-Q of Cleveland-
Cliffs Inc filed on May 2, 1995 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 26, 1996 and incorporated
by reference) Not Applicable
10(c) * Amendment No. 1 to Cleveland-Cliffs Inc Plan for
Deferred Payment of Directors' Fees, dated March
9, 1992 (filed as Exhibit 10(c) to Form 10-K of
Cleveland-Cliffs Inc filed on March 26, 1996 and
incorporated by reference) Not Applicable
10(d) * Form of contingent employment agreements with
certain executive officers Filed Herewith
10(e) * Cleveland-Cliffs Inc and Subsiiaries Management
Performance Incentive Plan, dated as of January
1, 1994 (Summary Description) ( filed as Exhibit
10(g) to Form 10-K of Cleveland-Cliffs Inc filed
on March 27, 1995 and incorporated by reference) Not Applicable
- ---------------------------------------
</TABLE>
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
21
<PAGE> 22
<TABLE>
<S> <C> <C>
10(f) 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(i) to Form 10-K of Cleveland-Cliffs Inc filed on
March 26, 1996 and incorporated by reference) Not Applicable
10(g) Form of indemnification agreements with directors
(filed as Exhibit 10(j) to Form 10-K of Cleveland-
Cliffs Inc filed on March 26, 1996 and incorporated by
reference) Not Applicable
10(h) * Cleveland-Cliffs Inc 1987 Incentive Equity Plan,
effective as of April 29, 1987 Filed Herewith
10(i) * Cleveland-Cliffs Inc 1992 Incentive Equity Plan
and Form of Stock Option Agreement for
Nonemployee Directors, effective as of April 14,
1992 Filed Herewith
10(j) * Amended and Restated Cleveland-Cliffs Inc Retirement
Plan for Non-Employee Directors effective as of July
1, 1995 (filed as Exhibit 10(a) to Form 10-Q of
Cleveland-Cliffs Inc filed on November 13, 1996 and
incorporated by reference) Not Applicable
10(k) * 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(n) to Form 10-K of Cleveland-Cliffs Inc filed on
March 26, 1996 and incorporated by reference) Not Applicable
10(l) * 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 and
certain contingent employment agreements (filed as
Exhibit 10(o) to Form 10-K of Cleveland-Cliffs Inc
filed on March 26, 1996 and incorporated by reference) Not Applicable
- ---------------------------
</TABLE>
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
22
<PAGE> 23
<TABLE>
<S> <C> <C>
10(m) * 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(p) to Form 10-K
of Cleveland-Cliffs Inc filed on March 26, 1996 and
incorporated by reference) Not Applicable
10(n) * 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(q) to Form 10-K of
Cleveland-Cliffs Inc filed on March 26, 1996 and
incorporated by reference) Not Applicable
10(o) * 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(r) to Form
10-K of Cleveland-Cliffs Inc filed on March 26, 1996
and incorporated by reference) Not Applicable
10(p) * 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(s) to Form 10-K of
Cleveland-Cliffs Inc filed on March 26, 1996 and
incorporated by reference) Not Applicable
- ---------------------
</TABLE>
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
23
<PAGE> 24
<TABLE>
<S> <C> <C>
10 (q) * 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 as Exhibit
10(dd) to Form 10-K of Cleveland-Cliffs Inc filed
on March 27, 1995 and incorporated by reference) Not Applicable
10(r) * 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(t) to Form
10-K of Cleveland-Cliffs Inc filed on March 26, 1996
and incorporated by reference) Not Applicable
10(s) * 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(u) to
Form 10-K of Cleveland-Cliffs Inc filed on March
26, 1996 and incorporated by reference) Not Applicable
10(t) * 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 as Exhibit
10(ee) to Form 10-K of Cleveland-Cliffs Inc filed
on March 27, 1995 and incorporated by reference) Not Applicable
10(u) * 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(v)
to Form 10-K of Cleveland-Cliffs Inc filed on
March 26, 1996 and incorporated by reference) Not Applicable
10(v) Trust Agreement No. 9, dated as of November 20,
1996, by and between Cleveland-Cliffs Inc and Key
Trust Company of Ohio, N.A. with respect to the
Cleveland-Cliffs Inc Nonemployee Directors'
Supplemental Compensation Plan Filed Herewith
- -----------------------------
</TABLE>
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
24
<PAGE> 25
<TABLE>
<S> <C> <C>
10(w) Trust Agreement No. 10, dated as of November 20,
1996, by and between Cleveland-Cliffs Inc and Key
Trust Company of Ohio, N.A. with respect to the
Cleveland-Cliffs Inc Nonemployee Directors'
Compensation Plan Filed Herewith
10(x) * Severance Pay Plan for Key Employees of
Cleveland-Cliffs Inc, effective as of February 1,
1992 Filed Herewith
10(y) * First Amendment to Severance Pay Plan for Key
Employees of Cleveland-Cliffs Inc, dated November
18, 1994 (filed as Exhibit 10(y) to Form 10-K of
Cleveland-Cliffs Inc filed on March 27, 1995 and
incorporated by reference) Not Applicable
10(z) * Cleveland-Cliffs Inc Voluntary Non-Qualified
Deferred Compensation Plan, Amended and Restated
as of December 1, 1996 Filed Herewith
10(aa) * Cleveland-Cliffs Inc Long-Term Performance Share
Program, dated as of January 1, 1996 Filed Herewith
10(bb) * Cleveland-Cliffs Inc Nonemployee Directors Supplemental
Compensation Plan, effective as of July 1, 1995
(filed as Exhibit 10(b) to Form 10-Q of
Cleveland-Cliffs Inc filed November 13, 1996 and
incorporated by reference) Not Applicable
10(cc) * Cleveland-Cliffs Inc Nonemployee Directors' Compensation
Plan effective as of July 1, 1996 (filed as Appendix A
to Proxy Statement of Cleveland-Cliffs Inc
filed on March 25, 1996 and incorporated by reference) Not Applicable
10(dd) * First Amendment to Cleveland-Cliffs Inc
Nonemployee Directors' Compensation Plan, effective as
of November 12, 1996 Filed Herewith
10(ee) 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
11 Statement re computation of per share earnings Filed Herewith
(Page 27-28)
- -------------------------------
</TABLE>
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
25
<PAGE> 26
13 Selected portions of 1996 Annual Report to
Security Holders
13(a) Management's Discussion and Analysis of
Financial Condition and Results of
Operations Filed Herewith
(Page 29-39)
13(b) Report of Independent Auditors Filed Herewith
(Page 40)
13(c) Statement of Consolidated Financial
Position Filed Herewith
(Page 41-42)
13(d) Statement of Consolidated Income Filed Herewith
(Page 43)
13(e) Statement of Consolidated Cash Flows Filed Herewith
(Page 44)
13(f) Statement of Consolidated Shareholders'
Equity Filed Herewith
(Page 45)
13(g) Notes to Consolidated Financial Statements Filed Herewith
(Page 46-63)
13(h) Quarterly Results of Operations/Common
Share Price Performance and Dividends Filed Herewith
(Page 64)
13(i) Investor and Corporate Information Filed Herewith
(Page 65)
13(j) Summary of Financial and Other Statistical
Data Filed Herewith
(Page 66-67)
21 Subsidiaries of the registrant Filed Herewith
(Page 68-70)
23 Consent of independent auditors Filed Herewith
(Page 71)
24 Power of Attorney Filed Herewith
(Page 72)
27 Consolidated Financial Data Schedule submitted
for Securities and Exchange Commission --
information
99 Additional Exhibits
99(a) Schedule II - Valuation and Qualifying
Accounts Filed Herewith
(Page 73)
26
<PAGE> 1
EXHIBIT 4(a)
<TABLE>
<CAPTION>
<S> <C>
COMMON SHARES
NUMBER THIS CERTIFICATE IS TRANSFERABLE
CU IN NEW YORK
CUSIP 185896 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
[GRAPHIC]
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO.
CLEVELAND-CLIFFS INC
CERTIFICATE NUMBER REFERENCE DATE SHARES
THIS CERTIFIES THAT COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR.
BY
Joseph F. Spadaford
IS THE OWNER OF AUTHORIZED SIGNATURE
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE PAR VALUE OF ONE DOLLAR EACH OF
Cleveland-Cliffs Inc, transferable on the books of the Company by the registered holder in person or by duly authorized attorney,
upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be
held subject to all the provisions of the Articles of the Company filed in the office of the Secretary of State of Ohio (copies of
which are on file with the Company and with the Transfer Agent) to which the holder by acceptance hereof assents. This certificate
is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Company and the signatures of its duly authorized officers.
/s/ John E. Lenhard [CLEVELAND-CLIFFS INC CORPORATE SEAL] /s/ M. Thomas Moore
SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulation:
TEN COM --as tenants in common UNIF GIFT MIN ACT--......Custodian......
(Cust) (Minor)
TEN ENT --as tenants by the entireties under Uniform Gifts to Minors
JT TEN --as joint tenants with right of
survivorship and not as tenants Act.....................
in common (State)
Additional abbreviations may also be used though not in the above list.
CLEVELAND-CLIFFS INC
<TABLE>
<CAPTION>
<S> <C>
A COPY OF THE EXPRESS TERMS OF THE SHARES REPRESENTED BY THIS CERTIFICATE AND OF ALL OTHER CLASSES AND SERIES OF SHARES
WHICH CLEVELAND-CLIFFS INC IS AUTHORIZED TO ISSUE WILL BE MAILED TO ANY SHAREHOLDER WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT
FROM SUCH SHAREHOLDER OF A WRITTEN REQUEST THEREFOR. SUCH REQUESTS SHOULD BE ADDRESSED TO THE SECRETARY OF CLEVELAND-CLIFFS INC,
18TH FLOOR, DIAMOND BUILDING, 1100 SUPERIOR AVENUE, CLEVELAND, OHIO 44114-2589.
FOR VALUE RECEIVED HEREBY SELL, ASSIGN AND TRANSFER UNTO X
PLEASE INSERT SOCIAL SECURITY OR OTHER NOTICE: THE SIGNATURE TO THIS
IDENTIFYING NUMBER OF ASSIGNEE ASSIGNMENT MUST CORRESPOND
- ---------------------- WITH THE NAME AS WRITTEN UPON
________________________________________________________________________________ THE FACE OF THE CERTIFICATE,
IN EVERY PARTICULAR, WITHOUT
________________________________________________________________________________ ALTERATION OR ENLARGEMENT, OR
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE. ANY CHANGE WHATEVER.
__________________________________________________________________________
__________________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT _________________________________________________________
________________________________________________________________________________
ATTORNEY, TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED
COMPANY, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED, _____________________
x
---------------------------------------------------
This Certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between
Cleveland-Cliffs Inc and Society National Bank, dated as of September 8, 1987, amended and restated as of November 19, 1991 and
as may be further amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive offices of Cleveland-Cliffs Inc. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this Certificate.
Cleveland-Cliffs Inc will mail to the holder of this Certificate a copy of the Rights Agreement without charge within five business
days after receipt of a written request therefor. Under certain circumstances, Rights beneficially owned by an Acquiring Person or
any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement) and any subsequent holder of such Rights may
become null and void.
</TABLE>
<PAGE> 1
Exhibit 10(d)
FORM OF CONTINGENT EMPLOYMENT AGREEMENT
---------------------------------------
This CONTINGENT EMPLOYMENT AGREEMENT ("Agreement"), dated as of
_____________ (the "Effective Date"), by and between Cleveland-Cliffs Inc, an
Ohio corporation ("Cleveland-Cliffs"), and _______________ who is presently
________________ of Cleveland-Cliffs (the "Executive");
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive of Cleveland-Cliffs and has
made and is expected to continue to make major contributions to the
profitability, growth and financial strength of Cleveland-Cliffs;
WHEREAS, Cleveland-Cliffs recognizes that, as is the case for most
publicly held companies, the possibility of a Change of Control (as that term is
hereafter defined) exists;
WHEREAS, Cleveland-Cliffs desires to assure itself of both present and
future continuity of management in the event of a Change of Control and desires
to establish certain minimum compensation rights of its senior executives,
including the Executive, applicable in the event of a Change of Control;
WHEREAS, Cleveland-Cliffs wishes to ensure that its senior executives
are not practically disabled from discharging their duties upon a Change of
Control; and
WHEREAS, this Agreement is not intended to alter materially the
compensation and benefits which the Executive could reasonably expect to receive
from Cleveland-Cliffs absent a Change of Control and, accordingly, although
effective and binding as of the date hereof, this Agreement shall become
operative only upon the occurrence of a Change of Control;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration including the Release provided for in Section 12 hereof,
the receipt of which is hereby acknowledged, Cleveland-Cliffs and the Executive
agree as follows:
OPERATION OF AGREEMENT; CERTAIN DEFINITIONS: This Agreement shall be
effective and binding immediately upon its execution, but, anything in this
Agreement to the contrary notwithstanding, this Agreement shall not become
operative unless and until there shall have occurred a Change of Control. For
purposes of this Agreement, a "Change of Control" shall have occurred if at any
time during the Term (as that term is hereafter defined) any of the following
events shall occur:
<PAGE> 2
2
(1) Cleveland-Cliffs shall merge into itself, or be merged or
consolidated with, another corporation and as a result of such merger or
consolidation less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the
former shareholders of Cleveland-Cliffs as the same shall have existed
immediately prior to such merger or consolidation;
(2) Cleveland-Cliffs shall sell or transfer to one or more
persons, corporations or entities, in a single transaction or a series of
related transactions, more than one-half of the assets accounted for on the
Statement of Consolidated Financial Position of Cleveland-Cliffs as
"properties" or "investments in associated companies" (or such replacements
for these accounts as may be adopted from time to time) unless by an
affirmative vote of two-thirds of the members of the Board of Directors of
Cleveland-Cliffs, the transaction or transactions are exempted from the
operation of this provision based on a good faith finding that the
transaction or transactions are not within the intended scope of this
definition for purposes of this instrument;
(3) A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the Securities
Exchange Act of 1934, shall become the beneficial owner (as defined in Rule
13d-3 of the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934) of 30% or more of the outstanding voting securities
of Cleveland-Cliffs (whether directly or indirectly); or
(4) During any period of three consecutive years, including,
without limitation, the year 1991, individuals who at the beginning of any
such period constitute the Board of Directors of Cleveland-Cliffs cease,
for any reason, to constitute at least a majority thereof, unless the
election, or the nomination for election by the shareholders of
Cleveland-Cliffs, of each Director first elected during any such period was
approved by a vote of at least one-third of the Directors of
Cleveland-Cliffs who are Directors of Cleveland-Cliffs on the date of
the beginning of any such period.
Upon the occurrence of a Change of Control at any time during the Term,
this Agreement shall become immediately operative.
The period during which this Agreement shall be in effect (the "Term")
shall commence as of the Effective Date hereof and shall expire as of the later
of (1) the close of business on the third anniversary of the Effective Date and
(2) the expiration of the Period of Employment (as that term is hereafter
defined); provided, however, that (i) this Agreement may be continued in full
force and effect for an additional
<PAGE> 3
3
period or periods of one (1) year if Cleveland-Cliffs and the Executive mutually
agree to such extension or extensions, (ii) this Agreement shall automatically
renew for an additional period or periods of one (1) year if the end of the Term
occurs during the period of any discussions with any party that might ultimately
result in the occurrence of a Change of Control, and (iii) subject to Section 14
hereof, if, prior to a Change of Control, the Executive ceases for any reason to
be an officer of Cleveland-Cliffs, thereupon the Term shall be deemed to have
expired and this Agreement shall immediately terminate and be of no further
effect.
The term "Industry Service" shall mean professionally related service,
prior to his employment by Cleveland-Cliffs or its subsidiaries and affiliates,
by the Executive as an employee within the iron and steel industry or an
industry to which such Executive's position with Cleveland-Cliffs relates. The
Executive shall be given credit for one year of Industry Service for every two
years of service with Cleveland-Cliffs, as designated in writing by, or in
minutes of the actions of, the Compensation Committee of the Board of Directors
of Cleveland-Cliffs, and such years of credited Industry Service shall be
defined as "Credited Years of Industry Service".
EMPLOYMENT; PERIOD OF EMPLOYMENT: Subject to the terms and conditions of
this Agreement, upon the occurrence of a Change of Control, Cleveland-Cliffs
shall continue the Executive in its employ and the Executive shall remain in the
employ of Cleveland-Cliffs for the period set forth in Section 2(b) hereof (the
"Period of Employment"), in the position and with substantially the same duties
and responsibilities that he had immediately prior to the Change of Control, or
to which Cleveland-Cliffs and the Executive may hereafter mutually agree in
writing. Throughout the Period of Employment, the Executive shall devote
substantially all of his time during normal business hours (subject to
vacations, sick leave and other absences in accordance with the policies of
Cleveland-Cliffs as in effect for senior executives immediately prior to the
Change of Control) to the business and affairs of Cleveland-Cliffs, but nothing
in this Agreement shall preclude the Executive from devoting reasonable periods
of time during normal business hours to (1) serving as a director, trustee or
member of or participant in any organization or business so long as such
activity would not constitute Competitive Activity (as described in Section 11
hereof), (2) engaging in charitable and community activities, or (3) managing
his personal investments. The business, assets, and properties of
Cleveland-Cliffs, as well as the support services and facilities available to
the Executive, shall not differ materially from those of Cleveland-Cliffs
immediately prior to the date of the Change of Control.
<PAGE> 4
4
The Period of Employment shall commence on the date of the occurrence of
a Change of Control and, subject only to the provisions of Section 4 hereof,
shall continue until the earlier of (1) the expiration of the third anniversary
of the occurrence of the Change of Control, (2) the Executive's death, or (3)
the Executive's attainment of age 65.
COMPENSATION DURING PERIOD OF EMPLOYMENT: During the Period of
Employment the Executive shall receive and be entitled to the following:
an annual base salary at a rate not less than the Executive's annual
fixed or base compensation (payable monthly or otherwise as in effect for senior
executives of Cleveland-Cliffs immediately prior to the occurrence of a Change
of Control) or such higher rate as may be determined from time to time by the
Board of Directors of Cleveland-Cliffs (the "Board") or the Organization and
Compensation Committee thereof (the "Committee") (which base salary at such rate
is herein referred to as "Base Pay"), reduced by any disability benefits which
the Executive receives under any Cleveland-Cliffs disability program;
participation, consistent with past practices, in incentive compensation
plans and arrangements of Cleveland-Cliffs in effect as of the date of the
Change of Control, as the same may subsequently be modified, supplemented or
replaced, including, without limitation, the Incentive Bonus Plan, the 1987
Incentive Equity Plan and the 1992 Incentive Equity Plan, without material
reduction in the reward opportunities available to the Executive, and without
reduction in the target bonus percentage applicable to the Executive immediately
prior to the occurrence of a Change of Control (with annual amounts awarded
pursuant to such plans and arrangements collectively referred to as "Incentive
Pay");
participation in the Cleveland-Cliffs Inc Supplemental Retirement
Benefit Plan (As Amended and Restated as of January 1, 1991) ("Supplemental
Retirement Plan" or "SRP"), as the same hereafter may be amended prior to a
Change of Control, and modified as provided in Section 6 hereof; and
participation, consistent with past practices, in all other employee
benefit plans and practices of Cleveland-Cliffs in effect as of the date of the
Change of Control (including, without limitation, medical, dental,
hospitalization, health and welfare plans, life, long-term disability and
accident insurance programs, employee savings and investment plans, stock
ownership plans, retirement plans and supplemental arrangements, and the
Investment Credit Employee Stock Ownership Plan), as the same may be modified,
supplemented or replaced without material reduction in total value of the
benefits to Executive (collectively, "Employee Benefits").
<PAGE> 5
5
TERMINATION FOLLOWING A CHANGE IN CONTROL: The Executive's employment
may be terminated at will by Cleveland-Cliffs during the Period of Employment;
provided, however, the death of the Executive shall not be deemed to be a
termination of employment by Cleveland-Cliffs. In the event of such a
termination by Cleveland-Cliffs the Executive shall not be entitled to the
benefits provided by Section 5 hereof only if such termination is for "Cause",
which for purposes of this Agreement shall mean that, prior to any termination
pursuant to Section 4(b) hereof, the Executive shall have committed any act that
is materially inimical to the best interests of Cleveland-Cliffs and that
constitutes common law fraud, a felony, or other gross malfeasance of duty. The
Executive shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the Board then in office at a meeting of the Board called and held for such
purpose (after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive committed an act set
forth in this Section 4(a)(2) and specifying the particulars thereof in detail.
Nothing herein shall limit the right of the Executive or his beneficiaries to
contest the validity or propriety of any such determination.
During the Period of Employment the Executive shall be entitled to
the benefits as provided in Section 5 hereof upon the occurrence of one or more
of the following events:
Any termination by Cleveland-Cliffs of the employment of the
Executive prior to the date upon which the Executive shall have attained
age 65, which termination shall be for any reason other than for Cause;
The Executive's "Disability", which shall be deemed to have occurred
six (6) months after the Executive shall have become totally and
permanently disabled by bodily or mental injury or disease so as to be
prevented thereby from engaging in any executive employment or occupation
for remuneration or profit, as determined and certified to
Cleveland-Cliffs and the Executive by The Cleveland Clinic (or if it is
unwilling or unable to act, by one or more physicians designated for such
purpose by the Cleveland Academy of Medicine or its successor
organization); or
<PAGE> 6
6
Termination by the Executive of his employment with Cleveland-Cliffs
upon the occurrence of any of the following events:
The failure to elect, reelect or otherwise maintain the Executive
in the office or position in Cleveland-Cliffs which the Executive held
immediately prior to a Change of Control, or the removal of, or failure
to reelect, the Executive as a Director of Cleveland-Cliffs, if the
Executive shall have been a Director of Cleveland-Cliffs immediately
prior to the Change of Control;
A reduction in the Executive's Base Pay received from
Cleveland-Cliffs, or a reduction in the Executive's opportunities for
Incentive Pay (including, but not limited to, a reduction in target bonus
percentage) provided by Cleveland-Cliffs, or a reduction or termination
of any benefits described in Section 3 hereof to which the Executive was
entitled immediately prior to the Change of Control, any of which is not
remedied within 10 calendar days after receipt by Cleveland-Cliffs of
written notice from the Executive of such change, reduction or
termination, as the case may be;
A determination by the Executive made in good faith that as a
result of a Change of Control and a change in circumstances thereafter
significantly affecting his position, including without limitation a
change in the scope of the business or other activities for which he was
responsible immediately prior to the Change of Control, he has been
rendered substantially unable to carry out, has been substantially
hindered in the performance of, or has suffered a substantial reduction
in, any of the authorities, powers, functions, responsibilities or duties
attached to the position held by the Executive immediately prior to the
Change of Control, which situation is not remedied within 10 calendar
days after written notice to Cleveland-Cliffs from the Executive of such
determination;
The liquidation, dissolution, merger, consolidation or
reorganization of Cleveland-Cliffs or the transfer of all or a
significant portion of its business and/or assets, unless the successor
or successors (by liquidation, merger, consolidation, reorganization or
otherwise) to which all or a significant portion of its business and/or
assets have been transferred (directly or by operation of law) shall have
assumed all duties and obligations of Cleveland-Cliffs under this
Agreement pursuant to Section 16 hereof;
<PAGE> 7
7
The relocation of Cleveland-Cliffs' principal executive offices,
or a requirement that the Executive change his principal location of work
to any location which is in excess of 25 miles from the location thereof
immediately prior to the Change of Control, or a requirement that the
Executive travel away from his office in the course of discharging his
responsibilities or duties hereunder significantly more (in terms of
either consecutive days or aggregate days in any calendar year) than was
required of him prior to the Change of Control without, in any case
described above, the prior written consent of the Executive; or
Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by Cleveland-Cliffs or any successor
thereto.
A termination by Cleveland-Cliffs pursuant to Section 4(a) hereof or by
the Executive pursuant to Section 4(b) hereof shall not affect any rights which
the Executive may have pursuant to any agreement, policy, plan, program or
arrangement of Cleveland-Cliffs, which rights shall be governed by the terms
thereof, subject, however, to the modifications in Section 6 hereof. If this
Agreement or the employment of the Executive is terminated under circumstances
in which the Executive is not entitled to any payments under Sections 3 or 5
hereof, the Executive shall have no further obligation or liability to
Cleveland-Cliffs hereunder with respect to his prior or any future employment by
Cleveland-Cliffs.
SEVERANCE COMPENSATION: If Cleveland-Cliffs shall terminate the
Executive's employment during the Period of Employment, other than pursuant to
Section 4(a) hereof, or if the Executive shall terminate his employment pursuant
to Section 4(b) hereof, then in lieu of any further payments to the Executive
for periods subsequent to the date of the Executive's termination of employment
(the "Termination Date"), the date of which shall be the date of termination or
such other date that may be specified by the Executive if the termination is
pursuant to Section 4(b) hereof, Cleveland-Cliffs shall provide Severance
Compensation to the Executive as described below:
Severance Pay. Within five business days after the Termination
Date:
Cleveland-Cliffs shall pay to the Executive a lump sum payment
(the "Severance Payment") in an amount equal to the present value (using
a discount rate prescribed for purposes of valuation computations
<PAGE> 8
8
under Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision thereto, or if no such rate is so
prescribed, a rate equal to the then applicable interest rate prescribed
by the Pension Benefit Guaranty Corporation for benefit valuations in
connection with non-multiemployer pension plan terminations assuming the
immediate commencement of benefit payments (the "Discount Rate")) of
the amount of Base Pay that would have been paid to the
Executive pursuant to Section 3(a) for the duration of the Period
of Employment if the termination had not taken place (at the rate
in effect immediately prior to the Change of Control or prior to
the Termination Date, whichever is higher) and, if the Termination
is on account of the Executive's Disability, reduced by the amount
of disability benefits that would have been paid to the Executive
for the duration of the Period of Employment if the termination
had not taken place; plus
the amount of Average Incentive Pay (as that term is
hereinafter defined) that would have been paid to the Executive
pursuant to Section 3(b) for the duration of the Period of
Employment if the termination had not taken place.
For purposes of this Agreement, Average Incentive Pay for any 12
month period shall mean an amount which is the greater of (A) the
average amount of Incentive Pay (as defined in Section 3(b)
hereof) awarded to the Executive for the three calendar years
immediately prior to the Termination Date, or (B) the amount of
the most recent award of Incentive Pay.
Cleveland-Cliffs shall pay to the Executive a lump sum payment
(the "SRP Payment") in an amount equal to the sum of the future pension
benefits (converted to a lump sum of actuarial equivalence) which the
Executive would have been entitled to receive at or after the end of
the Period of Employment under the SRP, as the same may be further
amended prior to a Change of Control and as modified by Section 6
hereof (assuming Base Salary at the rate in effect immediately prior to
the occurrence of Change of Control and Incentive Pay equivalent to the
amount of Average Incentive Pay), if the Executive had remained in the
full-time employment of Cleveland-Cliffs until the end of the Period of
Employment.
<PAGE> 9
9
The calculation of the SRP Payment and its actuarial equivalence shall
be made as of the date the Executive is terminated. The lump sum of
actuarial equivalence shall be calculated as of the end of the Period
of Employment using the assumptions and factors used in the SRP, and
such sums shall be discounted to the date of payment using the Discount
Rate.
Payment of the SRP Payment by Cleveland-Cliffs shall be deemed to be a
satisfaction of all obligations of Cleveland-Cliffs to the Executive
under the SRP.
Employee Benefits. For the remainder of the Period of Employment,
Cleveland-Cliffs shall arrange to provide the Executive with Employee Benefits
substantially similar to those which the Executive was receiving or entitled to
receive immediately prior to the Termination Date as described in Section 3(d)
(and if and to the extent that such benefits shall not or cannot be paid or
provided under any policy, plan, program or arrangement of Cleveland-Cliffs
solely due to the fact that the Executive is no longer an officer or employee of
Cleveland-Cliffs, then Cleveland-Cliffs shall itself pay or provide for the
payment to the Executive, his dependents and beneficiaries, such Employee
Benefits). Without otherwise limiting the purposes or effect of this Section
5(b) hereof, Employee Benefits payable to the Executive pursuant to this Section
5(b) by reason of any "welfare benefit plan" of Cleveland-Cliffs (as the term
"welfare benefit plan" is defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) shall be reduced to the
extent comparable welfare benefits are actually received by the Executive from
another employer during the period beginning upon the occurrence of the
Termination Date and ending upon the third anniversary of the occurrence of the
Change of Control.
Stock Options and Restricted Stock. Upon the Termination Date, all
Stock Options granted to the Executive pursuant to the 1979 Restricted Stock
Plan, the 1987 Incentive Equity Plan, the 1992 Incentive Equity Plan, or any
successor plan or similar plan, shall be vested, and the restrictions on any
restricted stock awarded to the Executive under the 1979 Restricted Stock Plan,
the 1987 Incentive Equity Plan, the 1992 Incentive Equity Plan, or any successor
plan or similar plan, shall be released.
Method of Payment. Upon written notice given by the Executive to
Cleveland-Cliffs prior to the occurrence of a Change of Control, the Executive,
at his sole option, without adjustment to reflect the present value of such
amounts as aforesaid, may elect to have all or any of the Severance Payment
described in Section 5(a) hereof paid to him on a quarterly or monthly basis
during the time remaining until the expiration of the third anniversary of the
Change of Control.
<PAGE> 10
10
Outplacement Counseling. Cleveland-Cliffs shall reimburse the
Executive for reasonable expenses incurred for outplacement counseling (1) which
are pre-approved by the Chief Human Resources Officer of Cleveland-Cliffs, (2)
which do not exceed 15% of the Executive's annual Base Pay, and (3) which are
incurred by the Executive within six months following the Termination Date.
Set-off and Counterclaim. There shall be no right of set-off or
counterclaim in respect of any claim, debt or obligation against any payment to
or benefit for the Executive provided for in this Agreement.
Interest. Without limiting the rights of the Executive at law or in
equity, if Cleveland-Cliffs fails to make any payment required to be made
hereunder on a timely basis, Cleveland-Cliffs shall pay interest on the amount
thereof at an annualized rate of interest equal to the then-applicable Discount
Rate.
Calculation. The calculation of all payments of compensation and
other benefits to be provided to Executive under this Agreement shall be made by
Hewitt Associates ("Hewitt"), or such other actuarial firm selected by
Cleveland-Cliffs' independent accountants and satisfactory to Executive.
Cleveland-Cliffs shall provide to such actuarial firm all information requested
by such actuarial firm as necessary for or helpful to it to make the
calculations hereunder.
SUPPLEMENTAL RETIREMENT PLAN. Cleveland-Cliffs hereby waives the
discretionary right, at any time subsequent to the date of a Change of Control,
to amend or terminate the SRP as to Executive as provided in paragraph 8 thereof
or to terminate the rights of Executive or his beneficiary under the SRP in the
event Executive engages in a competitive business as provided in any plan or
arrangement between Cleveland-Cliffs and the Executive or applicable to the
Executive, including but not limited to, the provisions of paragraph 4 of the
SRP, or any similar provisions of any such plan or arrangement or other plan or
arrangement supplementing or superseding the same. This Section 6 shall
constitute a "Supplemental Agreement" as defined in Paragraph l.K of the SRP. If
Cleveland-Cliffs shall terminate the Executive's employment during the Period of
Employment, other than pursuant to Section 4(a) hereof, or if the Executive
shall terminate his employment pursuant to Section 4(b) hereof, or if, following
the end of the Period of Employment, the Executive's employment is terminated
for any reason, for the purposes of computing the Executive's period of
continuous service and of calculating and paying his benefit under the SRP:
<PAGE> 11
11
The Executive shall be credited with years of continuous
service at the time of his termination of employment with
Cleveland-Cliffs (by death or otherwise) equal to the greater of (1)
the number of his actual years of continuous service or (2) the
number of years of continuous service he would have had if he had
continued his employment with Cleveland-Cliffs until the expiration
of the third anniversary of the Change of Control, and had he
attained the greater of (3) his actual chronological age or (4) his
chronological age at the expiration of the third anniversary of the
Change of Control. In addition, the Executive shall be eligible for a
30-year pension benefit based upon his years of continuous service as
computed under the preceding sentence. The Executive shall be
eligible to commence the 30-year pension benefit upon the earlier of
(5) the date upon which the Executive would have otherwise reached 30
years of continuous service with Cleveland-Cliffs but for his
termination of employment after the Change of Control, or (6) the
date upon which the sum of the Executive's years of continuous
service (as computed in the first sentence of this subparagraph (a))
and the Executive's Credited Years of Industry Service (as defined in
Section 1(d) hereof) is equal to 30 years; and
The Executive shall be a "Participant" in the SRP,
notwithstanding any limitations therein.
A copy of the SRP is attached to this Agreement as Exhibit A. The SRP is
incorporated in all respects herein; provided, however, that the terms of this
Agreement shall take precedence to the extent they are contrary to provisions
contained in the SRP.
WELFARE BENEFIT CONTINUATION FOLLOWING TERMINATION AFTER PERIOD OF
EMPLOYMENT. Following the end of the Period of Employment, and upon Executive's
termination of employment with Cleveland-Cliffs, Cleveland-Cliffs shall:
Provide medical, hospital, surgical and prescription drug
coverage, equivalent to that presently furnished to officers who retire after
January 1, 1990 by Cleveland-Cliffs, to the Executive and his spouse for their
lifetimes, and to eligible dependents of the Executive for their periods of
eligibility, through insurance or otherwise;
Provide life insurance on the Executive, equivalent to that
presently furnished to officers who retire after January 1, 1990 by
Cleveland-Cliffs, to the Executive during his retirement; and
Without otherwise limiting the purposes or effect of this Section
7 hereof, welfare benefits payable to the Executive or his spouse or dependents
pursuant to this Section
<PAGE> 12
12
7 shall be reduced to the extent comparable welfare benefits are payable
pursuant to Section 5(b) hereof or are actually received by the Executive or his
spouse or dependents from another employer.
LIMITATION AND INDEMNIFICATION. Notwithstanding anything in this
Agreement to the contrary, Cleveland-Cliffs shall not be obligated to pay the
Executive any amount of money, or provide the Executive with any benefits, which
are in excess of the then maximum amount which Cleveland-Cliffs can deduct for
Federal income tax purposes.
Without limiting the generality of paragraph (a) of this Section
8, if the Executive is a "disqualified individual", as defined in Section
280G(c) of the Code, the present value of payments under this Agreement made to
the Executive shall not in the aggregate be greater than the excess, if any, of
(1) 299% of the Executive's "base amount", as determined under Section 280G of
the Code, or any successor provision thereto, over (2) the aggregate present
value of all payments in the nature of compensation (other than the payments
under this Agreement) to or for the Executive's benefit that are considered
"contingent on a change" in ownership or control of Cleveland-Cliffs as
determined under Section 280G(b) (2) of the Code, or any successor provision
thereto. If the application of the preceding sentence should require a reduction
in benefits, such reduction shall be implemented first, by reducing any non-cash
benefits to the extent necessary, and second, by reducing any cash benefits to
the extent necessary. In each case, the reductions shall be made starting with
the latest payment or benefit. In no event, however, will any benefit be reduced
to the extent such benefit is specifically excluded by Section 280G(b) of the
Code as a "parachute payment" or as an "excess parachute payment". Any decisions
regarding the requirement or implementation of such reductions shall be made by
Jones, Day, Reavis & Pogue or such other tax counsel selected by
Cleveland-Cliffs' independent accountants and acceptable to the Executive.
Unless otherwise prohibited by applicable law, if,
notwithstanding the application of paragraph (b) of this Section 8, an amount
paid to the Executive under this Agreement is subject to the excise tax imposed
by Section 4999 of the Code, or any successor provision thereto,
Cleveland-Cliffs shall pay to the Executive an additional amount in cash equal
to the amount necessary to cause the aggregate remuneration received by the
Executive under this Agreement, including such additional cash payment (net of
all federal, state and local income taxes and all taxes payable as the result of
the application of Section 280G and 4999 of the Code or any successor provision
thereto) to be equal to the aggregate
<PAGE> 13
13
remuneration the Executive would have received, excluding such additional
payment (net of all federal, state and local income taxes), as if Section 280G
and 4999 (and any successors thereto) had not been enacted into law.
NO MITIGATION OBLIGATION: Cleveland-Cliffs hereby acknowledges that it
will be difficult, and may be impossible, for the Executive to find reasonably
comparable employment following the Termination Date and that the
non-competition covenant contained in Section 11 hereof will further limit the
employment opportunities for the Executive. Accordingly, the parties hereto
expressly agree that except as expressly provided in Sections 5(b) and 7 hereof,
the Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation on the part of
the Executive hereunder or otherwise.
CONFIDENTIALITY: The Executive acknowledges that all trade secrets,
customer lists, and other confidential business information are the exclusive
property of Cleveland-Cliffs, and the Executive shall not at any time during the
Term of this Agreement or at any time thereafter, directly or indirectly reveal
or cause to be revealed to any person or entity the trade secrets, customer
lists and other confidential business information obtained as a result of the
Executive's employment or relationship with Cleveland-Cliffs.
COMPETITIVE ACTIVITY: For a period of twenty-four (24) months from and
after any termination of employment following the occurrence of a Change of
Control, the Executive shall not become an officer, director, joint venturer,
employee, consultant, 5-percent or more shareholder (directly or indirectly), or
promote or assist (financially or otherwise) any entity which competes in any
business in which Cleveland-Cliffs or any of its affiliates are engaged as of
the date of the Change of Control. For this purpose, business is defined as the
iron and steel industry.
RELEASE: Payment of the Severance Compensation set forth in Section 5
hereof is conditioned upon the Executive executing and delivering a release (the
"Release") satisfactory to Cleveland-Cliffs releasing Cleveland-Cliffs, its
directors, employees and affiliates from any and all claims, demands, damages,
actions and/or causes of action whatsoever, which the Executive may have had on
account of the termination of his employment, including, but not limited to
claims of discrimination, including on the basis of sex, race, age, national
origin, religion, or handicapped status (with all applicable periods during
which the Executive may revoke the
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14
Release or any provision thereof having expired), and any and all claims,
demands and causes of action for retirement (other than under any "pension
benefit plan" or under any "welfare benefit plan" of Cleveland-Cliffs (as the
terms "pension benefit plan" and "welfare benefit plan" are defined in Section 3
of ERISA) other than the SRP, severance or other termination pay, and because
pursuant to Section 5(a) the Executive is entitled to lump sum payments of
Incentive Pay and benefits under the SRP, under the SRP and any incentive
compensation plans and arrangements of Cleveland-Cliffs described in Section
3(b). Such Release shall not, however, apply to the obligations of
Cleveland-Cliffs arising under this Agreement, or rights of indemnification the
Executive may have under the Regulations of Cleveland-Cliffs or by contract or
by statute.
LEGAL FEES AND EXPENSES: It is the intent of Cleveland-Cliffs that the
Executive not be required to incur any expenses associated with the enforcement
of his rights under this Agreement by litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if it should
appear to the Executive that Cleveland-Cliffs has failed to comply with any of
its obligations under this Agreement or in the event that Cleveland-Cliffs or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any litigation designed to deny, or to recover
from, the Executive the benefits intended to be provided to the Executive
hereunder, Cleveland-Cliffs irrevocably authorizes the Executive from time to
time to retain counsel of his choice, at the expense of Cleveland-Cliffs as
hereafter provided, to represent the Executive in connection with the initiation
or defense of any such litigation or other legal action, whether by or against
Cleveland-Cliffs or any Director, officer, stockholder or other person
affiliated with Cleveland-Cliffs, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between Cleveland-Cliffs and such
counsel, Cleveland-Cliffs irrevocably consents to the Executive's entering into
an attorney-client relationship with such counsel, and in that connection
Cleveland-Cliffs and the Executive agree that a confidential relationship shall
exist between the Executive and such counsel. Cleveland-Cliffs shall promptly
pay or cause to be paid and shall be solely responsible for any and all
attorneys' and related fees and expenses incurred by the Executive as a result
of Cleveland-Cliffs' failure to perform this Agreement or any provision hereof
or as a result of Cleveland-Cliffs or any person contesting the validity or
enforceability of this Agreement or any provision hereof as aforesaid.
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15
To ensure that the provisions of this Agreement can be enforced by
Executive, certain trust arrangements ("Trusts") have been established between
Ameritrust Company National Association, as Trustee ("Trustee"), and
Cleveland-Cliffs. A Trust Agreement No. 1 ("Trust Agreement No. 1") and a Trust
Agreement No. 2 ("Trust Agreement No. 2") each dated October 28, 1987, as
amended and/or restated, between the Trustee and Cleveland-Cliffs, are attached
as Exhibits B and C, respectively. A Trust Agreement No. 7 ("Trust Agreement No.
7") dated April 9, 1991, as amended, between the Trustee and Cleveland-Cliffs,
is attached as Exhibit D. Each such Trust Agreement shall be considered a part
of this Agreement and shall set forth the terms and conditions relating to
payment under Trust Agreement No. 1 of compensation and other benefits pursuant
to Sections 3 and 5 and pension benefits pursuant to Sections 3, 5 and 6 owed by
Cleveland-Cliffs, payment from Trust Agreement No. 7 of certain pension benefits
pursuant to Sections 3, 5 and 6 owed by Cleveland-Cliffs, and payment from Trust
Agreement No. 2 for attorneys' fees and related fees and expenses pursuant to
Section 13(a) hereof owed by Cleveland-Cliffs. Executive shall make demand on
Cleveland-Cliffs for any payments due Executive pursuant to Section 13(a) hereof
prior to making demand therefor on the Trustee under Trust Agreement No. 2.
Upon the earlier to occur of (1) a Change of Control or (2) a
declaration by the Board that a Change of Control is imminent, Cleveland-Cliffs
shall promptly to the extent it has not previously done so, and in any event
within five (5) business days:
transfer to Trustee to be added to the principal of the Trust under
Trust Agreement No. 1 a sum equal to (A) the present value on the date of
the Change of Control (or on such fifth business day if the Board has
declared a Change of Control to be imminent) of the payments to be made to
Executive under the provisions of Sections 3, 5 and 6 hereof, such present
value to be computed using the assumptions set forth in Section 5(a) hereof
less (B) the balance in the Executive's account provided for in Section
7(b) of Trust Agreement No. 1 as of the most recent completed valuation
thereof, less (C) the balance in the Executive's account provided for in
Section 7(b) of Trust Agreement No. 7 as of the most recent completed
valuation thereof, as certified by the Trustee under each of Trust
Agreement No. 1 and Trust Agreement No. 7; provided, however, that if the
Trustee under Trust Agreement No. 1 and/or Trust Agreement No. 7,
respectively, does not so certify by the end of the fourth (4th) business
day after the earlier of such Change of Control or declaration, then the
balance of such respective account shall be deemed to be zero. Any payments
of compensation, pension or other
<PAGE> 16
16
benefits by the Trustee pursuant to Trust Agreement No. 1 or Trust
Agreement No. 7 shall, to the extent thereof, discharge Cleveland-Cliffs'
obligation to pay compensation, pension and other benefits hereunder, it
being the intent of Cleveland-Cliffs that assets in such Trusts be held as
security for Cleveland-Cliffs' obligation to pay compensation, pension and
other benefits under this Agreement; and
transfer to the Trustee to be added to the principal of the Trust
under Trust Agreement No. 2 the sum of _______________________________
($______) less any principal in such Trust on such fifth business day. Any
payments of Executive's attorneys' and related fees and expenses by the
Trustee pursuant to Trust Agreement No. 2 shall, to the extent thereof,
discharge Cleveland-Cliffs' obligation hereunder, it being the intent of
Cleveland-Cliffs that assets in such Trust be held as security for
Cleveland-Cliffs' obligation under Section 13(a) hereof. Executive
understands and acknowledges that the entire corpus of the Trust under
Trust Agreement No. 2 will be $250,000 and that said amount will be
available to discharge not only the obligations of the Cleveland-Cliffs to
Executive under Section 13(a) hereof, but also similar obligations of the
Cleveland-Cliffs to other executives and employees under similar provisions
of other agreements and plans.
EMPLOYMENT RIGHTS: Nothing expressed or implied in this Agreement shall
create any right or duty on the part of Cleveland-Cliffs or the Executive to
have the Executive remain in the employment of Cleveland-Cliffs at any time
prior to a Change of Control; provided, however, that any termination of
employment of the Executive or the removal of the Executive from the office or
position in Cleveland-Cliffs following the commencement of any discussion with a
third person that ultimately results in a Change of Control shall be deemed to
be a termination or removal of the Executive after a Change of Control for
purposes of this Agreement. Executive expressly acknowledges that he is an
employee at will, and that Cleveland-Cliffs may terminate him at any time during
the Period of Employment for any reason if Cleveland-Cliffs pays the Severance
Compensation provided for under Section 5 of this Agreement, and otherwise
comply with its other continuing covenants in this Agreement, including without
limitation, Sections 3 and 6.
WITHHOLDING OF TAXES: Cleveland-Cliffs may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
<PAGE> 17
17
SUCCESSORS AND BINDING AGREEMENT: Cleveland-Cliffs shall require any
successor (including without limitation any persons acquiring directly or
indirectly all or substantially all of the business and/or assets of
Cleveland-Cliffs whether by purchase, merger, consolidation, reorganization or
otherwise, and such successor shall thereafter be deemed "Cleveland-Cliffs" for
the purposes of this Agreement), by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cleveland-Cliffs would be
required to perform if no such succession had taken place. This Agreement shall
be binding upon and inure to the benefit of Cleveland-Cliffs and any successor
to Cleveland-Cliffs but shall not otherwise be assignable, transferable or
delegable by Cleveland-Cliffs.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and/or legatees.
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
this Section 16. Without limiting the generality of the foregoing, the
Executive's right to receive payments hereunder shall not be assignable,
transferable or delegable, whether by pledge, creation of a security interest or
otherwise, other than by a transfer by his will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this Section 16, Cleveland-Cliffs shall have no liability to pay any amount
so attempted to be assigned, transferred or delegated.
The agreement of Cleveland-Cliffs to make payments and/or provide
benefits hereunder shall represent an unsecured obligation of Cleveland-Cliffs.
Cleveland-Cliffs and the Executive recognize that each party will have
no adequate remedy at law for breach by the other of any of the agreements
contained herein and, in the event of any such breach, Cleveland-Cliffs and the
Executive hereby agree and consent that the other shall be entitled to a decree
of specific performance, mandamus or other appropriate remedy to enforce
performance of this Agreement.
NOTICE: For all purposes of this Agreement, all communications including
without limitation notices, consents, requests or approvals, provided for herein
shall be in writing and shall be deemed to have been duly given when delivered
or five business days after having been mailed by United States
<PAGE> 18
18
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party's address as specified below, or at such other address
as such party shall specify by notice to the other. If to Cleveland-Cliffs, to:
Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114
If to the Executive, to the last address shown on the records of the Employer.
Notices of change of address shall be effective only upon receipt.
GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such State.
VALIDITY: If any provision of this Agreement or the application of any
provision hereof to any person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to any other person or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
AMENDMENT. This Agreement may be amended only by a written instrument
signed by the parties hereto, which makes specific reference to this Agreement.
RIGHTS UNDER OTHER PLANS AND PROGRAMS. Anything in this Agreement to the
contrary notwithstanding, no provision of this Agreement is intended, nor shall
it be construed, to reduce or in any way restrict any benefit to which Executive
may be entitled under any other agreement, plan or program providing benefits
for Executive, including but not limited to the plans described in Sections 3
and 5 of this Agreement.
MISCELLANEOUS: No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and Cleveland-Cliffs. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement.
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19
COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
CAPTIONS. The captions in this Agreement are for convenience of
reference only and do not define, limit or describe the scope or intent of this
Agreement or any part hereof and shall not be considered in any construction
hereof.
PRIOR AGREEMENT: This Agreement supersedes the Amended and Restated
Agreement, dated _______________ (the "Prior Agreement"), between
Cleveland-Cliffs and the Executive, which Prior Agreement shall, without further
action, be terminated as of the date hereof.
IN WITNESS WHEREOF, Cleveland-Cliffs has caused this Agreement to be
executed on its behalf by its duly authorized representative and Executive has
hereunto set his hand, all as of the date and year first above written.
CLEVELAND-CLIFFS INC
By____________________________
______________________________
Name:
<PAGE> 20
8266Q
Exhibits Intentionally Omitted
<PAGE> 1
Exhibit 10(h)
CLEVELAND-CLIFFS INC
1987 INCENTIVE EQUITY PLAN
SECTION 1. PURPOSE.
The 1987 Incentive Performance Plan (the "Plan"), is intended to
encourage key executives and managerial employees of Cleveland-Cliffs Inc (the
"Company") and its Subsidiaries or Affiliates to become owners of Stock of the
Company in order to increase their interest in the Company's long-term success,
to provide incentive equity opportunities which are competitive with other
similarly situated corporations and to stimulate the efforts of such employees
by giving suitable recognition for services which contribute materially to the
Company's success.
SECTION 2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries which the Board designates as an "Affiliate" for purposes
of this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty, any of which is directly
and materially harmful to the business or reputation of the Company or
any Subsidiary or Affiliate.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(e) "Committee" means the Committee referred to in Section 3 of
the Plan. If at any time a Committee shall not be in existence, then the
functions of the Committee specified in the Plan shall be exercised by
the Board.
(f) "Deferral Period" means the initial period of time during
which shares of Deferred Stock awarded pursuant to Section 8 are subject
to deferral limitations under Section 8(c).
(g) "Deferred Stock" means an award made pursuant to Section 8
of the right to receive Stock at the end of a specified deferral period.
(h) "Disability" means permanent and total disability as
determined under the Company's long term disability program.
(i) "Disinterested Person" shall have the meaning set forth in
Rule 16b-3(d)(3) as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, or any successor
definition adopted by the Commission.
(j) "Early Retirement" means retirement, with the consent for
purposes of this Plan of the Committee (or any officer designated by the
Committee) at or prior to the time of retirement, from active employment
with the Company or any Subsidiary or Affiliate pursuant to the early
retirement provisions of the applicable pension plan of such employer.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(l) "Company" means Cleveland-Cliffs Inc, a corporation
organized under the laws of the State of Ohio, or any successor
corporation.
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(m) "Elective Deferral Period" means the deferral period
described in Section 8(c)(v).
(n) "Fair Market Value" means, as of any given date, the mean
between the highest and lowest quoted selling price, regular way, of the
Stock on the New York Stock Exchange or, if no such sale of Stock occurs
on the New York Stock Exchange on such date, the fair market value of
the Stock as determined by the Committee in good faith.
(o) "Incentive Stock Option" means any Stock Option intended to
be and designated as an "incentive stock option" within the meaning of
Section 422A of the Code.
(p) "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(q) "Normal Retirement" means retirement from active employment
with the Company or any Subsidiary or Affiliate on or after the normal
retirement date specified in the applicable pension plan of such
employer.
(r) "Plan" means the Cleveland-Cliffs Inc 1987 Incentive Equity
Plan, as hereinafter amended from time to time.
(s) "Restriction Period" means the period of time during which
shares of Stock awarded to a participant pursuant to Sections 8(a) and
(b) remain subject to the restrictions referred to in Section 8(b).
(t) "Restricted Stock" means an award of shares of stock that is
subject to restrictions under Section 8.
(u) "Retirement" means Normal or Early Retirement.
(v) "Rule 16b-3" as promulgated and amended from time to time by
the Securities and Exchange Commission pursuant to Section 16(b) of the
Exchange Act.
(w) "Stock" means the Common Shares, par value $1.00 per share,
of the Company.
(x) "Stock Appreciation Right" means the right granted under
Section 7 to surrender to the Company all or a portion of a Stock Option
in exchange for a payment in cash or Stock.
(y) "Stock Option" or "Option" means any option to purchase
shares of Stock granted pursuant to Section 6.
(z) "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if each
of the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
In addition, the terms "Approval Date," "Change in Control," "Potential Change
in Control" and "Change in Control Price" shall have meanings set forth in
Section 9.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee of the
Board of Directors, which shall consist of not less than three Disinterested
Persons who are appointed by, and serve at the pleasure of, the Board.
The Committee shall have the power and authority to grant to eligible
employees Stock Options, Stock Appreciation Rights, Restricted Stock and
Deferred Stock.
In particular, the Committee shall have the authority:
(i) to select the key employees of the Company, its Subsidiaries
and Affiliates to whom Stock Options and other awards may from time to
time be granted;
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(ii) to determine whether and to what extent Stock Options,
Stock Appreciation Rights, Restricted Stock and Deferred Stock are
granted;
(iii) to determine the number of shares to be covered by each
such award granted;
(iv) to determine the terms and conditions, not inconsistent
with the terms hereof, of any award granted (including, but not limited
to, the share price and any restriction or limitation on, or any
vesting, acceleration or forfeiture waiver regarding, any award, based
on such factors and criteria as the Committee shall determine, in its
sole discretion);
(v) to determine and adjust the performance goals and
measurements applicable to performance-based Deferred Stock and
Restricted Stock awards to include or exclude the impact of
extraordinary or unusual items, events or circumstances and/or to
reflect change in applicable tax or accounting rules and other
developments;
(vi) to determine whether and under what circumstances a Stock
Option may be settled in cash, Deferred Stock and/or Restricted Stock
under Section 6(j); and
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award
shall be deferred.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Stock Option or other award granted and any agreements relating
thereto; and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions hereof
shall be made in the Committee's sole discretion and shall be final and binding
on all persons.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company, its Subsidiaries and
its Affiliates (but excluding members of the Committee and any person who serves
only as a director) who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company, its Subsidiaries or
its Affiliates are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards.
The participants under the Plan shall be selected from time to time by
the Committee, in its sole discretion, from among those eligible.
SECTION 5. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution pursuant to Stock Options or other awards hereunder shall be
750,000 shares, plus an amount of shares equal to the sum of the remaining
shares reserved for issuance and otherwise available for distribution under the
Company's Restricted Stock Plan as of , 1987 (the date on which such plan
is discontinued and superceded by the Plan). Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
Subject to Section 7(b)(iv), if any shares of Stock that have been
optioned cease to be subject to a Stock Option, or if any such shares of Stock
that are subject to any Restricted Stock or Deferred Stock award granted
hereunder are forfeited or any such Option or other award otherwise terminates
without a payment being made to the participant in the form of Stock, such
shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding Options granted under the Plan, and in
the number
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of shares subject to other outstanding awards granted under the Plan as may be
determined to be appropriate by the Board, provided that the number of shares
subject to any award shall always be a whole number. Such adjusted option price
shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 6. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve and the provisions of Stock
Option awards need not be the same with respect to each optionee.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options; and (ii) Non-Qualified Stock Options (provided that Incentive
Stock Options may not be granted to employees of Affiliates). The Committee may
grant to any optionee Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options (in each case with or without Stock Appreciation
Rights). To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422A of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422A.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions not
inconsistent with the terms of the Plan, as the Committee deems appropriate:
(a) Exercise Price. The exercise price per share of Stock purchasable
under a Stock Option shall be no less than the Fair Market Value on the day
the Option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date such Option is granted and no Non-Qualified Stock
Option shall be exercisable more than ten years and one day after the date
such Option is granted.
(c) Exercise of Options. Options shall become exercisable at such time
or times and subject to such terms and conditions (including, without
limitation, installment exercise provisions) as shall be determined by the
Committee, provided, however, that, except as provided in Section 6(f) or
(g) (in the case of Disability) and Section 9, unless otherwise determined
by the Committee at or after grant, no Stock Option shall be exercisable
prior to the first anniversary date of the granting of the option. If the
Committee provides that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions
at any time in whole or in part based on performance and/or such other
factors as the Committee may determine.
(d) Method of Exercise. Options may be exercised in whole or in part
by giving written notice of exercise to the Company specifying the number
of shares to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, either by certified or bank check, or such
other instrument as may be permitted in accordance with rules or procedures
adopted by the Committee.
As determined by the Committee, at or after grant, payment in full or
in part may also be made in the form of unrestricted Stock already owned by
the optionee or, in the case of the exercise of a Non-Qualified Stock
Option, Restricted Stock or Deferred Stock subject to an award hereunder
(based in each case, on the Fair Market Value on the date the option is
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exercised, as determined by the Committee), provided, however, that, in the
case of an Incentive Stock Option, the right to make a payment in the form
of already owned shares may be authorized only at the time the Option is
granted.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock or
Deferred Stock, the shares received upon the exercise of such Stock Option
shall be restricted or deferred, (as the case may be, in accordance with
the original terms of the Restricted Stock award or Deferred Stock award in
question) equal in number to the number of shares of Restricted Stock or
Deferred Stock surrendered upon the exercise of such Option.
No shares of Stock shall be transferred until full payment therefor
has been made. An optionee shall generally have the rights of a shareholder
with respect to shares subject to the Option only when the optionee has
given written notice of exercise, has paid in full for such shares and, if
requested, given the representation described in Section 12(a).
(e) Non-Transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
At the request of an optionee, Stock purchased upon exercise of an
Option may be issued or transferred into the name of the optionee and
another person jointly with rights of survivorship.
(f) Termination by Death. Subject to Section 6(i), if an optionee's
employment by the Company or any Subsidiary or Affiliate terminates by
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent it was exercisable at the time of death or on such
accelerated basis as the Committee may determine at or after grant, by the
legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of one year (or such other period up
to three years as the Committee may specify) from the date of death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter.
(g) Termination by Reason of Disability or Retirement. Subject to
Section 6(i), if an optionee's employment by the Company or any Subsidiary
or Affiliate terminates by reason of Disability or Retirement, any Stock
Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was exercisable at the time of such termination or on such
accelerated basis as the Committee may determine at or after grant, for a
period of three years (or such shorter period as the Committee may specify
at grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter, provided, however, that, if the optionee dies within such
three-year period (or such shorter period), any unexercised Stock Option
held by such optionee shall thereafter be exercisable, to the extent to
which it was exercisable at the time of death, for a period of one year
from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter. In the event of
termination of employment by reason of Disability or Retirement, if an
Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422A of the Code, such Stock
Option shall thereafter be treated as a Non-Qualified Stock Option.
(h) Other Termination of Employment. Unless otherwise determined by
the Committee at or after grant, if an optionee's employment by the Company
or any Subsidiary or Affiliate terminates for any reason other than death,
Disability or Retirement, the optionee will have three months from the date
of termination to exercise any and all Stock Options that are then
exercisable, except that, if the termination was for Cause, any and all
Options shall be immediately cancelled.
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(i) Incentive Stock Option Limitations. To the extent required for
"incentive stock option" status under Section 422A of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
Stock with respect to which Incentive Stock Options granted after 1986 are
exercisable for the first time by the optionee during any calendar year
under the Plan and any other stock option plan of the Company or any
Subsidiary or parent corporation (within the meaning of Section 425 of the
Code) or any predecessor of any such corporation, in each case after 1986
shall not exceed $100,000.
The Committee may provide at grant, to the extent permitted under
Section 422A of the Code, that, if (i) a participant's employment with the
Company or its Subsidiaries is terminated by reason of death, Disability or
Retirement and (ii) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period specified under
Sections 6(f), (g) or (h), applied without regard to this Section 6(i), is
greater than the portion of such Option that is exercisable as an
"incentive stock option" during such post-termination period under Section
422A, such post-termination period shall automatically be extended (but not
beyond the original option term) to the extent necessary to permit the
optionee to exercise such Incentive Stock Option either as an Incentive
Stock Option or, if exercised after the expiration of the applicable
exercise periods under Section 422A(a), as a Non-Qualified Stock Option.
The Committee is also authorized to provide at grant for a similar
extension of the post-termination exercise period in the event of a Change
in Control or a Potential Change in Control.
(j) Cashout of Option; Settlement of Spread Value in Deferred or
Restricted Stock. On receipt of written notice to exercise, the Committee
may, in its sole discretion, elect to cashout all or part of the portion of
the Stock Option(s) to be exercised with respect to Deferred or Restricted
Stock by paying the optionee an amount, in cash or Stock, equal to the
excess of the Fair Market Value of the Stock over the option price (the
"Spread Value") on the effective date of such cashout.
Cashouts relating to options held by optionees who are actually or
potentially subject to Section 16(b) of the Exchange Act shall comply with
the "window period" provisions of Rule 16b-3 referred to in Section
7(b)(ii), to the extent applicable; in addition, in the case of cashouts of
Non-Qualified Stock Options held by such optionees, the Committee may
determine Fair Market Value under the pricing rule set forth in Section
7(b)(ii)(B).
In addition, if the option agreement so provides at grant or is
amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the
shares of be issued with respect to (i) the Spread Value payable in the
event of a cashout of an unexercised Stock Option or (ii) the Spread Value
portion of an exercised Stock Option take the form of Deferred or
Restricted Stock, which shall be valued on the date of the cashout or
exercise on the basis of the Fair Market Value of such Deferred or
Restricted Stock determined without regard to the deferral limitations
and/or forfeiture restrictions involved.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In
the case of a Non-Qualified Stock Option, such rights may be granted either
at or after the time of the grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of the
grant of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise determined by the Committee at the time of
grant, a Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall not be
reduced until the
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number of shares covered by an exercise or termination of the related Stock
Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with Section 7(b), by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the
Committee for such purposes. Upon such exercise and surrender, the optionee
shall be entitled to receive an amount determined in the manner prescribed
in Section 7(b). Stock Options which have been so surrendered shall no
longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the
Plan, as shall be determined from time to time by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate are
exercisable, in accordance with the provisions of Section 6 and this
Section 7 of the Plan, provided that a Stock Appreciation Right shall not
be exercisable during the first six months of its term by any optionee
except in the event of death of Disability of the optionee prior to the
expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash and/or shares of Stock in
the aggregate equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related
Stock Option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under
Section 6(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares of Stock
issued under the Stock Appreciation Right based on the value of the Stock
Appreciation Right.
(v) The Committee may provide, at the time of grant, that such Stock
Appreciation Right can be exercised only in the event of a Change in
Control and/or a Potential Change in Control, subject to such terms and
conditions as the Committee may specify at grant.
(vi) The Committee may also provide that, in the event of a Change in
Control and/or a Potential Change in Control, the amount to be paid upon
the exercise of a Stock Appreciation Right shall be based on the Change in
Control Price, subject to such terms and conditions as the Committee may
specify at grant.
SECTION 8. AWARDS OF RESTRICTED STOCK AND DEFERRED STOCK.
(a) Administration. Shares of Restricted Stock and/or Deferred Stock may
be issued either alone or in addition to other awards granted under the Plan.
The Committee shall determine the officers and key employees of the Company and
its Subsidiaries or Affiliates to whom, and the time or times at which, such
grants will be made, the number of shares to be awarded, the price (if any) to
be paid under Section 8(b)(i) by the recipient of a Restricted Stock award, the
time or times within which such awards may be subject to forfeiture, and all
other conditions of the awards.
The Committee may condition grants of Restricted Stock and/or Deferred
Stock upon the attainment of specified performance goals or such other factors
or criteria as the Committee may determine.
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The provisions of Restricted Stock and Deferred Stock awards need not be
the same with respect to each recipient.
(b) Restrictions and Conditions Applicable to Restricted Stock Awards.
Restricted Stock Awards shall be subject to the following restrictions and
conditions:
(i) The purchase price for shares of Restricted Stock shall be equal
to or less than their par value and may be zero.
(ii) Awards of Restricted Stock must be accepted within a period of 60
days (or such shorter periods as the Committee may specify at grant) after
the award date, by executing a Restricted Stock Award Agreement and paying
whatever price (if any) is required under Section 8(b)(i).
The prospective recipient of a Restricted Stock award shall not have
any rights with respect to such award, unless and until such recipient has
executed an agreement evidencing the award and has delivered a fully
executed copy thereof of the Company, and has otherwise complied with the
applicable terms and conditions of such award.
(iii) Each participant receiving a Restricted Stock award shall be
issued a stock certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Cleveland-Cliffs Inc 1987 Incentive Equity Plan and an
Agreement entered into between the registered owner and Cleveland-Cliffs
Inc. Copies of such Plan and Agreement are on file in the offices of
Cleveland-Cliffs Inc, Cleveland, Ohio."
The Committee may require that the stock certificates evidencing such
shares be held in custody by the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock award,
the participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.
(iv) Subject to the provisions of this Plan and the applicable award
agreement, during a period set by the Committee commencing with the date of
such award (the "Restriction Period"), the participant shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber shares of
Restricted Stock awarded under the Plan.
Based on service, performance and/or such other factors or criteria as
the Committee may determine, the Committee may, however, at or after grant
provide for the lapse of such restrictions in installments and/or may
accelerate or waive such restrictions in whole or in part.
(v) Except as provided in this Section 8(b), the recipient shall have,
with respect to the shares of Restricted Stock covered by any award, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any dividends, provided, however, that
unless otherwise determined by the Committee, any dividends on such shares
shall be automatically deferred and reinvested in additional Restricted
Stock subject to the same restrictions as the underlying award, to the
extent shares are available under Section 3.
(vi) Except as otherwise provided in this Section 8(b) and in the
applicable award agreement, upon termination of a participant's employment
with the Company or any Subsidiary or Affiliate for any reason during the
Restriction Period for a given award, all shares still subject to
restriction shall be forfeited by the participant, provided, however, the
Committee may provide for waiver of the restrictions in the event of
termination of employment due to death, Disability or Retirement.
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(vii) In the event of hardship or other special circumstances of a
participant whose employment with the Company or any Subsidiary or
Affiliate is involuntarily terminated (other than for Cause), the Committee
may waive in whole or in part any or all remaining restrictions with
respect to any or all of the participant's Restricted Stock, based on such
factors and criteria as the Committee may deem appropriate.
(viii) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unrestricted certificates for such shares shall be delivered to the
participant.
(c) Terms and Conditions Applicable to Deferred Stock Awards. Deferred
Stock Awards shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the applicable award
agreement, Deferred Stock awards may not be sold, transferred, pledged,
assigned or otherwise encumbered during the period specified by the
Committee for purposes of such award (the "Deferral Period"). At the
expiration of the Deferral Period (or the Elective Deferral Period defined
in Section 8(c)(v), where applicable), share certificates shall be
delivered to the participant, or his legal representative, in a number
equal to the number of shares covered by the Deferred Stock award.
Based on service, performance and/or such other factors or criteria as
the Committee may determine, the Committee may, however, at or after grant,
accelerate the vesting of all or any part of any Deferred Stock award
and/or waive the deferral limitations for all or any part of such award.
(ii) Unless otherwise determined by the Committee, amounts equal to
any dividends that would have been payable during the Deferral Period with
respect to the number of shares covered by a Deferred Stock award if such
shares had been outstanding shall be automatically deferred and deemed to
be reinvested in additional Deferred Stock, subject to the same deferral
limitations as the underlying award.
(iii) Except to the extent otherwise provided in this Section 8(c) and
in the applicable award agreement, upon termination of a participant's
employment with the Company or any Subsidiary or Affiliate for any reason
during the Deferral Period for a given award, the Deferred Stock covered by
such award shall be forfeited by the participant, provided, however, the
Committee may provide for accelerated vesting in the event of termination
of employment due to death, Disability or Retirement.
(iv) In the event of hardship or other special circumstances of a
participant whose employment with the Company or any Subsidiary or
Affiliate is involuntarily terminated (other than for Cause), the Committee
may waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the
participant's Deferred Stock, based on such factors and criteria as the
Committee deems appropriate.
(v) A participant may elect to further defer receipt of Deferred Stock
for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions adopted
by the Committee, such election must generally be made at least twelve
months prior to completion of the Deferral Period for the Deferred Stock
award in question (or for the applicable installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock agreement executed by the Company and the participant.
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SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(x) a "Change in Control" as defined in Section 9(b), or
(y) a "Potential Change in Control" as defined in Section 9(c),
the Committee or the Board may provide that one or more of the following
acceleration and valuation provisions shall apply:
(i) Any or all Stock Appreciation Rights outstanding for at least six
months on the date that such Change in Control or Potential Change in
Control is determined to have occurred and any or all Stock Options awarded
under this Plan not previously exercisable and vested shall become fully
exercisable and vested.
(ii) The restrictions and deferral limitations applicable to any or
all Restricted Stock and Deferred Stock awards shall lapse and such shares
and awards shall be fully vested.
(iii) The value of any or all outstanding Stock Options, Restricted
Stock and Deferred Stock awards shall be cashed out on the basis of the
"Change in Control Price" as defined in Section 9(d) as of the date such
Change in Control or such Potential Change in Control is determined to have
occurred or such other date as the Committee may determine prior to the
Change in Control.
(b) Definition of "Change in Control". For purposes of Section 9(a), a
"Change in Control" means the happening of any of the following:
(i) A tender offer is made and consummated for the ownership of 30% or
more of the outstanding voting securities of Cleveland-Cliffs Inc;
(ii) Cleveland-Cliffs Inc shall merge or consolidate with another
corporation and as a result of such merger or consolidation less than 75%
of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of
Cleveland-Cliffs Inc, other than affiliates (within the meaning of the
Exchange Act as in effect on the date the Plan was first approved by the
shareholders of the Company (the "Approval Date")) of any party to such
merger or consolidation, as the same shall have existed immediately prior
to such merger or consolidation;
(iii) Cleveland-Cliffs Inc shall sell substantially all of its assets
to another corporation which is not a Subsidiary; or
(iv) A person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on the Approval Date) of the Exchange Act, shall
acquire 30% or more of the outstanding voting securities of
Cleveland-Cliffs Inc (whether directly, indirectly, beneficially or of
record).
For purposes hereof, ownership of voting securities shall take into
account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(1)(i) (as in effect on the Approval Date)
pursuant to the Exchange Act.
(c) Definition of"Potential Change in Control". For purposes of Section
9(a), a "Potential Change in Control" means the happening of any one of the
following:
(i) The entering into an agreement by the Company, the consummation of
which would result in a Change in Control of the Company as defined in
Section 9(b); or
(ii) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan) (including any trustee of such plan
acting as such trustee) of securities of the Company representing 5% or
more of the combined voting power of the Company's
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outstanding securities, and the adoption by the Board of a resolution
to the effect that a "Potential Change in Control" of the Company has
occurred for the purposes of this Plan.
(d) Change in Control Price. For the purposes of this Section 9, "Change
in Control Price" means the highest price per share paid in any transaction
reported on the New York Stock Exchange Composite Index, or paid or offered in
any bona fide transaction related to an actual or Potential Change in Control of
the Company, at the time during the preceding sixty-day period as determined by
the Committee, except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date as of which the Committee
decides to cashout such options.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option, Stock Appreciation Right or
Deferred Stock award theretofore granted, without the optionee's or
participant's consent, or which, without the approval of the Company's
stockholders, would:
(a) except as expressly provided in the Plan, increase the total number of
shares reserved for purposes of the Plan;
(b) change the class of employees eligible to participate in the Plan;
(c) extend the maximum option period under Section 6(b) of the Plan; or
(d) increase materially the benefits under the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent. The Committee may
also substitute new Stock Options for previously granted Stock Options,
including previously granted Stock Options having higher option prices.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in applicable tax and securities laws and
accounting rules, as well as other developments.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. The Committee may authorize the creation of trusts or
other arrangements to meet the obligations created under the Plan to deliver
Stock or payments hereunder consistent with the foregoing.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option or Restricted Stock award under the Plan to represent to and agree
with the Company in writing that the optionee or participant is acquiring the
shares without a view to distribution thereof. The certificates for such shares
may include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange
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Commission, any stock exchange upon which the Stock is then listed and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(b) Nothing contained in this Plan shall prevent the Company, a subsidiary
or an Affiliate from adopting other or additional compensation arrangements for
its employees.
(c) The adoption of the Plan shall not confer upon any employee of the
Company or any Subsidiary or Affiliate any right to continued employment with
the Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or any Subsidiary or
Affiliate to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the optionee for Federal income tax purposes with respect
to any Stock Option or other award under the Plan, the participant shall pay to
the Company, or make any arrangements satisfactory to the Committee regarding
the payment of any Federal, state or local taxes of any kind required by law to
be withheld with respect to such amount. Unless otherwise determined by the
Company, withholding obligations may be settled with Stock, including Stock that
is part of the award that gives rise to the withholding requirement.
The obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company and its Subsidiaries or Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from the payment(s) otherwise due to the participant.
(e) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid.
(f) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Ohio.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by the stockholders
of the Company. Grants made prior to such stockholder approval shall be
contingent on such approval.
SECTION 14. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock or Deferred
Stock shall be granted pursuant to the Plan on or after the tenth anniversary of
the effective date of the Plan, but awards granted prior to such tenth
anniversary may extend beyond that date.
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EXHIBIT 10(i)
CLEVELAND-CLIFFS INC
1992 INCENTIVE EQUITY PLAN
1. PURPOSE. The Cleveland-Cliffs Inc 1992 Incentive Equity Plan (the
"Plan") is intended to encourage key executives and managerial employees of
Cleveland-Cliffs Inc (the "Company") and its Subsidiaries to become owners of
stock of the Company in order to increase their interest in the Company's
long-term success, to provide incentive equity opportunities which are
competitive with other similarly situated corporations and to stimulate the
efforts of such employees by giving suitable recognition for services which
contribute materially to the Company's success.
2. DEFINITION. For purposes of the Plan, the following terms shall be
defined as set forth below:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COMMITTEE" means the committee described in Section 16(a) of this
Plan.
"COMMON SHARES" means (i) shares of the common stock of the Company
(par value $1 per share) and (ii) any security into which Common Shares
may be converted by reason of any transaction or event of the type referred
to in Section 10 of this Plan.
"DATE OF GRANT" means the date specified by the Committee on which a
grant of Option Rights, Performance Shares or Performance Units or an award
or sale of Restricted Shares or Deferred Shares shall become effective,
which shall not be earlier than the date on which the Committee takes
action with respect thereto, including the date on which an automatic grant
of options to a Nonemployee Director becomes effective pursuant to Section
8 of this Plan.
"DEFERRAL PERIOD" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 6 of this Plan.
"DEFERRED SHARES" means an award pursuant to Section 6 of this Plan of
the right to receive Common Shares at the end of a specified Deferral
Period.
"EFFECTIVE DATE" means April 14, 1992.
"INCENTIVE STOCK OPTIONS" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"LESS-THAN-80 PERCENT SUBSIDIARY" means a subsidiary with respect to
which the Company directly or indirectly owns or controls less than 80
percent of the total combined voting or other decisionmaking power.
"MANAGEMENT OBJECTIVES" means any performance objectives established
pursuant to this Plan for Participants who have received grants of
Performance Shares or Performance Units or awards of Restricted Shares.
"MARKET VALUE PER SHARE" means the fair market value of the Common
Shares as determined by the Committee from time to time.
"NONEMPLOYEE DIRECTOR" means a member of the Board who is not an
employee of the Company or any Subsidiary.
"OPTIONEE" means the person so designated in an agreement evidencing
an outstanding Option Right.
"OPTION PRICE" means the purchase price payable upon the exercise of
an Option Right.
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"OPTION RIGHT" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 or 8 of this Plan.
"PARTICIPANT" means a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time an officer,
including without limitation an officer who may also be a member of the
Board, or other key employee of the Company or any Subsidiary or (ii) has
agreed to commence serving in any such capacity.
"PERFORMANCE PERIOD" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 7 of
this Plan within which the Management Objectives relating to such
Performance Share or Performance Unit are to be achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 7 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 7 of this Plan.
"PREDECESSOR PLAN" means the 1987 Incentive Equity Plan of the Company
as heretofore adopted and as it may hereafter be amended.
"RESTRICTED SHARES" mean Common Shares awarded or sold pursuant to
Section 5 of this Plan as to which neither the substantial risk of
forfeiture nor the restrictions on transfer referred to in Section 5 hereof
has expired.
"RULE 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under Section 16 of the Securities Exchange Act of
1934, as amended (or any successor rule to the same effect), as in effect
from time to time.
"SUBSIDIARY" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a
direct or indirect ownership or other equity interest; provided, however,
for purposes of determining whether any person may be a Participant for
purposes of any grant of Incentive Stock Options. "Subsidiary" means any
corporation in which the Company owns or controls directly or indirectly
more than 50 percent of the total combined voting power represented by all
classes of stock issued by such corporation at the time of such grant.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 10 of this Plan, the number of Common Shares issued or transferred (a)
upon the exercise of Option Rights, (b) as Restricted Shares and released from
substantial risks of forfeitures thereof, (c) in payment of Performance Shares
or Performance Units that shall have been earned, (d) as Deferred Shares, or (e)
in payment of dividend equivalents paid with respect to awards made under this
Plan, shall not in the aggregate exceed 595,000 Common Shares. Such shares may
be Common Shares of original issuance or Common Shares held in treasury or a
combination thereof. For purposes of this Section 3, Restricted Shares, Deferred
Shares and Performance Shares shall be deemed to have been issued or transferred
at the earlier of the time when such shares are actually issued or transferred
(and, in the case of Restricted Shares, when they are no longer subject to a
substantial risk of forfeiture) or when any dividends or dividend equivalents
are paid thereon.
4. OPTION RIGHTS. The Committee may from time to time authorize grants to
Participants of options to purchase Common Shares upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains.
(b) Each grant shall specify an Option Price per Common Share, which
shall be equal to or greater than the Market Value per Share on the Date of
Grant.
(c) Each grant shall specify the form of consideration to be paid in
satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check
or other cash equivalent acceptable to the Company, (ii) nonforfeitable,
unrestricted Common Shares, which are already owned by the Optionee and
have a value at the time of exercise that is equal to
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<PAGE> 3
the Option Price, (iii) any other legal consideration that the Committee
may deem appropriate, including without limitation any form of
consideration authorized under Section 4(d) below, on such basis as the
Committee may determine in accordance with this Plan and (iv) any
combination of the foregoing. For purposes of this Section 4, constructive
delivery of shares shall be deemed equivalent to actual delivery.
(d) On or after the Date of Grant of any Option Rights other than
Incentive Stock Options, the Committee may determine that payment of the
Option Price may also be made in whole or in part in the form of Restricted
Shares or other Common Shares that are subject to risk of forfeiture or
restrictions on transfer. Unless otherwise determined by the Committee on
or after the Date of Grant, whenever any Option Price is paid in whole or
in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received by the Optionee upon the exercise
of the Option Rights shall be subject to the same risks of forfeiture or
restrictions on transfer as those that applied to the consideration
surrendered by the Optionee; provided, however, that such risks of
forfeiture and restrictions on transfer shall apply only to the same number
of Common Shares received by the Optionee as applied to the forfeitable or
restricted Common Shares surrendered by the Optionee.
(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a bank or broker of some or all of the
Common Shares to which the exercise relates.
(f) Successive grants may be made to the same Participant regardless
of whether any Option Rights previously granted to such Participant remain
unexercised.
(g) Each grant shall specify the period or periods of continuous
employment of the Optionee by the Company or any Subsidiary that are
necessary before the Option Rights or installments thereof shall become
exercisable, and any grant may provide for the earlier exercise of such
rights in the event of a change in control of the Company or other similar
transaction or event.
(h) Option Rights granted under this Plan may be (i) options that are
intended to qualify under particular provisions of the Code, including
without limitation Incentive Stock Options, (ii) options that are not
intended to so qualify or (iii) combinations of the foregoing.
(i) On or after the Date of Grant of any Option Rights other than
Incentive Stock Options, the Committee may provide for the payment to the
Optionee of dividend equivalents thereon in cash or Common Shares on a
current, deferred or contingent basis, or the Committee may provide that
such equivalents shall be credited against the Option Price.
(j) No Option Right granted under this Plan may be exercised more than
10 years from the Date of Grant.
(k) Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Company by any officer thereof and delivered to
and accepted by the Optionee and shall contain such terms and provisions as
the Committee may determine consistent with this Plan.
5. RESTRICTED SHARES. The Committee may also authorize awards or sales to
Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each award or sale shall constitute an immediate transfer of the
ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each award or sale may be made without additional consideration
from the Participant or in consideration of a payment by the Participant
that is less than the Market Value per Share on the Date of Grant.
(c) Each award or sale shall provide that the Restricted Shares
covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined
by the Committee on the Date of Grant, and any award or sale may provide
for the earlier
3
<PAGE> 4
termination of such period in the event of a change in control of the
Company or other similar transaction or event.
(d) Each award or sale shall provide that, during the period for which
such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares shall be prohibited or restricted in the manner and
to the extent prescribed by the Committee on the Date of Grant. Such
restrictions may include without limitation rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any transferee.
(e) Any award or sale may be further conditioned upon the attainment
of Management Objectives to be established and, if appropriate, adjusted by
the Committee.
(f) Any award or sale may require that any or all dividends or other
distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the
same restrictions as the underlying award or such other restrictions as the
Committee may determine.
(g) Each award or sale shall be evidenced by an agreement, which shall
be executed on behalf of the Company by any officer thereof and delivered
to and accepted by the Participant and shall contain such terms and
provisions as the Committee may determine consistent with this Plan. Unless
otherwise directed by the Committee, all certificates representing
Restricted Shares, together with a stock power that shall be endorsed in
blank by the Participant with respect to such shares, shall be held in
custody by the Company until all restrictions thereon lapse.
6. DEFERRED SHARES. The Committee may also authorize awards or sales of
Deferred Shares to Participants upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
(a) Each award or sale shall constitute the agreement by the Company
to issue or transfer Common Shares to the Participant in the future in
consideration of the performance of services, subject to the fulfillment
during the Deferral Period of such conditions as the Committee may specify.
(b) Each award or sale may be made without additional consideration
from the Participant or in consideration of a payment by the Participant
that is less than the Market Value per Share on the Date of Grant.
(c) Each award or sale shall provide that the Deferred Shares covered
thereby shall be subject to a Deferral Period, which shall be fixed by the
Committee on the Date of Grant, and any award or sale may provide for the
earlier termination of such period in the event of a change in control of
the Company or other similar transaction or event.
(d) During the Deferral Period, the Participant shall not have any
right to transfer any rights under the subject award, shall not have any
rights of ownership in the Deferred Shares and shall not have any right to
vote such shares, but the Committee may on or after the Date of Grant
authorize the payment of dividend equivalents on such shares in cash or
additional Common Shares on a current, deferred or contingent basis.
(e) Each award or sale shall be evidenced by an agreement, which shall
be executed on behalf of the Company by any officer thereof and delivered
to and accepted by the Participant and shall contain such terms and
provisions as the Committee may determine consistent with this Plan.
7. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also
authorize grants of Performance Shares and Performance Units, which shall
become payable to the Participant upon the achievement of specified Management
Objectives, upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment
to reflect changes in compensation or other factors.
4
<PAGE> 5
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be 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 shall specify the Management Objectives that are to be
achieved by the Participant, which may be described in terms of
Company-wide objectives or objectives that are related to the performance
of the individual Participant or the Subsidiary, division, department or
function within the Company or Subsidiary in which the Participant is
employed.
(d) Each grant shall specify in respect of the specified Management
Objectives a minimum acceptable level of achievement below which no payment
will be made and shall set forth a formula for determining the amount of
any payment to be made if performance is at or above such minimum
acceptable level, but falls short of full achievement of the specified
Management Objectives.
(e) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that shall have been earned, and
any grant may specify that any such amount may be paid by the Company in
cash, Common Shares or any combination thereof and may either grant to the
Participant or reserve to the Committee the right to elect among those
alternatives; provided, however, that no form of consideration or manner of
payment that would cause Rule 16b-3 to cease to apply to this Plan shall be
permitted.
(f) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the
Committee on the Date of Grant. Any grant of Performance Units may specify
that the amount payable, or the number of Common Shares issued, with
respect thereto may not exceed maximums specified by the Committee on the
Date of Grant.
(g) On or after the Date of Grant of Performance Shares, the Committee
may provide for the payment to the Participant of dividend equivalents
thereon in cash or additional Common Shares on a current, deferred or
contingent basis.
(h) The Committee may adjust Management Objectives and the related
minimum acceptable level of achievement if, in the sole judgment of the
Committee, events or transactions have occurred after the Date of Grant
that are unrelated to the performance of the Participant and result in
distortion of the Management Objectives or the related minimum acceptable
level of achievement.
(i) Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Company by any officer thereof and delivered to
and accepted by the Participant and shall state that the Performance Shares
or Performance Units are subject to all of the terms and conditions of this
Plan and such other terms and provisions as the Committee may determine
consistent with this Plan.
8. AUTOMATIC GRANTS OF NONQUALIFIED STOCK OPTIONS TO NONEMPLOYEE DIRECTORS.
Option Rights shall be automatically granted to Nonemployee Directors as
follows:
(a) On the Effective Date of this Plan, an option to purchase 500
Common Shares shall be granted to each person who immediately after the
annual meeting on that date is an incumbent Nonemployee Director of the
Company, and an additional option to purchase 500 Common Shares shall be
granted immediately after each annual meeting thereafter to each such
person for so long as he continues to be a Nonemployee Director.
(b) With respect to each person who first becomes a Nonemployee
Director of the Company after the Effective Date of this Plan, an option to
purchase 500 Common Shares shall be granted on the date such person first
becomes a Nonemployee Director, and an additional option to purchase 500
Common Shares shall be granted immediately after each annual meeting
thereafter to each such person for so long as he continues to be a
Nonemployee Director.
Each grant shall be evidenced by a Nonqualified Stock Option Agreement in
substantially the form of Exhibit A hereto. The Option Price per share of each
such option shall be the fair market value per Common Share determined on the
Date of Grant. Each option shall become exercisable upon the expiration of a
period of 6 months from the Date of Grant. All such grants shall become null and
void if this Plan is not approved by the
5
<PAGE> 6
favorable vote of the holders of a majority of the Common Shares present, or
represented, and entitled to vote at a meeting of the shareholders held on or
before December 31, 1992.
9. TRANSFERABILITY. (a) No Option Right or other derivative security (as
that term is used in Rule 16b-3) granted or awarded under this Plan shall be
transferable by a Participant other than by will or the laws of descent and
distribution. Option Rights shall be exercisable during a Participants lifetime
only by the Participant or, in the event of the Participant's legal incapacity,
by his guardian or legal representative acting in a fiduciary capacity on behalf
of the Participant under state law and court supervision.
(b) Any grant or award made under this Plan may provide that all or
any part of the Common Shares that are (i) to be issued or transferred by
the Company upon the exercise of Option Rights or upon the termination of
the Deferral Period applicable to Deferred Shares, or under a grant of
Performance Shares or Performance Units, or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 5 of this Plan, shall be subject to further restrictions upon
transfer.
10. ADJUSTMENTS. The Committee may make or provide for such adjustments in
the (a) number of Common Shares covered by outstanding Option Rights, Deferred
Shares and Performance Shares granted or awarded hereunder, (b) prices per share
applicable to such Option Rights, and (c) kind of shares covered thereby, as the
Committee in its sole discretion may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of Optionees
that otherwise would result from (x) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company, (y) any merger, consolidation, spin-off, spin-out, split-off,
split-up, reorganization, partial or complete liquidation of the Company or
other distribution of assets, issuance of rights or warrants to purchase
securities of the Company or (z) any other corporate transaction or event having
an effect similar to any of the foregoing. In the event of any such transaction
or event, the Committee may provide in substitution for any or all outstanding
grants or awards under this Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement evidencing
any grant or award under this Plan that the holder of the grant or award may
elect to receive an equivalent grant or award in respect of securities of the
surviving entity of any merger, consolidation or other transaction or event
having a similar effect, or the Committee may provide that the holder will
automatically be entitled to receive such an equivalent grant or award. The
Committee may also make or provide for such adjustments in the number of shares
specified in Section 3 of this Plan and in the number of shares under options to
be granted automatically pursuant to Section 8 of this Plan as the Committee in
its sole discretion may in good faith determine to be appropriate in order to
reflect any transaction or event described in this Section 10.
11. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
12. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld.
At the discretion of the Committee, such arrangements may include relinquishment
of a portion of such benefit. The Company and any Participant or such other
person may also make similar arrangements with respect to the payment of any
taxes with respect to which withholding is not required.
13. PARTICIPATION BY EMPLOYEES OF A LESS-THAN-80-PERCENT SUBSIDIARY. As a
condition to the effectiveness of any grant or award to be made hereunder to a
Participant who is an employee of a Less-Than-80-Percent Subsidiary, regardless
whether such Participant is also employed by the Company or another Subsidiary,
the Committee may require the Less-Than-80-Percent Subsidiary to agree to
transfer to the
6
<PAGE> 7
Participant (as, if and when provided for under this Plan and any applicable
agreement entered into between the Participant and the Less-Than-80-Percent
Subsidiary pursuant to this Plan) the Common Shares that would otherwise be
delivered by the Company upon receipt by the Less-Than-80-Percent Subsidiary of
any consideration then otherwise payable by the Participant to the Company. Any
such award may be evidenced by an agreement between the Participant and the
Less-Than-80-Percent Subsidiary, in lieu of the Company, on terms consistent
with this Plan and approved by the Committee and the Less-Than-80-Percent
Subsidiary. All Common Shares so delivered by or to a Less-Than-80-Percent
Subsidiary will be treated as if they had been delivered by or to the Company
for purposes of Section 3 of this Plan, and all references to the Company in
this Plan shall be deemed to refer to the Less-Than-80-Percent Subsidiary except
with respect to the definitions of the Board and the Committee and in other
cases where the context otherwise requires.
14. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND APPROVED LEAVES OF
ABSENCE. Notwithstanding any other provision of this Plan to the contrary, in
the event of termination of employment bv reason of death, disability, normal
retirement, early retirement with the consent of the Company, leave of absence
to enter public service with the consent of the Company or other leave of
absence approved by the Company, or in the event of hardship or other special
circumstances, of a Participant who holds an Option Right that is not
immediately and fully exercisable, any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction on transfer has
not lapsed, any Deferred Shares as to which the Deferral Period is not complete,
any Performance Shares or Performance Units that have not been fully earned, or
any Common Shares that are subject to any transfer restriction pursuant to
Section 9(b) of this Plan, the Committee may in its sole discretion take any
action that it deems to be equitable under the circumstances or in the best
interests of the Company, including without limitation waiving or modifying any
limitation or requirement with respect to any award under this Plan.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Committee may provide for such
special terms for awards to Participants who are foreign nationals, or who are
employed by the Company or any Subsidiary outside of the United States of
America, as the Committee may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, the Committee may
approve such supplements to, or amendments, restatements or alternative versions
of, this Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of this Plan as in effect for any other
purpose; provided, however, that no such supplements, amendments, restatements
or alternative versions shall include any provisions that are inconsistent with
the terms of this Plan, as then in effect, unless this Plan could have been
amended to eliminate such inconsistency without further approval by the
shareholders of the Company.
16. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by a
committee of the Board composed of not less than three members of the Board,
each of whom shall be a "disinterested person" within the meaning of Rule 16b-3.
A majority of the Committee shall constitute a quorum, and the acts of the
members of the Committee who are present at any meeting thereof at which a
quorum is present, or acts unanimously approved by the members of the Committee
in writing, shall be the acts of the Committee.
(b) The interpretation and construction by the Committee of any
provision of this Plan or of any agreement, notification or document
evidencing the grant or award of Option Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units, and any determination by
the Committee pursuant to any provision of this Plan or any such agreement,
notification or document, shall be final and conclusive. No member of the
Committee shall be liable for any such action taken or determination made
in good faith.
17. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended from time to
time by the Committee, but no such amendment (except as expressly authorized by
this Plan) shall increase the minimum number of shares specified in Section 3 of
this Plan, change the provisions of Section 8 of this Plan that specify the
number of Common Shares under options to be granted automatically to Nonemployee
Directors or that specify the Option Price or timing of such grants, or cause
Rule 16b-3 to become inapplicable to this Plan, without the further approval of
the shareholders of the Company. In no event shall
7
<PAGE> 8
the provisions of Section 8 of this Plan be amended more than once every six
months except to comport with changes in the Code or the regulations thereunder.
(b) With the concurrence of the affected Optionee, the Committee may
cancel any agreement evidencing Option Rights or any other grant or award
granted under this Plan. In the event of such cancellation, the Committee
may authorize the granting or awarding of new Option Rights or other grants
or awards hereunder, which may or may not cover the same number of Common
Shares that had been the subject of the prior grant or award, in such
manner, at such Option Price and subject to such other terms, conditions
and discretions as would have been applicable under this Plan had the
cancelled Option Rights or other grant or award not been granted.
(c) The Committee may condition any grant or award under this Plan
upon the surrender by the Participant for cancellation of any or all option
rights or restricted stock outstanding under the Predecessor Plan.
(d) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or
any Subsidiary and shall not interfere in any way with any right that the
Company or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(e)(i) To the extent that any provision of this Plan would prevent
any Option Right that was intended to qualify under particular provisions
of the Code from so qualifying, such provision of this Plan shall be null
and void with respect to such Option Right, provided, however, that such
provision shall remain in effect with respect to other Option Rights, and
there shall be no further effect on any provision of this Plan.
(ii) Any award that may be made pursuant to an amendment to this
Plan that shall have been adopted without the approval of the
shareholders of the Company shall be null and void if it is
subsequently determined that such approval was required in order for
Rule 16b-3 to remain applicable to this Plan.
(f) This Plan is intended to comply with and be subject to Rule 16b-3
as in effect prior to May 1, 1991. The Committee may at any time elect that
this Plan shall be subject to Rule 16b-3 as in effect on and after May 1,
1991.
8
<PAGE> 9
EXHIBIT A
NONQUALIFIED STOCK OPTION AGREEMENT
FOR
NONEMPLOYEE DIRECTORS
, Optionee
Cleveland-Cliffs Inc (the "Company") pursuant to its 1992 Incentive Equity
Plan (the "Plan") has this day granted to you, the above-mentioned optionee, a
nonqualified option to purchase 500 shares of the Company's common stock, par
value $1 per share ("Common Shares") at the price of $ per share, and agrees
to cause certificates for any shares purchased hereunder to be delivered to the
Optionee upon payment of the purchase price in full, all subject, however, to
the terms and conditions hereinafter set forth.
1. (A) This option (until terminated as hereafter provided) shall become
exercisable upon the expiration of a period of 6 months from the date of
this Agreement during which the Optionee shall have continuously served as
a Director of the Company. To the extent exercisable, this option shall be
exercisable in whole at any time or in part from time to time.
(B) If the Optionee should die or become permanently and totally
disabled while a Director of the Company, the option covered by this
Agreement shall become immediately exercisable in full.
2. The option price shall be payable (a) in cash or by check acceptable to
the Company, (b) by actual or constructive transfer to the Company of
nonforfeitable, unrestricted Common Shares already owned by the Optionee for
more than six (6) months prior to the date of exercise and having a value at the
time of exercise equal to the option price, or (c) by a combination of such
methods of payment.
3. This option shall terminate on the earliest of the following dates:
(A) Three months after the date on which the Optionee ceases to be a
Director of the Company (during which period the option shall be
exercisable only to the extent exercisable on the date of termination in
accordance with the provisions of paragraph 1(A) hereof), unless he or she
ceases to be a Director of the Company by reason of death or permanent
disability (in which case this option shall be immediately exercisable in
full pursuant to paragraph 1(B));
(B) One year after the death or permanent disability of the Optionee
if the Optionee dies or becomes permanently disabled while a Director of
the Company (in which case this option shall be immediately exercisable in
full pursuant to paragraph 1(B)); and
(C) Ten years from the date on which this option was granted.
4. This option is not transferable by the Optionee otherwise than by will
or the laws of descent and distribution, and is exercisable, during the lifetime
of the Optionee, only by him or her or by his or her guardian or legal
representative.
5. This option shall not be exercisable if such exercise would involve a
violation of any applicable Federal or state securities law, and the Company
hereby agrees to make reasonable efforts to comply with such securities laws. If
the Ohio Securities Act shall be applicable to this option, it shall not be
exercisable unless under said Act at the time of exercise the Common Shares or
other securities purchasable hereunder are exempt, are the subject matter of an
exempt transaction, are registered by description or by qualification, or at
such time are the subject matter of a transaction which has been registered by
description.
6. The Committee of the Board described in Section 16(a) of the Plan (the
"Committee") shall make such adjustments in the number or kind of Common Shares
or other securities covered by this option as the Committee in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of the Optionee that otherwise
would result from (i) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or
(ii) any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete
A-1
<PAGE> 10
liquidation of the Company or other distribution of assets, issuance of rights
or warrants to purchase securities of the Company, or (iii) any other corporate
transaction or event having an effect similar to any of the foregoing.
7. Upon any change in control of the Company, the option granted to the
Optionee in this agreement shall become immediately exercisable in full. For
purposes of this grant, the term "change in control" shall mean the occurrence
of any in the following events:
(A) The Company shall merge into itself, or be merged or consolidated
with, another corporation and as a result of such merger or consolidation
less than 70% of the outstanding voting securities of the surviving or
resulting corporation shall be owned in the aggregate by the former
shareholders of the Company as the same shall have existed immediately
prior to such merger or consolidation;
(B) The Company shall sell or transfer to one or more persons,
corporations or entities, in a single transaction or a series of related
transactions, more than one-half of the assets accounted for on the
Statement of Consolidated Financial Position of the Company as "properties"
or "investments in associated companies" (or such replacements for these
accounts as may be adopted from time to time) unless by an affirmative vote
of two-thirds of the members of the Board of Directors of the Company, the
transaction or transactions are exempted from the operation of this
provision based on a good faith finding that the transaction or
transactions are not within the intended scope of this definition for
purposes of this instrument;
(C) A person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act
of 1934, shall become the beneficial owner (as defined in Rule 13d-3 of
the Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934) of 30% or more of the outstanding voting securities
of the Company (whether directly or indirectly); or
(D) During any period of three consecutive years, including, without
limitation, the year 1991, individuals who at the beginning of any such
period constitute the Board of Directors of the Company cease, for any
reason, to constitute at least a majority thereof, unless the election, or
the nomination for election by the shareholders of the Company, of each
Director first elected during any such period was approved by a vote of at
least one-third of the Directors of the Company who are Directors of the
Company on the date of the beginning of any such period.
8. This grant of an option to purchase Common Shares is made pursuant to
the Plan, a copy of which is attached hereto. This award is subject to all of
the terms and provisions of the Plan, which are incorporated herein by
reference.
Dated this day of 199 .
CLEVELAND-CLIFFS INC
By: _________________________________
Name:
Title:
Accepted and agreed to:
__________________________________
Date: ____________________________
A-2
<PAGE> 1
Exhibit 10(v)
[TRUST FOR NONEMPLOYEE DIRECTORS' SUPPLEMENTAL
COMPENSATION PLAN]
- --------------------------------------------------------------------------------
TRUST AGREEMENT NO. 9
Between
CLEVELAND-CLIFFS INC
and
KEY TRUST COMPANY OF OHIO, N.A.
___________________
November 20, 1996
___________________
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
I. TRUST FUND....................................................... 2
II. PAYMENTS TO TRUST BENEFICIARIES.................................. 6
III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO
A TRUST BENEFICIARY WHEN THE COMPANY IS INSOLVENT......... 8
IV. PAYMENTS TO COMPANY.............................................. 10
V. INVESTMENT OF TRUST FUND......................................... 12
VI. INCOME OF THE TRUST.............................................. 13
VII. ACCOUNTING BY TRUSTEE............................................ 13
VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE.................... 15
IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS........................... 20
X. REPLACEMENT OF TRUSTEE........................................... 22
XI. AMENDMENT OR TERMINATION OF AGREEMENT............................ 23
XII. GENERAL PROVISIONS............................................... 24
XIII. NOTICES.......................................................... 26
<PAGE> 3
TRUST AGREEMENT NO. 9
---------------------
This Trust Agreement ("Agreement") made as of the ____ day of
November, 1996 by and between Cleveland-Cliffs Inc, an Ohio corporation
("Company"), and Key Trust Company of Ohio, N.A., an Ohio corporation
("Trustee").
WITNESSETH:
-----------
WHEREAS, certain benefits are or may become payable to the
nonemployee directors of the Company listed (from time to time as provided in
Sections 1.6 and 9.2 hereof) on Exhibit A hereto ("Directors") under the
provisions of the Cleveland-Cliffs Inc Nonemployee Directors' Supplemental
Compensation Plan, effective July 1, 1995 ("Effective Date") as the same have
been or in the future may be amended or restated, or any successor thereto
("Plan"), a copy of which is appended to this Agreement as Exhibit B;
WHEREAS, the Plan provides for the payment, following retirement
from the Board of Directors ("Board") of the Company of post-retirement income
to Directors who commence service on or after the Effective Date, and their
beneficiaries, if applicable, as provided in the Plan, and the Company wishes to
assure the payment to the Directors and to their beneficiaries (the Directors
and their respective beneficiaries are collectively referred to as the "Trust
Beneficiaries") of amounts due under the Plan (the amounts so payable are
collectively referred to as the "Benefits");
WHEREAS, the Company wishes to establish a trust ("Trust") and to
transfer to the Trust assets which shall be held subject
<PAGE> 4
to the claims of the creditors of the Company to the extent set forth in Article
III until (i) paid in full to all Trust Beneficiaries as Benefits in such manner
and as specified in this Agreement unless the Company is Insolvent (as that term
is defined below) at the time that such Benefits become payable or (ii)
otherwise disposed of pursuant to the terms of this Agreement; and
WHEREAS, the Company shall be considered "Insolvent" for purposes
of this Agreement at such time as the Company (i) is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code, as amended from
time to time, or (ii) is unable to pay its debts as they become due.
NOW, THEREFORE, the Company and the Trustee establish the Trust
and agree that the Trust shall be comprised, held and disposed of as follows:
I. TRUST FUND
----------
1.1 Subject to the claims of creditors to the extent set forth in
Article III, the Company shall deposit with the Trustee in trust One Hundred
Dollars ($100), which shall become the principal of this Trust, to be held,
administered and disposed of by the Trustee as provided in this Agreement.
1.2 This Trust shall be irrevocable.
1.3 In the event that a Change in Control has occurred, the Chief
Executive Officer of the Company ("CEO") or the Secretary of the Company shall
notify the Trustee promptly. The Trustee shall be entitled to rely upon such
notice as to whether and when
2
<PAGE> 5
a Change in Control has occurred and shall not be required to make any
independent verification of a Change in Control.
1.4 The principal of the Trust and any earnings shall be held in
trust separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes set forth in this Agreement. No Trust
Beneficiary shall have any preferred claim on, or any beneficial ownership
interest in, any assets of the Trust prior to the time that such assets are paid
to a Trust Beneficiary as Benefits. Any rights created under the Plan and this
Agreement shall be mere unsecured contractual rights of Trust Beneficiaries with
respect to the Company. The obligation of the Trustee to pay Benefits pursuant
to this Agreement constitutes merely an unfunded and unsecured promise to pay
such benefits.
1.5 (a) The Company may at any time or from time to time make
additional deposits of cash or other property as may be acceptable to the
Trustee in the Trust, or make provision for cash or other property as may be
acceptable to the Trustee to be transferred to the Trust, such as by means of a
letter of credit or otherwise, to augment the principal to be held, administered
and disposed of by the Trustee, but no payment of all or any portion of the
principal of the Trust or earnings shall be made to the Company or any other
person or entity on behalf of the Company except as expressly provided in this
Agreement.
(b) Within 10 days following the occurrence of a Potential
Change in Control (as that term is defined in this Section 1.5), the Company
shall make a contribution to the Trust
3
<PAGE> 6
that is sufficient, taking into account the assets of the Trust prior to such
contribution, to provide for the payment of all Benefits at the Threshold
Percentage (as defined in Section 4.1 hereof) equal to 140%, and any other
amounts payable or reimbursable pursuant to the terms of this Agreement.
(c) Within 30 days after the end of any calendar year ending
after a Change of Control, the Company shall make a contribution to the Trust
that is sufficient, taking into account the assets of the Trust prior to such
contribution, to provide for the payment of all Benefits at the Threshold
Percentage (as defined in Section 4.1 hereof) equal to 140%, and any other
amounts payable or reimbursable pursuant to the terms of this Agreement.
(d) A "Potential Change in Control" means the
occurrence of any of the following events:
(i) The Company enters into a letter of intent,
agreement in principle or other agreement, the consummation of
which would constitute a Change in Control; or
(ii) any person (including the Company) makes a public
announcement (including, without limitation, an announcement made by filing a
Schedule 13D or Schedule 14D-1 (or any successor schedule, form, report or
item), each as promulgated pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act")) stating a present intention to take actions that, if
consummated, would constitute a Change in Control.
1.6 Not later than the date of any Change of Control, the
Company shall (a) specify the nature, amounts and timing of
4
<PAGE> 7
the Benefits to which each Trust Beneficiary may become entitled, subject to
Article IX, in an exhibit ("Exhibit C") which shall become a part of this
Agreement and be incorporated by this reference, (b) provide any corresponding
revisions to Exhibits A and B that may be required and (c) provide the Trustee
with copies of the Plan and any amendments thereto.
1.7 The Trust is intended to be a grantor trust, within the
meaning of section 671 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision, and shall be construed accordingly. The
purpose of the Trust is to assure that the Company's obligations to the Trust
Beneficiaries pursuant to the Plan are fulfilled. The Trust is neither intended
nor designed to qualify under section 401(a) of the Code or to be subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
1.8 As used in this Agreement, the term "Change in Control" shall
mean the occurrence of any of the following events:
(a) The Company shall merge into itself, or be merged
or consolidated with, another corporation and as a result of such merger or
consolidation less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company as the same shall have existed immediately prior to
such merger or consolidation;
(b) The Company shall sell or otherwise transfer all or
substantially all of its assets to any other corporation or other legal person,
and immediately after such sale or transfer
5
<PAGE> 8
less than 70% of the combined voting power of the outstanding voting securities
of such corporation or person is held in the aggregate by the former
shareholders of the Company as the same shall have existed immediately prior to
such sale or transfer;
(c) A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange
Act of 1934, shall become the beneficial owner (as defined in Rule 13d-3 of the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934) of 30% or more of the outstanding voting securities of the Company
(whether directly or indirectly); or
(d) During any period of three consecutive years, individuals
who at the beginning of any such period constitute the Board of Directors of the
Company cease, for any reason, to constitute at least a majority thereof, unless
the election, or the nomination for election by the shareholders of the Company,
of each director first elected during any such period was approved by a vote of
at least one-third of the directors of the Company who are directors of the
Company on the date of the beginning of any such period.
II. PAYMENTS TO TRUST BENEFICIARIES
-------------------------------
2.1 Provided that the Company is not Insolvent and commencing
with the earlier to occur of (a) appropriate notice to the Trustee by the
Company, or (b) the date on which the Trustee has been notified in accordance
with Section 1.3 that a Change of Control has occurred, the Trustee shall make
payments of Benefits to each Trust Beneficiary from the assets of the
6
<PAGE> 9
Trust in compliance and conformity with the terms of the Plan and in accordance
with Exhibit C, and subject to Article IX.
2.2 The Trustee shall continue to pay Benefits to the Trust
Beneficiaries until the assets of the Trust are depleted, subject to Section
11.2. If any current payment by the Trustee under the terms of this Agreement
would deplete the assets of the Trust below the amount necessary to provide
adequately for Benefits known to the Trustee to be payable in the future, the
Trustee shall nevertheless make the current payment when due. If, after
application of the preceding sentence, amounts in the Trust are not sufficient
to provide for full payment of the Benefits to which any Trust Beneficiary is
entitled as provided in this Agreement, the Company shall make the balance of
each such payment directly to the Trust Beneficiary as it becomes due.
2.3 The Company may make payments of Benefits directly to each or
any Trust Beneficiary. The Company shall notify the Trustee of its decision to
pay Benefits directly at least 3 days prior to the time amounts are due to be
paid to a Trust Beneficiary.
2.4 Nothing in this Agreement shall in any way diminish any
rights of any Trust Beneficiary to pursue such Trust Beneficiary's rights as a
general creditor of the Company with respect to Benefits or otherwise, and the
rights of each Trust Beneficiary under the Plan shall in no way be affected or
diminished by any provision of this Agreement or action taken pursuant to this
Agreement, except that any payment actually received by any Trust Beneficiary
shall reduce dollar-per-dollar
7
<PAGE> 10
amounts otherwise due to such Trust Beneficiary pursuant to the
Plan.
2.5 The Trustee shall withhold from any payment to a Trust
Beneficiary the amount required by law to be so withheld under federal, state
and local tax withholding requirements, and shall pay over to the appropriate
government authority the amounts withheld.
III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO
A TRUST BENEFICIARY WHEN THE COMPANY IS INSOLVENT
--------------------------------------------------
3.1 At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to claims of creditors of the
Company as set forth in this Section 3.1. The Board of Directors of the Company
("Board") and the CEO shall have the duty to inform the Trustee in writing if
either the Board or the CEO believes that the Company is Insolvent. If the
Trustee receives a notice in writing from the Board or the CEO stating that the
Company is Insolvent or if a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall independently determine within 30 days after receipt of such
notice whether the Company is Insolvent. In making this determination, the
Trustee may engage the outside accountants of the Company to render an opinion
as to the solvency of the Company and shall be fully protected under Section 8.7
in relying upon the advice of such accountants. In addition, the Company shall
provide the Trustee or its agents, including the outside accountants of the
Company, with any information reasonably requested, and otherwise cooperate with
the Company or its agents
8
<PAGE> 11
in making the determination. Pending such determination, or if the Trustee has
actual knowledge or has determined that the Company is Insolvent, the Trustee
shall discontinue or refrain from making payments to any Trust Beneficiary and
hold the Trust assets for the benefit of the general creditors of the Company.
The Trustee shall pay any undistributed principal and income in the Trust to the
extent necessary to satisfy the claims of the creditors of the Company as a
court of competent jurisdiction may direct. If the Trustee has discontinued or
refrained from making payments to any Trust Beneficiary pursuant to this Section
3.1, the Trustee shall pay or resume payments to such Trust Beneficiary in
accordance with this Agreement if the Trustee has determined that the Company is
not Insolvent, or is no longer Insolvent (if the Trustee initially determined
the Company to be Insolvent), or pursuant to the order of a court of competent
jurisdiction. Unless the Trustee has actual knowledge of Insolvency, or has
received notice from the Board, the CEO or a person claiming to be a creditor of
the Company alleging that the Company is Insolvent, the Trustee shall have no
duty to inquire as to whether the Company is Insolvent and may rely on
information concerning the Insolvency of the Company that has been furnished to
the Trustee by any creditor of the Company or by any person (other than an
employee or director of the Company) acting with apparent or actual authority
with respect to the Company.
3.2. If the Trustee is precluded from paying Benefits from the
Trust assets pursuant to Section 3.1 and such prohibition is
9
<PAGE> 12
subsequently removed, the Trustee shall pay the aggregate amount of all Benefits
that would have been paid to the Trust Beneficiaries in accordance with this
Agreement during the period of such prohibition, less the aggregate amount of
Benefits otherwise paid to any Trust Beneficiary by the Company during any such
period, together with interest on the delayed amount determined at a rate equal
to the rate actually earned (including, without limitation, market appreciation
or depreciation, plus receipt of interest and dividends) during such period with
respect to the assets of the Trust corresponding to such net amount delayed.
IV. PAYMENTS TO COMPANY
-------------------
4.1 Except to the extent expressly contemplated by this Article
IV, the Company shall have no right or power to direct the Trustee to return any
of the Trust assets to the Company before all payments of Benefits have been
made to all Trust Beneficiaries as provided in this Agreement. From time to
time, if and when requested by the Company to do so and/or in order to comply
with Section 7.2 hereof, the Trustee shall engage the services of Hewitt
Associates or such other independent actuary as may be mutually satisfactory to
the Company and to the Trustee to determine the maximum actuarial present values
of the future Benefits that could become payable under the Plan with respect to
each Director. The Trustee shall determine the fair market values of the Trust
assets allocated to the account of each Director pursuant to Section 7.2 hereof.
The Company shall pay the fees of such independent actuary and of any appraiser
engaged
10
<PAGE> 13
by the Trustee to value any property held in the Trust. The independent actuary
shall make its calculations based upon the assumptions that (i) the annual
retainer payable to each active Director shall increase by 10% per year, and
(ii) each Director shall commence payments from the Plan at an age at which the
actuarial present value of the Director's future Benefits are at a maximum. In
addition, the independent actuary shall use the 1983 Group Annuity Mortality
Table, an interest rate of 8%, Gross National Product Price Deflator increases
of 4%, with such other assumptions as are recommended by such actuary and
approved by the Company and, after the date of a Change of Control, a majority
of the Directors (subject to the provision of Section 10.2 hereof). For purposes
of this Agreement, (A) the "Fully Funded" amount with respect to the account of
a Director maintained pursuant to Section 7.2 hereof shall be equal to the
"Threshold Percentage," as defined below, multiplied by the maximum actuarial
present value of the future Benefits that could become payable under the Plan
with respect to the Director, and (B) the "Account Excess" with respect to such
account shall be equal to the excess, if any, of the fair market value of the
assets held in the Trust allocated to a Director's account over the respective
Fully Funded amount. Unless otherwise provided, prior to a Change of Control the
Threshold Percentage shall be equal to 110%, and following a Change of Control
the Threshold Percentage shall be equal to 140%. The Trustee shall allocate any
Account Excess in accordance with Section 7.2 hereof. Thereafter, upon the
request of the Company, the Trustee shall
11
<PAGE> 14
pay to the Company the excess, if any, of the aggregate account balances over
the aggregate Fully Funded amounts computed upon the basis of a Threshold
Percentage equal to 140%.
V. INVESTMENT OF TRUST FUND
------------------------
5.1 Prior to a Change of Control, the Trustee shall invest
and reinvest the assets of the Trust as the Company shall prescribe in writing
from time to time.
5.2 On or after the date of a Change of Control, or in the
absence of the instructions from the Company specified in Section 5.1, the
provisions of this Section 5.2 shall apply to the investment of the Trust
assets. The investment objective of the Trustee shall be to preserve the
principal of the Trust while obtaining a reasonable total rate of return,
measurement of which shall include, without limitation, market appreciation or
depreciation plus receipt of interest and dividends. The Trustee shall be
mindful, in the course of its management of the Trust, of the liquidity demands
on the Trust.
5.3 The Trustee shall have the sole power to invest the assets of
the Trust, in accordance with the provisions of Sections 5.1 and 5.2. The
Trustee shall not be liable for any failure to maximize income on such portion
of the Trust assets as may be from time to time invested or reinvested as set
forth above, nor for any loss of principal or income due to the liquidation of
any investment that the Trustee, in its sole discretion, believes necessary to
make payments or to reimburse expenses under the terms of this Agreement. The
Trustee shall have the right to invest assets of the Trust for short-term
12
<PAGE> 15
investment periods, pending distribution, or long-term investment of such
assets, as the Trustee may deem proper in the circumstances.
5.4 In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by Company, other than a
de minimis amount held in common investment vehicles in which the Trustee
invests.
VI. INCOME OF THE TRUST
-------------------
6.1 During the continuance of this Trust, all net income of the
Trust shall be retained in the Trust.
VII. ACCOUNTING BY TRUSTEE
---------------------
7.1 The Trustee shall maintain such books, records and accounts
as may be necessary for the proper administration of the Trust assets, including
such specific records as shall be agreed upon in writing by the Company and the
Trustee. Within 60 days following the close of each calendar year that includes
or commences after the date of this Trust until the termination of this Trust or
the removal or resignation of the Trustee (and within 60 days after the date of
such termination, removal or resignation), the Trustee shall render to the
Company an accounting with respect to the Trust assets as of the end of the then
most recent calendar year (and as of the date of such termination, removal or
resignation, as the case may be). The Trustee shall furnish to the Company on a
quarterly basis (or as the Company shall direct from time to time) and in a
timely manner such information regarding the Trust as the Company shall require
for purposes of preparing its statements of financial
13
<PAGE> 16
condition. The Trustee shall at all times maintain separate bookkeeping accounts
for each Director as prescribed in Section 7.2 hereof, and, upon the written
request of a Director, shall provide to the Director an annual statement of the
Director's account. Upon the written request of the Company or, on or after the
date of a Change of Control, a Director, the Trustee shall deliver to the
Company or the Director, as the case may be, a written report setting forth the
amount held in the Trust and a record of the deposits made to the Trust by the
Company.
Unless the Company or any Director shall have filed with the
Trustee written exception or objection to any such statement and account within
90 days after receipt thereof, the Company and the Directors shall be deemed to
have approved such statement and account, and in such case, the Trustee shall be
forever released and discharged with respect to all matters and things reported
in such statement and account as though it had been settled by a decree of a
court of competent jurisdiction in an action or proceeding to which the Company
and the Directors were parties.
7.2 The Trustee shall maintain a separate account for each
Director. The Trustee shall credit or debit each Director's account as
appropriate to reflect such Director's allocable portion of the Trust assets, as
such Trust assets may be adjusted from time to time pursuant to the terms of
this Agreement. Except as provided in this Section 7.2, all allocations shall be
made in proportion to the balances of the separate accounts of the Directors.
Prior to the date of a Change of Control, all
14
<PAGE> 17
deposits of principal pursuant to Section 1.1 and 1.5 hereof shall be allocated
as directed by the Company. On or after such date, deposits of principal shall
be allocated as an Account Excess in accordance with this Section 7.2. Income,
expense, gain or loss on assets allocated to the separate accounts of the
Directors shall be allocated separately to such accounts by the Trustee in
proportion to the balances of the separate accounts of the Directors. Prior to
the date of a Change of Control, at the request of the Company the Trustee shall
determine the amount of all Account Excesses. On or after the date of a Change
of Control, the Trustee shall determine annually the amount of all Account
Excesses. The Trustee shall allocate the aggregate amount of the Account
Excesses to any accounts that are not Fully Funded, as defined in Section 4.1
hereof, in proportion to the differences between the respective Fully Funded
amount and account balance, insofar as possible until all accounts are Fully
Funded. Any remaining aggregate Account Excess shall be allocated to all the
accounts in proportion to the respective Fully Funded amounts.
7.3 Nothing in this Article VII shall preclude the commingling of
Trust assets for investment.
VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE
---------------------------------------------
8.1 The duties and responsibilities of the Trustee shall be
limited to those expressly set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Trustee.
15
<PAGE> 18
8.2 In addition to and without limiting any other provision of
this Agreement, on or after the date of a Change of Control, the Trustee shall,
in its sole discretion, based upon the information furnished to it by the
Company and/or the Directors and any additional information that it may
reasonably request, (a) make all decisions regarding whether a Trust Beneficiary
is eligible for the payment of Benefits, the nature, amount and timing of such
benefits, and any other decisions pertinent to the exercise of the Trustee's
duties and responsibilities under this Agreement, and (b) exercise any power or
discretion granted pursuant to the Plan to the Board, any committee of the
Board, or to any other committee, entity or person. On or before the date of a
Change in Control, the Company shall furnish the Trustee with calculations and
supporting schedules showing in detail the payments required under the Agreement
in the event of the termination of each of the Director's service with the
Company immediately following the Change in Control. The Trustee shall determine
amounts due under this Agreement in a manner consistent with these calculations
and supporting schedules. In connection with the exercise of the duties,
responsibilities, power and discretion of the Trustee under this Agreement, the
Trustee may employ legal counsel to aid its determinations and shall be fully
protected under Section 8.7 in relying upon the advice of counsel in making such
determinations.
8.3 If all or any part of the Trust assets are at any time
attached, garnished, or levied upon by any court order, or in case the payment,
assignment, transfer, conveyance or delivery of
16
<PAGE> 19
any such property shall be stayed or enjoined by any court order, or in case any
order, judgment or decree shall be made or entered by a court affecting such
property or any part of such property, then and in any of such events the
Trustee shall be authorized, in its sole discretion, to rely upon and comply
with any such order, judgment or decree, and it shall not be liable to the
Company or any Trust Beneficiary by reason of such compliance even though such
order, judgment or decree subsequently may be reversed, modified, annulled, set
aside or vacated.
8.4 The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant to a
direction, request, or approval given by the Company or any Director or other
Trust Beneficiary contemplated by and complying with the terms of this
Agreement. The Trustee shall discharge its responsibility for the investment,
management and control of the Trust assets solely in the interest of the Trust
Beneficiaries and for the exclusive purpose of assuring that, to the extent of
available Trust assets, and in accordance with the terms of this Agreement, all
payments of Benefits are made when due to the Trust Beneficiaries.
8.5 The Trustee may consult with legal counsel (who shall not
be counsel for the Company) to be selected by it.
17
<PAGE> 20
8.6 The Trustee shall be reimbursed by the Company for its
reasonable expenses incurred in connection with the performance of its duties
(including, but not limited to, the fees and expenses of counsel, accountants
and others incurred pursuant to Section 8.5 or 8.11) and shall be paid
reasonable fees for the performance of such duties in the manner provided by
Section 8.7.
8.7 The Company agrees to indemnify and hold harmless the Trustee
from and against any and all damages, losses, claims or expenses as incurred
(including expenses of investigation and fees and disbursements of counsel to
the Trustee and any taxes imposed on the Trust assets or income of the Trust)
arising out of or in connection with the performance by the Trustee of its
duties, other than such damages, losses, claims or expenses arising out of the
Trustee's gross negligence or willful misconduct. The Trustee shall not be
required to undertake or to defend any litigation arising in connection with
this Agreement unless it be first indemnified by the Company against its
prospective costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses), and the Company agrees to indemnify the Trustee
and be primarily liable for such costs, expenses, and liabilities. Any amount
payable to the Trustee under Section 8.6 or this Section 8.7 shall be paid by
the Company promptly upon demand by the Trustee or, in the event that the
Company fails to make such payment within 30 days of such demand, from the Trust
assets. In the event that payment is made to the Trustee from the Trust assets,
the Trustee shall promptly notify the Company in writing of the amount of such
payment. The
18
<PAGE> 21
Company agrees that, upon receipt of such notice, it will deliver to the Trustee
to be held in the Trust an amount in cash equal to any payments made from the
Trust assets to the Trustee pursuant to Section 8.6 or this Section 8.7. The
failure of the Company to transfer any such amount shall not in any way impair
the Trustee's right to indemnification, reimbursement and payment pursuant to
Section 8.6 or this Section 8.7.
8.8 The Trustee may vote any stock or other securities and
exercise any right appurtenant to any stock, other securities or other property
it holds, either in person or by general or limited proxy, power of attorney or
other instrument.
8.9 The Trustee may hold securities in bearer form and may
register securities and other property held in the Trust fund in its own name or
in the name of a nominee, combine certificates representing securities with
certificates of the same issue held by the Trustee in other fiduciary
capacities, and deposit, or arrange for deposit of, property with any
depository; provided that the books and records of the Trustee shall at all
times show that all such securities are part of the assets of the Trust.
8.10 The Trustee may exercise all rights appurtenant to any
letter of credit made payable to the Trustee of the Trust for the benefit of the
Trust in accordance with the terms of such letter of credit.
8.11 The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals, who may be
agents, accountants, actuaries, investment advisors, financial consultants, or
otherwise act in a
19
<PAGE> 22
professional capacity, as the case may be, for the Company or with respect to
the Plan, to assist the Trustee in performing any of its duties.
8.12 The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law unless expressly provided otherwise in
this Agreement.
8.13 Notwithstanding any other provision of this Agreement, in
the event of the termination of the Trust, or the resignation or discharge of
the Trustee, the Trustee shall have the right to a settlement of its accounts in
accordance with the procedures set forth in Section 7.1, which may be made, at
the option of the Trustee, either (a) by a judicial settlement in a court of
competent jurisdiction, or (b) by agreement of settlement, release and indemnity
from the Company to the Trustee.
IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS
--------------------------------------
9.1 On or after the date of a Change of Control, the provisions
of this Section 9.1 shall apply.
9.1.1 Not later than 45 calendar days after the end of
each calendar year and at such other time as may in the judgment of the Company
be appropriate in view of a change in circumstances, the Company and each
Director shall agree upon and furnish any amendment to Exhibit C (but only with
respect to such Director's Benefits) as shall be required to reflect:
(a) any required change in the amounts of Benefits as a
result of any change in such Director's retainer (or otherwise) during the prior
calendar year, or
20
<PAGE> 23
(b) any amendment, restatement or other change in or to the
Plan (Exhibit B), or agreements to amendments to such Exhibit B and Exhibit C
shall be furnished to the Trustee by the Company or the Directors and thereafter
be deemed to be a part of this Agreement; provided, however, that in the event
of the failure of the Company and any Director to reach such agreement, the
provisions of Section 9.1.2 shall control.
9.1.2 The Company shall, and any Trust Beneficiary may,
promptly furnish the Trustee true and correct copies of any amendment,
restatement or successor to the Plan. Upon written notification to the Trustee
by the Company or any Director of the failure of the Company and such Director
to agree as provided in Section 9.1.1, the Trustee shall, to the extent
necessary in the sole judgment of the Trustee, (a) recompute the amount payable
as set forth in Exhibit C to any Trust Beneficiary, and (b) notify the Company
and the Director in writing of its computations. In making these determinations,
the Trustee may employ legal counsel and shall be fully protected under Section
8.7 in relying upon the advice of counsel in relying on such determinations.
Thereafter, this Agreement and all Exhibits shall be amended to the extent of
such Trustee determinations without further action; provided, however, that the
failure of the Company to furnish any such amendment, restatement, successor or
compensation information shall in no way diminish the rights of any Trust
Beneficiary.
9.2 Amendments to Exhibit A (and directly corresponding
amendments to Exhibit B) that modify one or more lists of
21
<PAGE> 24
Directors shall be made only in accordance with Section 1.6. No amendment to
Exhibit A (and no amendment to Exhibit B that would delete a Director may be
made on or after the date on which a Change of Control occurs, except in
accordance with Article XI.
X. REPLACEMENT OF TRUSTEE
----------------------
10.1 The Trustee may resign and be discharged from its duties
after providing not less than 90 days' notice in writing to the Company. On or
after the date of a Change of Control, the Trustee shall also provide notice of
its resignation to all of the Directors. Prior to the date of a Change of
Control, the Trustee may be removed at any time upon notice in writing by the
Company. On or after such date, removal shall also require the agreement of the
Directors. Prior to the date of a Change of Control, a replacement or successor
trustee shall be appointed by the Company. On or after such date, appointment
shall also require the agreement of the Directors. No such removal or
resignation shall become effective until the effectiveness of the acceptance of
the Trust by a successor trustee designated in accordance with this Article X.
If, after making reasonable efforts to appoint a successor trustee, the Trustee
has been unable to do so, the Trustee shall petition a court of competent
jurisdiction to appoint a successor trustee. Upon the acceptance of the Trust by
a successor trustee, the Trustee shall release all of the moneys and other
property in the Trust to its successor, who after such time shall for all
purposes of this Agreement be considered to be the "Trustee." In the event of
its removal or resignation, the Trustee shall duly file with the
22
<PAGE> 25
Company and, after a Change of Control, all of the Directors, a written
statement or statements of accounts and proceedings as provided in Section 7.1
for the period since the last previous accounting of the Trust.
10.2 For purposes of Section 10.1 and Section 11.2, a Director
shall not participate if all payments of Benefits then currently due or payable
in the future have been made to such Director.
XI. AMENDMENT OR TERMINATION OF AGREEMENT
-------------------------------------
11.1 This Agreement may be amended at any time and to any extent
by a written instrument executed by the Trustee and the Company; provided,
however, that no amendment shall have the effect of altering Section 11.2.
11.2 The Trust shall terminate on or after a Change of Control
upon the earliest to occur of (i) a joint determination by the Trustee and the
Directors made on or after the fifth anniversary of the date of a Change of
Control that no Trust Beneficiary is or will be entitled to any further payment
of Benefits or (ii) such time as the Trustee shall have received consents from
all of the Directors to the termination of this Agreement. Notwithstanding the
previous sentence, if payments under the Plan with respect to any Trust
Beneficiary are the subject of litigation or arbitration, the Trust shall not
terminate and the funds held in the Trust with respect to such Trust Beneficiary
shall continue to be held by the Trustee until the final resolution of such
litigation or arbitration. The Trustee may assume that the Plan is not the
subject of such
23
<PAGE> 26
litigation or arbitration unless the Trustee receives written notice from a
Trust Beneficiary or the Company with respect to such litigation or arbitration.
The Trustee may rely upon written notice from a Trust Beneficiary as to the
final resolution of such litigation or arbitration.
11.3 Upon a termination of the Trust as provided in Section 11.2,
any assets remaining in the Trust, less all payments, expenses, taxes and other
charges under this Agreement as of such date of termination, shall be returned
to the Company.
XII. GENERAL PROVISIONS
------------------
12.1 The Company shall, at any time and from time to time, upon the
reasonable request of the Trustee, provide information, execute and deliver such
further instruments and do such further acts as may be necessary or proper to
effectuate the purposes of this Trust.
12.2 Each Exhibit referred to in this Agreement shall become a part
of this Agreement and is expressly incorporated by reference.
12.3 This Agreement sets forth the entire understanding of the
parties with respect to its subject matter and supersedes any and all prior
agreements, arrangements and understandings. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives.
12.4 This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
24
<PAGE> 27
12.5 In the event that any provision of this Agreement or the
application of any provision to any person or circumstances shall be determined
by a court of competent jurisdiction to be invalid or unenforceable to any
extent, the remainder of this Agreement, or the application of such provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected, and each provision of this Agreement shall
be valid and enforced to the maximum extent permitted by law.
12.6 (a) The preamble to this Agreement shall be considered a part
of the agreement of the parties as if set forth in a section of this Agreement.
(b) The headings and table of contents contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
12.7 The right of any Trust Beneficiary to any benefit or to any
payment may not be anticipated, assigned (either at law or in equity), alienated
or subject to attachment, garnishment, levy, execution or other legal or
equitable process except as required by law. Any attempt by any Trust
Beneficiary. to anticipate, alienate, assign, sell, transfer, pledge, encumber
or charge the same shall be void. The Trust assets shall not in any manner be
subject to the debts, contracts, liabilities, engagements or torts of any Trust
Beneficiary.
12.8 Any dispute between the Directors and the Company or the
Trustee as to the interpretation or application of the
25
<PAGE> 28
provisions of this Agreement and amounts payable may, at the election of any
party to such dispute (or, if more than one Director is such a party, at the
election of two-thirds of such Directors), be determined by binding arbitration
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court of
competent jurisdiction. All fees and expenses of such arbitration shall be paid
by the Trustee and considered an expense of the Trust under Section 8.7.
12.9 Each Director is an intended beneficiary under this Trust, and
as an intended beneficiary shall be entitled to enforce all terms and provisions
with the same force and effect as if such person had been a party to the
Agreement.
12.10 The Trustee shall be permitted to withhold from any payment
due to a Director the amount required by law to be so withheld under federal,
state and local withholding requirements or otherwise, and shall pay over to the
appropriate government authority the amounts so withheld. The Trustee may rely
on reasonable instructions from the Company as to any required withholding and
shall be fully protected under Section 8.7 in relying on such instructions.
12.11 Notwithstanding any other provision, the parties' respective
rights and obligations under Section 12.9 shall survive any termination or
expiration of this Agreement.
XIII. NOTICES
-------
13.1 For all purposes of this Agreement, any communication,
including without limitation, any notice, consent, report, demand
26
<PAGE> 29
or waiver required or permitted to be given shall be in writing and, unless
otherwise provided in this Agreement, shall be deemed to have been duly given
when hand delivered or dispatched by telegram or electronic facsimile transfer
(confirmed in writing by mail simultaneously dispatched), or two business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or one business day after having been
dispatched by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
IF TO THE COMPANY, TO: Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114
Attention: Secretary
IF TO THE TRUSTEE, TO: Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114-1306
Attention:
IF TO A DIRECTOR, TO: the address of such Director as
listed next to such Director's
name on Exhibit A,
provided, however, that if any party or such party's successors shall have
designated a different address by notice to the other parties, then to the last
address so designated.
IN WITNESS WHEREOF, the Company and the Trustee caused this
Agreement to be executed on its behalf as of the date first above written.
Attested CLEVELAND-CLIFFS INC
By: /s/ J.E. Lenhard By: /s/ R.F. Novak
---------------------------- -------------------------------
Its: Secretary Its: Vice President
------------------------ ---------------------------
27
<PAGE> 30
Attested Key Trust Company of Ohio, N.A.
By: /s/ Kathryn L. Kaesberg By: /s/ Kelley Clark
----------------------------- --------------------------------
Its: Vice President Its: Vice President
------------------------- ----------------------------
28
<PAGE> 31
EXHIBIT A
11/20/96
CLEVELAND-CLIFFS INC
--------------------
NONEMPLOYEE DIRECTORS' SUPPLEMENTAL COMPENSATION PLAN PARTICIPANTS
------------------------------------------------------------------
Ronald C. Cambre
Newmont Mining Corporation
1700 Lincoln Street, Suite 2800
Denver, CO 80203
Francis R. McAllister
ASARCO Incorporated
1150 North 7th Avenue
Tucson, AZ 85705
John C. Morley
30195 Chagrin Boulevard
Suite 210N
Pepper Pike, OH 44124
<PAGE> 32
EXHIBIT B
CLEVELAND-CLIFFS INC
NONEMPLOYEE DIRECTORS' SUPPLEMENTAL COMPENSATION PLAN
WHEREAS, the Board of Directors of Cleveland-Cliffs Inc (the "Board of
Directors") has determined that the "Participants" (as defined in Section 2.1)
have, individually and collectively, made and may continue to make an essential
contribution to the profitability, growth, financial strength and overall
guidance of Cleveland-Cliffs Inc (the "Company") and
WHEREAS, the Company desires to provide an incentive to attract and
maintain the highest quality of individuals to serve as directors (the
"Directors");
NOW, THEREFORE, by approval of the Board of Directors of the Company,
the Company hereby establishes the CLEVELAND-CLIFFS INC NONEMPLOYEE DIRECTORS'
SUPPLEMENTAL COMPENSATION PLAN (the "Plan") to be effective as of July 1, 1995,
which Plan shall contain the following terms and conditions:
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 THE PLAN. The Company, intending that the Participants and
Directors shall rely thereon, hereby establishes the Plan.
1.2 AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Company shall not
amend, suspend or terminate the Plan or any provision hereof, including without
limitation this Section 1.2, without the prior approval of a majority of the
Directors present at a meeting of the Board of Directors at which a "quorum" (as
defined in the Regulations of the Company) is present. Anything contained in the
Plan to the contrary notwithstanding, and notwithstanding any amendment,
suspension or termination (hereinafter collectively referred to in this Section
1.2 as an "Amendment") of the Plan, no right under the Plan of any person who
was a
<PAGE> 33
Participant or a Director immediately prior to any Amendment shall in any way be
amended, modified, compromised, terminated or suspended without the prior
written consent of such person. Without such consent, the rights under the P!an
of a Participant and Director withholding such consent shall be as set forth in
the Plan in the form that the Plan existed on the date such person's rights
under the Plan vested, as set forth in Section 2.2 (as such Section 2.2 may be
amended by any Amendment consented to by such person).
ARTICLE II
PARTICIPANTS
2.1 PARTICIPANTS. Each Director who has never been an employee or
officer of the Company and who first serves as a Director on or after July 1,
1995 (an "Outside Director") shall become a Participant in the Plan upon the
completion of five years of continuous service as a Director.
2.2 VESTING. The rights under the Plan of all persons who are Directors
and who first serve as such on or after July 1, 1995 shall vest immediately upon
their election as Directors; PROVIDED, HOWEVER, that the right of any Director
to receive any benefits pursuant to Article III of the Plan shall be subject to
the qualification of such Director as a Participant hereunder and to such
Director's satisfaction of the requirements of Article III with respect to
benefit entitlement.
2.3 PARTICIPATION UPON CHANGE OF CONTROL. Anything contained herein to
the contrary notwithstanding, in the event of a "Change of Control" (as
hereinafter defined), each Outside Director shall become a Participant in the
Plan. A "Change of Control" shall mean the occurrence of any of the following
events:
-2-
<PAGE> 34
(a) The Company shall merge into itself, or be merged or consolidated
with, another corporation and as a result of such merger or consolidation less
than 70% of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of the
Company as the same shall have existed immediately prior to such merger or
consolidation;
(b) The Company shall sell or otherwise transfer all or substantially
all of its assets to any other corporation or other legal person, and
immediately after such sale or transfer less than 70% of the combined voting
power of the outstanding voting securities of such corporation or person is held
in the aggregate by the former shareholders of the Company as the same have
existed immediately prior to such sale or transfer;
(c) A person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on July 1,1995) of the Securities Exchange Act of 1934,
shall become the beneficial owner (as defined in Rule 13d-3 of the Securities
and Exchange Commission pursuant to the Securities and Exchange Act of 1934) of
30% or more of the outstanding voting securities of the Company (whether
directly or indirectly); or
(d) During any period of three consecutive years, individuals who at
the beginning of any such period constitute the Board of Directors of the
Company cease, for any reason, to constitute at least a majority thereof, unless
the election, or the nomination for election by the shareholders of the Company,
of each Director first elected during any such period was approved by a vote of
at least one-third of the Directors of the Company who are Directors of the
Company on the date of the beginning of any such period.
-3-
<PAGE> 35
ARTICLE III
POST-RETIREMENT INCOME
3.1 POST-RETIREMENT INCOME. Commencing upon a Participant's retirement
from the Board of Directors (i) with at least five years of continuous service
as a Director, or (ii) after a Change of Control (hereinafter collectively
referred to as the Participant's "Commencement Date"), the Company will pay
quarterly to the Participant an amount equal to Fifty Percent (50%) of the
stated quarterly Board of Directors retainer fee for service as an Outside
Director which is in effect on the Participant's retirement; PROVIDED, HOWEVER,
that such amount shall only be payable to a Participant during his "Payment
Period" (as defined in Section 3.2); PROVIDED FURTHER, that payment of such
amount shall not commence prior to the Participant's 65th birthday, except in
the case of disability of the Participant; and, PROVIDED FURTHER, that if a
Participant's Commencement Date is on account of an event described in clause
(ii) of this Section 3.1, such amount shall be reduced for any Participant with
fewer than five years of continuous service as an Outside Director by Twenty
Percent (20%) for each full year of continuous service less than five that such
Participant has served as an Outside Director. For purposes of this Section 3.1,
when determining the amount of an Outside Director's stated quarterly Board of
Directors retainer fee, such retainer fee shall be deemed to include the stock
component (if any, and whether restricted or unrestricted) of such fee. The
duration of post-retirement income payments described in this Section 3.1 shall
be as more fully described in Section 3.2. For purposes of this Section 3.1, the
term "retirement" of an Outside Director shall be deemed to include; (i) the
failure of the stockholders of the Company to re-elect such Outside Director;
PROVIDED, HOWEVER, that the right of any Director to receive benefits pursuant
to the provisions of this Article III shall be subject to the Director's
satisfaction of the applicable requirements of Article III with respect to
benefit entitlement, and (ii) following a Change of
-4-
<PAGE> 36
Control, resignation or the failure of the stockholders of the Company to
re-elect such Outside Director.
3.2 FORM OF PAYMENT. Post-retirement income payable pursuant to Section
3.1 shall be paid to the Participant for a period equal to his years of
continuous service on the Board of Directors (the "Payment Period"). Such
post-retirement income shall be paid in cash to the Participant in equal
quarterly installments, each installment to be paid in advance on the first day
of each quarter, beginning with the quarter that begins on the first day of the
January, April, July or October coinciding with or next following such
Participant's Commencement Date. In the event a Participant who is married on
his Commencement Date dies during his Payment Period and prior to the
distribution of all post-retirement income to which he is entitled hereunder,
the remaining post-retirement income installment payments shall be paid to his
"Surviving Spouse" (as hereinafter defined) for the remainder of the Payment
Period or, if earlier, until the death of such Surviving Spouse. For purposes of
this Section 3.2, "Surviving Spouse" means the person to whom a Participant is
legally married on his Commencement Date. In the event a Participant who is not
married on his Commencement Date dies during his Payment Period and prior to the
distribution of all post-retirement income to which he is entitled hereunder,
the last payment made hereunder shall be the payment made to the Participant for
the quarter during which his death occurs.
-5-
<PAGE> 37
ARTICLE IV
GENERAL PROVISIONS
4.1 SUCCESSORS AND BINDING AGREEMENTS.
(a) The Company shall require any successer (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business and/or assets of the Company expressly
to assume and agree to perform hereunder the Plan in the same manner and to the
same extent the Company would be required to perform if no such succession had
taken place. The Plan shall be binding upon and inure to the benefit of the
Company and any successor of or to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all of the
business and/or assets of the Company whether by sale, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed to be
the "Company" for purposes of this Plan), but shall not otherwise be
assignable or delegatable by the Company.
(b) The Plan shall inure to the benefit of and be enforceable by each
of the Participants or Directors and his respective personal or legal
representatives, executors, administrators, successors, heirs, distributees
and/or legatees.
(c) Neither the Company nor any Participant or Director hereunder shall
assign, transfer or delegate the Plan or any rights or obligations hereunder,
except as expressly provided in Section 4.1(a). Without limiting the generality
of the foregoing, no right or interest under the Plan of a Participant or
Director (or of any person claiming under or through any of them) shall be
assignable or transferable in any manner or be subject to alienation,
anticipation, sale, pledge, encumbrance or other legal process or in any manner
be liable for or subject to the debts or liabilities of any such Participant or
Director or designated beneficiary. If any Participant or Director or designated
beneficiary shall attempt to or shall transfer, assign,
-6-
<PAGE> 38
alienate, anticipate, sell, pledge or otherwise encumber his benefits hereunder
or any part thereof, or if by reason of his bankruptcy or other event occurring
at any time such benefits would devolve upon anyone else or would not be enjoyed
by him, then the Company, acting through the Board Affairs Committee of the
Board of Directors, in its discretion, may terminate his interest in any such
benefit to the extent the Company considers it necessary or advisable in order
to prevent or limit the effects of such occurrence. Such termination shall be
affected by filing a written "termination declaration" with the Plan's records
and by making reasonable efforts to deliver a copy of such "termination
declaration" to the Participant or Director or designated beneficiary (the
"Terminated Participant") whose interest is adversely affected.
As long as the Terminated Participant is alive, any benefits affected
by the termination shall be retained by the Company and, in the Company's sole
and absolute judgment, may be paid to or expended for the benefit of the
Terminated Participant, his spouse, his children or any other person or persons
in fact dependent upon him in such a manner as the Company shall deem proper.
Upon the death of the Terminated Participant, all benefits withheld from him
and not paid to others in accordance with the preceding sentence shall be paid
to the Terminated Participant's then living descendants, including adopted
children, per stirpes, or, if there are none then living, to his estate.
4.2 NOTICES. For all purposes of this Plan, all communications provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered on five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to a Participant at his principal residence,
or to such other address as any party may have furnished to the other in writing
and
-7-
<PAGE> 39
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
4.3 FORFEITURE OF POST-RETIREMENT INCOME. No post-retirement income
shall be paid to any Participant or Surviving Spouse hereunder unless the
Participant agrees (i) to be available to the Company in an unpaid advisory
capacity on and after his Commencement Date, and (ii) not to engage in any
activity adverse to the interests of the Company. In the event the Participant
breaches such agreement, no further payments to the Participant or his Surviving
Spouse shall be made hereunder. Anything contained herein to the contrary
notwithstanding, the provisions of this Section 4.3 shall not apply in the event
of a Change of Control.
4.4 GOVERNING LAW. The validity, interpretation, construction and
performance of this Plan shall be governed by the laws of the State of Ohio,
without giving effect to the principles of conflict of laws of such State.
4.5 SEVERABILITY. Each Section, subsection and lesser section of the
Plan constitutes a separate and distinct undertaking, covenant and/or provision
hereof. Whenever possible, each provision of the Plan shall be interpreted in
such manner as to be effective and valid under applicable law. In the event that
any provision of the Plan shall finally be determined to be unlawful, such
provision shall be deemed severed from the Plan, but every other provision of
the Plan shall remain in full force and effect, and in substitution for any such
provision held unlawful, there shall be substituted a provision of similar
import reflecting the original intention of the parties hereto to the extent
permissible under law.
4.6 WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under the Plan all federal, state, city and other taxes as shall be
legally required.
-8-
<PAGE> 40
4.7 GENDER AND NUMBER. As used in the Plan, the singular shall include
the plural and the masculine shall include the feminine, and vice versa, all as
required by the context.
* * *
IN WITNESS WHEREOF, this Plan has been duly adopted by the Company as
of July 1, 1995.
CLEVELAND-CLIFFS INC
By /s/ M. T. Moore
-------------------------------------
Chairman and Chief Executive Officer
-9-
<PAGE> 1
Exhibit 10(w)
[TRUST FOR NONEMPLOYEE DIRECTORS' COMPENSATION PLAN]
- --------------------------------------------------------------------------------
TRUST AGREEMENT NO. 10
Between
CLEVELAND-CLIFFS INC
and
KEY TRUST COMPANY OF OHIO, N.A.
_________________
November 20, 1996
_________________
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
I. TRUST FUND.......................................................... 2
II. PAYMENTS TO TRUST BENEFICIARIES..................................... 6
III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO
A TRUST BENEFICIARY WHEN THE COMPANY IS INSOLVENT................... 8
IV. PAYMENTS TO COMPANY................................................. 10
V. INVESTMENT OF TRUST FUND............................................ 10
VI. INCOME OF THE TRUST................................................. 11
VII. ACCOUNTING BY TRUSTEE............................................... 11
VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE....................... 13
IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS.............................. 18
X. REPLACEMENT OF TRUSTEE.............................................. 19
XI. AMENDMENT OR TERMINATION OF AGREEMENT............................... 21
XII. GENERAL PROVISIONS.................................................. 22
XIII. NOTICES............................................................. 24
<PAGE> 3
TRUST AGREEMENT NO. 10
----------------------
This Trust Agreement ("Agreement") made as of the 20th day of
November, 1996 by and between Cleveland-Cliffs Inc, an Ohio corporation
("Company"), and Key Trust Company of Ohio, N.A., an Ohio corporation
("Trustee").
WITNESSETH:
-----------
WHEREAS, certain benefits are or may become payable to the
nonemployee directors of the Company listed (from time to time as provided in
Sections 1.6 and 9.2 hereof) on Exhibit A hereto ("Directors") under the
provisions of the Cleveland-Cliffs Inc Nonemployee Directors' Compensation Plan,
effective July 1, 1996 ("Effective Date") as the same have been or in the future
may be amended or restated, or any successor thereto ("Plan"), a copy of which
is appended to this Agreement as Exhibit B;
WHEREAS, the Plan provides for the payment of cash and/or common
shares of the Company ("Common Shares") to Directors who elect to defer their
compensation on or after the Effective Date, and to their beneficiaries, if
applicable, as provided in the Plan, and the Company wishes to assure the
payment to the Directors and to their beneficiaries (the Directors and their
respective beneficiaries are collectively referred to as the "Trust
Beneficiaries") of amounts due under the Plan (the amounts so payable are
collectively referred to as the "Benefits");
WHEREAS, the Company wishes to establish a trust ("Trust") and to
transfer to the Trust assets which shall be held subject to the claims of the
creditors of the Company to the extent set forth in Article III until (i) paid
in full to all Trust
<PAGE> 4
Beneficiaries as Benefits in such manner and as specified in this Agreement
unless the Company is Insolvent (as that term is defined below) at the time that
such Benefits become payable or (ii) otherwise disposed of pursuant to the terms
of this Agreement; and
WHEREAS, the Company shall be considered "Insolvent" for purposes
of this Agreement at such time as the Company (i) is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code, as amended from
time to time, or (ii) is unable to pay its debts as they become due.
NOW, THEREFORE, the Company and the Trustee establish the Trust
and agree that the Trust shall be comprised, held and disposed of as follows:
I. TRUST FUND
----------
1.1 Subject to the claims of creditors to the extent set forth in
Article III, the Company shall deposit with the Trustee in trust One Hundred
Dollars ($100), which shall become the principal of this Trust, to be held,
administered and disposed of by the Trustee as provided in this Agreement.
1.2 This Trust shall be irrevocable.
1.3 In the event that a Change in Control has occurred, the Chief
Executive Officer of the Company ("CEO") or the Secretary of the Company shall
notify the Trustee promptly. The Trustee shall be entitled to rely upon such
notice as to whether and when a Change in Control has occurred and shall not be
required to make any independent verification of a Change in Control.
2
<PAGE> 5
1.4 The principal of the Trust and any earnings shall be held in
trust separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes set forth in this Agreement. No Trust
Beneficiary shall have any preferred claim on, or any beneficial ownership
interest in, any assets of the Trust prior to the time that such assets are paid
to a Trust Beneficiary as Benefits. Any rights created under the Plan and this
Agreement shall be mere unsecured contractual rights of Trust Beneficiaries with
respect to the Company. The obligation of the Trustee to pay Benefits pursuant
to this Agreement constitutes merely an unfunded and unsecured promise to pay
such benefits.
1.5 (a) The Company may at any time or from time to time make
additional deposits of cash or other property (including Common Shares of the
Company) as may be acceptable to the Trustee in the Trust, or make provision for
cash or other property (including Common Shares of the Company) as may be
acceptable to the Trustee to be transferred to the Trust, such as by means of a
letter of credit or otherwise, to augment the principal to be held, administered
and disposed of by the Trustee, but no payment of all or any portion of the
principal of the Trust or earnings shall be made to the Company or any other
person or entity on behalf of the Company except as expressly provided in this
Agreement.
(b) Within 10 days following the occurrence of a Potential
Change in Control (as that term is defined in this Section 1.5), the Company
shall make a contribution to the Trust
3
<PAGE> 6
that is sufficient, taking into account the assets of the Trust prior to such
contribution, to provide for the payment of all Benefits and any other amounts
payable or reimbursable pursuant to the terms of this Agreement.
(c) Within 30 days after the end of any calendar year ending
after a Change of Control, the Company shall make a contribution to the Trust
that is sufficient, taking into account the assets of the Trust prior to such
contribution, to provide for the payment of all Benefits and any other amounts
payable or reimbursable pursuant to the terms of this Agreement.
(d) A "Potential Change in Control" means the occurrence of
any of the following events:
(i) The Company enters into a letter of intent, agreement
in principle or other agreement, the consummation of which would constitute a
Change in Control; or
(ii) any person (including the Company) makes a public
announcement (including, without limitation, an announcement made by filing a
Schedule 13D or Schedule 14D-1 (or any successor schedule, form, report or
item), each as promulgated pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act")) stating a present intention to take actions that, if
consummated, would constitute a Change in Control.
1.6 Not later than the date of any Change of Control, the
Company shall (a) provide any corresponding revisions to Exhibits A and B that
may be required and (b) provide the Trustee with copies of the Plan and any
amendments thereto.
4
<PAGE> 7
1.7 The Trust is intended to be a grantor trust, within the
meaning of section 671 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision, and shall be construed accordingly. The
purpose of the Trust is to assure that the Company's obligations to the Trust
Beneficiaries pursuant to the Plan are fulfilled. The Trust is neither intended
nor designed to qualify under section 401(a) of the Code or to be subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
1.8 As used in this Agreement, the term "Change in Control" shall
mean the occurrence of any of the following events:
(a) The Company shall merge into itself, or be merged or
consolidated with, another corporation and as a result of such merger or
consolidation less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company as the same shall have existed immediately prior to
such merger or consolidation;
(b) The Company shall sell or otherwise transfer all or
substantially all of its assets to any other corporation or other legal person,
and immediately after such sale or transfer less than 70% of the combined voting
power of the outstanding voting securities of such corporation or person is held
in the aggregate by the former shareholders of the Company as the same shall
have existed immediately prior to such sale or transfer;
(c) A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the
5
<PAGE> 8
Securities Exchange Act of 1934, shall become the beneficial owner (as defined
in Rule 13d-3 of the Securities and Exchange Commission pursuant to the
Securities and Exchange Act of 1934) of 30% or more of the outstanding voting
securities of the Company (whether directly or indirectly); or
(d) During any period of three consecutive years,
individuals who at the beginning of any such period constitute the Board of
Directors of the Company cease, for any reason, to constitute at least a
majority thereof, unless the election, or the nomination for election by the
shareholders of the Company, of each director first elected during any such
period was approved by a vote of at least one-third of the directors of the
Company who are directors of the Company on the date of the beginning of any
such period.
II. PAYMENTS TO TRUST BENEFICIARIES
-------------------------------
2.1 Provided that the Company is not Insolvent and commencing
with the earlier to occur of (a) appropriate notice to the Trustee by the
Company, or (b) the date on which the Trustee has been notified in accordance
with Section 1.3 that a Change of Control has occurred, the Trustee shall make
payments of Benefits to each Trust Beneficiary from the assets of the Trust in
compliance and conformity with the terms of the Plan and subject to Article IX.
2.2 The Trustee shall continue to pay Benefits to the Trust
Beneficiaries until the assets of the Trust are depleted, subject to Section
11.2. If any current payment by the Trustee under the terms of this Agreement
would deplete the assets of the Trust
6
<PAGE> 9
below the amount necessary to provide adequately for Benefits known to the
Trustee to be payable in the future, the Trustee shall nevertheless make the
current payment when due. If, after application of the preceding sentence,
amounts in the Trust are not sufficient to provide for full payment of the
Benefits to which any Trust Beneficiary is entitled as provided in this
Agreement, the Company shall make the balance of each such payment directly to
the Trust Beneficiary as it becomes due.
2.3 The Company may make payments of Benefits directly to each or
any Trust Beneficiary. The Company shall notify the Trustee of its decision to
pay Benefits directly at least 3 days prior to the time amounts are due to be
paid to a Trust Beneficiary.
2.4 Nothing in this Agreement shall in any way diminish any
rights of any Trust Beneficiary to pursue such Trust Beneficiary's rights as a
general creditor of the Company with respect to Benefits or otherwise, and the
rights of each Trust Beneficiary under the Plan shall in no way be affected or
diminished by any provision of this Agreement or action taken pursuant to this
Agreement, except that any payment actually received by any Trust Beneficiary
shall reduce dollar-per-dollar amounts otherwise due to such Trust Beneficiary
pursuant to the Plan.
2.5 The Trustee shall withhold from any payment to a Trust
Beneficiary the amount required by law to be so withheld under federal, state
and local tax withholding requirements, and shall
7
<PAGE> 10
pay over to the appropriate government authority the amounts
withheld.
III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS
TO A TRUST BENEFICIARY WHEN THE COMPANY IS INSOLVENT
----------------------------------------------------
3.1 At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to claims of creditors of the
Company as set forth in this Section 3.1. The Board of Directors of the Company
("Board") and the CEO shall have the duty to inform the Trustee in writing if
either the Board or the CEO believes that the Company is Insolvent. If the
Trustee receives a notice in writing from the Board or the CEO stating that the
Company is Insolvent or if a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall independently determine within 30 days after receipt of such
notice whether the Company is Insolvent. In making this determination, the
Trustee may engage the outside accountants of the Company to render an opinion
as to the solvency of the Company and shall be fully protected under Section 8.7
in relying upon the advice of such accountants. In addition, the Company shall
provide the Trustee or its agents, including the outside accountants of the
Company, with any information reasonably requested, and otherwise cooperate with
the Company or its agents in making the determination. Pending such
determination, or if the Trustee has actual knowledge or has determined that the
Company is Insolvent, the Trustee shall discontinue or refrain from making
payments to any Trust Beneficiary and hold the Trust assets for the benefit of
the general creditors of the Company.
8
<PAGE> 11
The Trustee shall pay any undistributed principal and income in the Trust to the
extent necessary to satisfy the claims of the creditors of the Company as a
court of competent jurisdiction may direct. If the Trustee has discontinued or
refrained from making payments to any Trust Beneficiary pursuant to this Section
3.1, the Trustee shall pay or resume payments to such Trust Beneficiary in
accordance with this Agreement if the Trustee has determined that the Company is
not Insolvent, or is no longer Insolvent (if the Trustee initially determined
the Company to be Insolvent), or pursuant to the order of a court of competent
jurisdiction. Unless the Trustee has actual knowledge of Insolvency, or has
received notice from the Board, the CEO or a person claiming to be a creditor of
the Company alleging that the Company is Insolvent, the Trustee shall have no
duty to inquire as to whether the Company is Insolvent and may rely on
information concerning the Insolvency of the Company that has been furnished to
the Trustee by any creditor of the Company or by any person (other than an
employee or director of the Company) acting with apparent or actual authority
with respect to the Company.
3.2. If the Trustee is precluded from paying Benefits from the
Trust assets pursuant to Section 3.1 and such prohibition is subsequently
removed, the Trustee shall pay the aggregate amount of all Benefits that would
have been paid to the Trust Beneficiaries in accordance with this Agreement
during the period of such prohibition, less the aggregate amount of Benefits
otherwise paid to any Trust Beneficiary by the Company during any
9
<PAGE> 12
such period, together with interest on the delayed amount determined at a rate
equal to the rate actually earned (including, without limitation, market
appreciation or depreciation, plus receipt of interest and dividends) during
such period with respect to the assets of the Trust corresponding to such net
amount delayed.
IV. PAYMENTS TO COMPANY
-------------------
4.1 Except to the extent expressly contemplated by this Article
IV, the Company shall have no right or power to direct the Trustee to return any
of the Trust assets to the Company before all payments of Benefits have been
made to all Trust Beneficiaries as provided in this Agreement.
V. INVESTMENT OF TRUST FUND
------------------------
5.1 Prior to a Change of Control, the Trustee shall invest and
reinvest the assets of the Trust as the Company shall prescribe in writing from
time to time.
5.2 On or after the date of a Change of Control, or in the
absence of the instructions from the Company specified in Section 5.1, the
provisions of this Section 5.2 shall apply to the investment of the Trust
assets. The investment objective of the Trustee shall be to preserve the
principal of the Trust while obtaining a reasonable total rate of return,
measurement of which shall include, without limitation, market appreciation or
depreciation plus receipt of interest and dividends. The Trustee shall be
mindful, in the course of its management of the Trust, of the liquidity demands
on the Trust.
10
<PAGE> 13
5.3 The Trustee shall have the sole power to invest the assets of
the Trust, in accordance with the provisions of Sections 5.1 and 5.2. The
Trustee shall not be liable for any failure to maximize income on such portion
of the Trust assets as may be from time to time invested or reinvested as set
forth above, nor for any loss of principal or income due to the liquidation of
any investment that the Trustee, in its sole discretion, believes necessary to
make payments or to reimburse expenses under the terms of this Agreement. The
Trustee shall have the right to invest assets of the Trust for short-term
investment periods, pending distribution, or long-term investment of such
assets, as the Trustee may deem proper in the circumstances.
VI. INCOME OF THE TRUST
-------------------
6.1 During the continuance of this Trust, all net income of the
Trust shall be retained in the Trust.
VII. ACCOUNTING BY TRUSTEE
---------------------
7.1 The Trustee shall maintain such books, records and accounts
as may be necessary for the proper administration of the Trust assets, including
such specific records as shall be agreed upon in writing by the Company and the
Trustee. Within 60 days following the close of each calendar year that includes
or commences after the date of this Trust until the termination of this Trust or
the removal or resignation of the Trustee (and within 60 days after the date of
such termination, removal or resignation), the Trustee shall render to the
Company an accounting with respect to the Trust assets as of the end of the
11
<PAGE> 14
then most recent calendar year (and as of the date of such termination, removal
or resignation, as the case may be). The Trustee shall furnish to the Company on
a quarterly basis (or as the Company shall direct from time to time) and in a
timely manner such information regarding the Trust as the Company shall require
for purposes of preparing its statements of financial condition. The Trustee
shall at all times maintain separate bookkeeping accounts for each Director as
prescribed in Section 7.2 hereof, and, upon the written request of a Director,
shall provide to the Director an annual statement of the Director's account.
Upon the written request of the Company or, on or after the date of a Change of
Control, a Director, the Trustee shall deliver to the Company or the Director,
as the case may be, a written report setting forth the amount held in the Trust
and a record of the deposits made to the Trust by the Company.
Unless the Company or any Director shall have filed with the
Trustee written exception or objection to any such statement and account within
90 days after receipt thereof, the Company and the Directors shall be deemed to
have approved such statement and account, and in such case, the Trustee shall be
forever released and discharged with respect to all matters and things reported
in such statement and account as though it had been settled by a decree of a
court of competent jurisdiction in an action or proceeding to which the Company
and the Directors were parties.
7.2 The Trustee shall maintain a separate account for each
Director. The Trustee shall credit or debit each Director's
12
<PAGE> 15
account as appropriate to reflect such Director's allocable portion of the Trust
assets, as such Trust assets may be adjusted from time to time pursuant to the
terms of this Agreement. Except as provided in this Section 7.2, all allocations
shall be made in proportion to the balances of the separate accounts of the
Directors. Prior to the date of a Change of Control, all deposits of principal
pursuant to Section 1.1 and 1.5 hereof shall be allocated as directed by the
Company. On or after such date, deposits of principal once allocated may not be
reallocated. Income, expense, gain or loss on assets allocated to the separate
accounts of the Directors shall be allocated separately to such accounts by the
Trustee in proportion to the balances of the separate accounts of the Directors.
7.3 Nothing in this Article VII shall preclude the commingling
of Trust assets for investment.
VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE
---------------------------------------------
8.1 The duties and responsibilities of the Trustee shall be
limited to those expressly set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Trustee.
8.2 In addition to and without limiting any other provision of
this Agreement, on or after the date of a Change of Control, the Trustee shall,
in its sole discretion, based upon the information furnished to it by the
Company and/or the Directors and any additional information that it may
reasonably request, (a) make all decisions regarding whether a Trust Beneficiary
is eligible for the payment of Benefits, the nature, amount and
13
<PAGE> 16
timing of such benefits, and any other decisions pertinent to the exercise of
the Trustee's duties and responsibilities under this Agreement, and (b) exercise
any power or discretion granted pursuant to the Plan to the Board, any committee
of the Board, or to any other committee, entity or person. On or before the date
of a Change in Control, the Company shall furnish the Trustee with calculations
and supporting schedules showing in detail the payments required under the
Agreement in the event of the termination of each of the Director's service with
the Company immediately following the Change in Control. The Trustee shall
determine amounts due under this Agreement in a manner consistent with these
calculations and supporting schedules. In connection with the exercise of the
duties, responsibilities, power and discretion of the Trustee under this
Agreement, the Trustee may employ legal counsel to aid its determinations and
shall be fully protected under Section 8.7 in relying upon the advice of counsel
in making such determinations.
8.3 If all or any part of the Trust assets are at any time
attached, garnished, or levied upon by any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by a court affecting such property or any part of such
property, then and in any of such events the Trustee shall be authorized, in its
sole discretion, to rely upon and comply with any such order, judgment or
decree, and it shall not be liable to the Company or any Trust Beneficiary by
reason of such compliance
14
<PAGE> 17
even though such order, judgment or decree subsequently may be reversed,
modified, annulled, set aside or vacated.
8.4 The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant to a
direction, request, or approval given by the Company or any Director or other
Trust Beneficiary contemplated by and complying with the terms of this
Agreement. The Trustee shall discharge its responsibility for the investment,
management and control of the Trust assets solely in the interest of the Trust
Beneficiaries and for the exclusive purpose of assuring that, to the extent of
available Trust assets, and in accordance with the terms of this Agreement, all
payments of Benefits are made when due to the Trust Beneficiaries.
8.5 The Trustee may consult with legal counsel (who shall not
be counsel for the Company) to be selected by it.
8.6 The Trustee shall be reimbursed by the Company for its
reasonable expenses incurred in connection with the performance of its duties
(including, but not limited to, the fees and expenses of counsel, accountants
and others incurred pursuant to Section 8.5 or 8.11) and shall be paid
reasonable fees for the performance of such duties in the manner provided by
Section 8.7.
8.7 The Company agrees to indemnify and hold harmless the
Trustee from and against any and all damages, losses, claims or
15
<PAGE> 18
expenses as incurred (including expenses of investigation and fees and
disbursements of counsel to the Trustee and any taxes imposed on the Trust
assets or income of the Trust) arising out of or in connection with the
performance by the Trustee of its duties, other than such damages, losses,
claims or expenses arising out of the Trustee's gross negligence or willful
misconduct. The Trustee shall not be required to undertake or to defend any
litigation arising in connection with this Agreement unless it be first
indemnified by the Company against its prospective costs, expenses and
liabilities (including, without limitation, attorneys' fees and expenses), and
the Company agrees to indemnify the Trustee and be primarily liable for such
costs, expenses, and liabilities. Any amount payable to the Trustee under
Section 8.6 or this Section 8.7 shall be paid by the Company promptly upon
demand by the Trustee or, in the event that the Company fails to make such
payment within 30 days of such demand, from the Trust assets. In the event that
payment is made to the Trustee from the Trust assets, the Trustee shall promptly
notify the Company in writing of the amount of such payment. The Company agrees
that, upon receipt of such notice, it will deliver to the Trustee to be held in
the Trust an amount in cash equal to any payments made from the Trust assets to
the Trustee pursuant to Section 8.6 or this Section 8.7. The failure of the
Company to transfer any such amount shall not in any way impair the Trustee's
right to indemnification, reimbursement and payment pursuant to Section 8.6 or
this Section 8.7.
16
<PAGE> 19
8.8 The Trustee may vote any stock (other than Common Shares of
the Company for which it receives instructions as provided below) or other
securities and exercise any right appurtenant to any such stock, other
securities or other property it holds, either in person or by general or limited
proxy, power of attorney or other instrument. Each Director shall be entitled to
instruct the Trustee as to the voting of any full or partial Common Shares of
the Company allocated to his account as of the applicable record date. Prior to
such voting, the Director shall receive a copy of the proxy solicitation
materials and a blank form to instruct confidentially the Trustee how to vote
the Common Shares of the Company allocated to his account as of the applicable
record date. Upon receipt of such instructions, the Trustee shall vote the
shares (or, as applicable, exercise any dissenter's rights) as instructed. The
Trustee shall vote all other Common Shares of the Company in its possession
(including shares for which it does not receive instruction from Directors) in
accordance with the first sentence of this Section 8.8.
8.9 The Trustee may hold securities in bearer form and may
register securities and other property held in the Trust fund in its own name or
in the name of a nominee, combine certificates representing securities with
certificates of the same issue held by the Trustee in other fiduciary
capacities, and deposit, or arrange for deposit of, property with any
depository; provided that the books and records of the Trustee shall at all
times show that all such securities are part of the assets of the Trust.
17
<PAGE> 20
8.10 The Trustee may exercise all rights appurtenant to any
letter of credit made payable to the Trustee of the Trust for the benefit of the
Trust in accordance with the terms of such letter of credit.
8.11 The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals, who may be
agents, accountants, actuaries, investment advisors, financial consultants, or
otherwise act in a professional capacity, as the case may be, for the Company or
with respect to the Plan, to assist the Trustee in performing any of its duties.
8.12 The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law unless expressly provided otherwise in
this Agreement.
8.13 Notwithstanding any other provision of this Agreement, in
the event of the termination of the Trust, or the resignation or discharge of
the Trustee, the Trustee shall have the right to a settlement of its accounts in
accordance with the procedures set forth in Section 7.1, which may be made, at
the option of the Trustee, either (a) by a judicial settlement in a court of
competent jurisdiction, or (b) by agreement of settlement, release and indemnity
from the Company to the Trustee.
IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS
--------------------------------------
9.1 On or after the date of a Change of Control, the Company
shall, and any Trust Beneficiary may, promptly furnish the Trustee true and
correct copies of any amendment, restatement or successor to the Plan. Upon
written notification to the
18
<PAGE> 21
Trustee by the Company or any Director of the failure of the Company and such
Director to agree on the amount of Benefits to be paid such Director, the
Trustee shall, to the extent necessary in the sole judgment of the Trustee, (a)
compute the amount of Benefits payable to any Trust Beneficiary, and (b) notify
the Company and the Director in writing of its computations. In making these
determinations, the Trustee may employ legal counsel and shall be fully
protected under Section 8.7 in relying upon the advice of counsel in relying on
such determinations. Thereafter, this Agreement and all Exhibits shall be
amended to the extent of such Trustee determinations without further action;
provided, however, that the failure of the Company to furnish any such
amendment, restatement, successor or compensation information shall in no way
diminish the rights of any Trust Beneficiary.
9.2 Amendments to Exhibit A (and directly corresponding
amendments to Exhibit B) that modify one or more lists of Directors shall be
made only in accordance with Section 1.6. No amendment to Exhibit A (and no
amendment to Exhibit B that would delete a Director may be made on or after the
date on which a Change of Control occurs, except in accordance with Article XI.
X. REPLACEMENT OF TRUSTEE
----------------------
10.1 The Trustee may resign and be discharged from its duties
after providing not less than 90 days' notice in writing to the Company. On or
after the date of a Change of Control, the Trustee shall also provide notice of
its resignation to all of the Directors. Prior to the date of a Change of
Control, the
19
<PAGE> 22
Trustee may be removed at any time upon notice in writing by the Company. On or
after such date, removal shall also require the agreement of the Directors.
Prior to the date of a Change of Control, a replacement or successor trustee
shall be appointed by the Company. On or after such date, appointment shall also
require the agreement of the Directors. No such removal or resignation shall
become effective until the effectiveness of the acceptance of the Trust by a
successor trustee designated in accordance with this Article X. If, after making
reasonable efforts to appoint a successor trustee, the Trustee has been unable
to do so, the Trustee shall petition a court of competent jurisdiction to
appoint a successor trustee. Upon the acceptance of the Trust by a successor
trustee, the Trustee shall release all of the moneys and other property in the
Trust to its successor, who after such time shall for all purposes of this
Agreement be considered to be the "Trustee." In the event of its removal or
resignation, the Trustee shall duly file with the Company and, after a Change of
Control, all of the Directors, a written statement or statements of accounts and
proceedings as provided in Section 7.1 for the period since the last previous
accounting of the Trust.
10.2 For purposes of Section 10.1 and Section 11.2, a Director
shall not participate if all Benefits then currently due or payable in the
future have been made to such Director.
20
<PAGE> 23
XI. AMENDMENT OR TERMINATION OF AGREEMENT
-------------------------------------
11.1 This Agreement may be amended at any time and to any extent
by a written instrument executed by the Trustee and the Company; provided,
however, that no amendment shall have the effect of altering Section 11.2.
11.2 The Trust shall terminate on or after a Change of Control
upon the earliest to occur of (i) a joint determination by the Trustee and the
Directors made on or after the fifth anniversary of the date of a Change of
Control that no Trust Beneficiary is or will be entitled to any further payment
of Benefits or (ii) such time as the Trustee shall have received consents from
all of the Directors to the termination of this Agreement. Notwithstanding the
previous sentence, if payments under the Plan with respect to any Trust
Beneficiary are the subject of litigation or arbitration, the Trust shall not
terminate and the funds held in the Trust with respect to such Trust Beneficiary
shall continue to be held by the Trustee until the final resolution of such
litigation or arbitration. The Trustee may assume that the Plan is not the
subject of such litigation or arbitration unless the Trustee receives written
notice from a Trust Beneficiary or the Company with respect to such litigation
or arbitration. The Trustee may rely upon written notice from a Trust
Beneficiary as to the final resolution of such litigation or arbitration.
11.3 Upon a termination of the Trust as provided in Section
11.2, any assets remaining in the Trust, less all payments,
21
<PAGE> 24
expenses, taxes and other charges under this Agreement as of such date of
termination, shall be returned to the Company.
XII. GENERAL PROVISIONS
------------------
12.1 The Company shall, at any time and from time to time, upon the
reasonable request of the Trustee, provide information, execute and deliver such
further instruments and do such further acts as may be necessary or proper to
effectuate the purposes of this Trust.
12.2 Each Exhibit referred to in this Agreement shall become a part
of this Agreement and is expressly incorporated by reference.
12.3 This Agreement sets forth the entire understanding of the
parties with respect to its subject matter and supersedes any and all prior
agreements, arrangements and understandings. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives.
12.4 This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12.5 In the event that any provision of this Agreement or the
application of any provision to any person or circumstances shall be determined
by a court of competent jurisdiction to be invalid or unenforceable to any
extent, the remainder of this Agreement, or the application of such provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected, and each provision of this
22
<PAGE> 25
Agreement shall be valid and enforced to the maximum extent permitted by law.
12.6 (a) The preamble to this Agreement shall be considered a part
of the agreement of the parties as if set forth in a section of this Agreement.
(b) The headings and table of contents contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
12.7 The right of any Trust Beneficiary to any benefit or to any
payment may not be anticipated, assigned (either at law or in equity), alienated
or subject to attachment, garnishment, levy, execution or other legal or
equitable process except as required by law. Any attempt by any Trust
Beneficiary. to anticipate, alienate, assign, sell, transfer, pledge, encumber
or charge the same shall be void. The Trust assets shall not in any manner be
subject to the debts, contracts, liabilities, engagements or torts of any Trust
Beneficiary.
12.8 Any dispute between the Directors and the Company or the
Trustee as to the interpretation or application of the provisions of this
Agreement and amounts payable may, at the election of any party to such dispute
(or, if more than one Director is such a party, at the election of two-thirds of
such Directors), be determined by binding arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court of competent jurisdiction. All
fees and expenses of such
23
<PAGE> 26
arbitration shall be paid by the Trustee and considered an expense of the Trust
under Section 8.7.
12.9 Each Director is an intended beneficiary under this Trust, and
as an intended beneficiary shall be entitled to enforce all terms and provisions
with the same force and effect as if such person had been a party to the
Agreement.
12.10 The Trustee shall be permitted to withhold from any payment
due to a Director the amount required by law to be so withheld under federal,
state and local withholding requirements or otherwise, and shall pay over to the
appropriate government authority the amounts so withheld. The Trustee may rely
on reasonable instructions from the Company as to any required withholding and
shall be fully protected under Section 8.7 in relying on such instructions.
12.11 Notwithstanding any other provision, the parties' respective
rights and obligations under Section 12.9 shall survive any termination or
expiration of this Agreement.
XIII. NOTICES
-------
13.1 For all purposes of this Agreement, any communication,
including without limitation, any notice, consent, report, demand or waiver
required or permitted to be given shall be in writing and, unless otherwise
provided in this Agreement, shall be deemed to have been duly given when hand
delivered or dispatched by telegram or electronic facsimile transfer (confirmed
in writing by mail simultaneously dispatched), or two business days after having
been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or one business day
24
<PAGE> 27
after having been dispatched by a nationally recognized overnight courier
service to the appropriate party at the address specified below:
If to the Company, to: Cleveland-Cliffs Inc
---------------------- 1100 Superior Avenue
Cleveland, Ohio 44114
Attention: Secretary
If to the Trustee, to: Key Trust Company of Ohio, N.A.
--------------------- 127 Public Square
Cleveland, Ohio 44114-1306
Attention:
If to a Director, to: the address of such Director as
-------------------- listed next to such Director's
name on Exhibit A,
provided, however, that if any party or such party's successors shall have
designated a different address by notice to the other parties, then to the last
address so designated.
IN WITNESS WHEREOF, the Company and the Trustee caused this
Agreement to be executed on its behalf as of the date first above
written.
Attested CLEVELAND-CLIFFS INC
By: /s/ J.E. Lenhard By: /s/ R.F. Novak
--------------------------- ---------------------------
Its: Secretary Its: Vice President
----------------------- --------------------------
Attested Key Trust Company of Ohio, N.A.
By: /s/ Kathryn L. Kaesberg By: /s/ Kelley Clark
--------------------------- ---------------------------
Its: Vice President Its: Vice President
----------------------- --------------------------
25
<PAGE> 28
EXHIBIT A
11/20/96
CLEVELAND-CLIFFS INC
--------------------
NONEMPLOYEE DIRECTORS' COMPENSATION PLAN PARTICIPANTS
-----------------------------------------------------
Ronald C. Cambre Francis R. McAllister
Newmont Mining Corporation ASARCO Incorporated
1700 Lincoln Street, Suite 2800 1150 North 7th Avenue
Denver, CO 80203 Tucson, AZ 85705
Robert S. Colman John C. Morley
Colman Partners, LLC 30195 Chagrin Boulevard
One Maritime Plaza, Suite 2535 Suite 210N
San Francisco, CA 94111 Pepper Pike, OH 44124
James D. Ireland III Stephen B. Oresman
Citizens Building Saltash Ltd.
850 Euclid Avenue, Suite 650 49 Sunswyck Road
Cleveland, OH 44115 Darien, CT 06820
G. Frank Joklik Alan Schwartz
Eagle Gate Tower, Suite 2100 Yale Law School
60 East South Temple 127 Wall Street
Salt Lake City, UT 84111 New Haven, CT 06520
E. Bradley Jones Jeptha H. Wade
30195 Chagrin Boulevard Choate, Hall & Stewart
Suite 104W 53 State Street, 34th Floor
Pepper Pike, OH 44124 Boston, MA 02109
Leslie L. Kanuk Alton W. Whitehouse
40 Central Park South, #9A 30195 Chagrin Boulevard
New York, NY 10019 Suite 104W
Pepper Pike, OH 44124
* * * * * * * * * * *
Directors presently electing to defer fees as of July 1, 1996:
Francis R. McAllister
John C. Morley
James D. Ireland III
<PAGE> 29
EXHIBIT B
CLEVELAND-CLIFFS INC NONEMPLOYEE
DIRECTORS' COMPENSATION PLAN
The Cleveland-Cliffs Inc Nonemployee Directors' Compensation Plan
("Plan") is effective as of July 1, 1996, subject to approval of shareholders at
the 1996 annual meeting.
ARTICLE I. DEFINITIONS
Whenever the following terms are used in this Plan they shall have the
meanings specified below unless the context clearly indicates to the contrary:
(a) "Account": A Deferred Fee Account and/or a Deferred Share
Account, as the context may require.
(b) "Accounting Date": December 31 of each year and the last day
of each calendar quarter.
(c) "Accounting Period": The quarterly period beginning on the date
immediately following an Accounting Date and ending the next following
Accounting Date.
(d) "Administrator": The Board Affairs Committee of the Board or
any successor committee designated by the Board.
(e) "Beneficiary": The person or persons (natural or otherwise)
designated pursuant to Section 7.7.
(f) "Board": The Board of Directors of the Company.
(g) "Change of Control": The meaning set forth in Section 3.1(b).
(h) "Code": The Internal Revenue Code of 1986, as amended.
(i) "Company": Cleveland-Cliffs Inc or any successor or successors
thereto.
(j) "Declared Rate": The Moody's Corporate Average Bond Yield as
adjusted on the first business day of January, April, July and October
or such other rate as the Adninistrator shall determine from time to
time.
(k) "Deferral Commitment": An agreement made by a Director in a
Participation Agreement to have all or a specified portion of his or her
Fees. Required Retainer Shares and/or Voluntary Shares deferred under
the Plan for a specified period in the future.
(l) "Deferral Period": The Plan Year for which a Director has
elected to defer all or a portion of his or her Fees, Required Retainer
Shares and/or Voluntary Shares.
(m) "Deferred Fees": The Fees credited to a Director's Deferred Fee
Account pursuant to Articles IV and V and payable to a Director pursuant
to Article VII.
(n) "Deferred Fee Account": The account maintained on the books of
the Company for each Director pursuant to Article V.
(o) "Deferred Shares": The Required Retainer Shares and Voluntary
Shares credited to a Director's Deferred Share Account pursuant to
Articles IV and VI and payable to a Director pursuant to Article VII.
(p) "Deferred Share Account": The account maintained on the books
of the Company for each Director pursuant to Article VI.
(q) "Director": An individual duly elected or chosen as a Director
of the Company who is not also an employee of the Company or any of its
subsidiaries.
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(r) "Fair Market Value": With respect to a Share, the last reported
closing price for a Share on the New York Stock Exchange (or any
appropriate over-the-counter market if the Shares are no longer listed
on such Exchange) for a day specified herein for which such fair market
value is to be calculated, or if there was no sale of Shares so reported
for such day, on the most recently preceding day on which there was such
a sale.
(s) "Fees": The portion of the annual Retainer and other Director
compensation payable in cash.
(t) "Participation Agreement": The agreement submitted by a
Director to the Administrator in which a Director may specify an amount
of Voluntary Shares, or may elect to defer receipt of all or any portion
of his or her Fees, Required Retainer Shares and/or Voluntary Shares for
a specified period in the future.
(u) "Plan": The Plan set forth in this instrument as it may from
time to time be amended.
(v) "Plan Year": The 12-month period beginning January 1 and ending
December 31.
(w) "Prior Plan": The Company's existing Plan for Deferred Payment
of Directors' Fees originally adopted in 1981.
(x) "Restricted Shares": Shares automatically awarded pursuant to
Section 3.1 as to which neither the substantial risk of forfeiture nor
the restrictions on transfer referred to in Section 3.1 hereof have
expired.
(y) "Retainer": The portion of a Director's annual compensation
that is payable without regard to number of Board or committee meetings
attended or committee positions.
(z) "Required Retainer Shares": An amount, payable in Shares.
constituting 50% of a Director's Retainer.
(aa) "Rule 16b-3": Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (or any successor rule to the same effect), as in
effect from time to time.
(bb) "Settlement Date": The date on which a Director terminates as
a Director. Settlement Date shall also include with respect to any
Deferral Period the date prior to the date of termination as a Director
selected by a Director in a Participation Agreement for distribution of
all or a portion of the Fees, Required Retainer Shares and Voluntary
Shares deferred during such Deferral Period as provided in Section 7.3.
(cc) "Shares": The Company's fully paid, non-assessable Common
Shares, par value $1.00 per share. Shares may be shares of original
issuance or treasury shares or a combination of the foregoing.
(dd) "Voluntary Shares": The meaning set forth in Section 3.2(b).
ARTICLE II. PURPOSE
The purpose of this Plan is to provide for the award of Restricted
Shares to Directors and for the payment to Directors of at least one-half of the
Retainer earned by them for services as Directors in Shares in order to further
align the interests of Directors with the shareholders of the Company and there
by promote the long-term success and growth of the Company. In addition, the
Plan is intended to provide Directors with opportunities to invest additional
amounts of their compensation payable for services as a Director in Shares and
defer receipt of any or all of such compensation, other than Restricted Shares.
ARTICLE III. RESTRICTED SHARES, REQUIRED RETAINER SHARES
AND VOLUNTARY SHARES
3.1 Automatic Awards of Restricted Shares.
(a) Restricted Shares shall be automatically awarded to Directors as
follows:
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<PAGE> 31
(i) Each individual who is first elected or appointed to the Board
as a Director after June 30, 1995 and before July 1, 1996 shall be
awarded 1,000 Restricted Shares on July 1, 1996.
(ii) Each individual who is first elected or appointed to the
Board as a Director on or after July 1, 1996 shall be awarded 1,000
Restricted Shares on July 1 of the following year.
(b) The Restricted Shares may not be assigned, exchanged, pledged,
sold, transferred or otherwise disposed of by a Director, except to the
Company, and shall be subject to forfeiture as herein provided until the
earliest to occur of the following ("Vesting Event"): (a) the fifth anniversary
of the date of award; (b) a Change of Control (as defined below); or (c) death
or permanent disability. Any purported transfer in violation of the provisions
of this paragraph shall be null and void, and the purported transferee shall
obtain no rights with respect to such Restricted Shares. For purposes of this
Section 3.1, "Change of Control" shall mean the occurrence of any of the
following events:
(i) The Company shall merge into itself, or be merged or
consolidated with, another corporation and as a result of such merger
or consolidation less than 70% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the aggregate
by the former shareholders of the Company as the same shall have
existed immediately prior to such merger or consolidation;
(ii) The Company shall sell or otherwise transfer all or
substantially all of its assets to any other corporation or other legal
person, and immediately after such sale or transfer less than 70% of
the combined voting power of the outstanding voting securities of such
corporation or person is held in the aggregate by the former
shareholders of the Company as the same shall have existed immediately
prior to such sale or transfer;
(iii) A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the Securities
Exchange Act of 1934, shall become the beneficial owner (as defined in
Rule 13d-3 of the Securities and Exchange Commission pursuant to the
Securities and Exchange Act of 1934) of 30% or more of the outstanding
voting securities of the Company (whether directly or indirectly); or
(iv) During any period of three consecutive years, individuals who
at the beginning of any such period constitute the Board of Directors
of the Company cease, for any reason, to constitute at least a majority
thereof, unless the election, or the nomination for election by the
shareholders of the Company, of each Director first elected during any
such period was approved by a vote of at least one-third of the
Directors of the Company who are Directors of the Company on the date
of the beginning of any such period.
(c) All of the Restricted Shares shall be forfeited by a Director who
is terminated before a Vesting Event; provided, however, if service as a
Director is terminated by the Company owing to removal as a Director without
cause before the fifth anniversary of the date of an award, a portion of the
Restricted Shares covered by such award that then remain forfeitable shall
become freely transferable and nonforfeitable as follows: that number of
Restricted Shares shall become freely transferable and nonforfeitable which
bears the same ratio to the total number of Restricted Shares subject to such
award that then remain forfeitable and would have become forfeitable at the
Vesting Date as the number of full months from the date of award to the date of
termination of such service bears to 60, and the balance of the Restricted
Shares subject to such award shall be forfeited to the Company.
(d) Unless otherwise directed by the Administrator, all certificates
representing Restricted Shares shall be held in custody by the Company until the
occurrence of a Vesting Event. As a condition to each award of Restricted
Shares, unless otherwise determined by the Administrator, each Director shall
have delivered to the Company a stock power, endorsed in blank, relating to the
Restricted Shares covered by such award. After the occurrence of a Vesting
Event, assuming no event has occurred that would effect a forfeiture of a
Director's Restricted Shares, a certificate or certificates evidencing
unrestricted ownership of such Shares shall be delivered to the Director.
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<PAGE> 32
3.2 Required Retainer Shares and Voluntary Shares.
(a) Retainer. Commencing with the Retainer for the third Accounting
Period during 1996, 50% of the Retainer established by the Board from time to
time shall be payable in cash and 50% of such Retainer shall be payable as
Required Retainer Shares payable on January 1 of the following year (unless
deferred in accordance with this Plan).
(b) Voluntary Shares. Prior to the commencement of any calendar
quarter, a Director may elect by the filing of a Participation Agreement to have
up to 100% of his or her Fees for such quarter paid bv the Company in the form
of Voluntary Shares and in lieu of the cash payment. Such Participation
Agreement must be filed as a one-time election. Such election, unless
subsequently terminated, shall apply to a Director's Fees for the remainder of
the current Plan Year and each subsequent Plan Year. Once an election has been
terminated another election may not be made.
(c) Issuance of Shares. On January 1 of each year beginning with
January 1, 1997, the Company shall issue (i) to each Director a number of
Required Retainer Shares equal to 50% of such Director's Retainer for each
Accounting Period during the prior Plan Year divided by the Fair Market Value
per Share on the first day of such Accounting Period and (ii) to each Director
who has made an election under Section 3.2(b) a number of Voluntary Shares for
each such Accounting Period equal to the portion of such Director's Fees in
excess of 50% of such Director's Retainer for such Accounting Period that such
Director has elected to receive as Voluntary Shares for such Accounting Period
divided by the Fair Market Value per Share on the first day of such Accounting
Period (less, in each case, the portion of the Required Retainer Shares and
Voluntary Shares the Director elected to defer under Section 4.3). To the extent
that the application of the foregoing formula would result in the issuance of
fractional Shares, no fractional Shares shall be issued, but instead, the
Company shall maintain two separate non-interest-bearing accounts for each
Director, which accounts shall be credited with the amount of any Required
Retainer Shares or Voluntary Shares, as the case may be, not convertible into
whole Shares, which amounts shall be combined with Required Retainer Shares and
Voluntary Shares, respectively, which are paid for the next following Plan Year.
When whole Shares are issued by the Company to the Director on January 1, the
amounts in such accounts shall be reduced by that amount which (when added to
the Required Retainer Shares and Voluntary Shares for such Director for such
quarter) results in the issuance of the maximum number of Shares to such
Director. The Company shall pay any and all fees and commissions incurred in
connection with the payment of Required Retainer Shares and Voluntary Shares to
a Director in Shares.
ARTICLE IV. DEFERRAL OF FEES, REQUIRED REQUIRED SHARES
AND VOLUNTARY SHARES
4.1 Deferral of Fees. A Director may elect to defer all or a specified
percentage of his or her Fees, and may change such percentage by filing a
Participation Agreement with the Administrator, which shall be effective as of
the first day of the Plan Year which commences after the date such Participation
Agreement is filed with the Administrator.
4.2 Crediting of Deferred Fees. The portion of a Director's Fees that
is deferred pursuant to a Deferral Commitment shall be credited promptly
following each Plan Year to the Director's Deferred Fee Account as of the date
the corresponding non-deferred portion of his or her Fees would have been paid
to the Director.
4.3 Deferral of Required Retainer Shares and Voluntary Shares. A
Director may elect to defer all or a specified percentage of his or her Required
Retainer Shares and his or her Voluntary Shares, and may change such percentage
by filing a Participation Agreement with the Administrator, which shall be
effective as of the first day of the Plan Year which commences after the date
such Participation Agreement is filed with the Administrator.
4.4 Crediting of Deferred Shares. The portion of a Directors Required
Retainer Shares and Voluntary Shares that is deferred pursuant to a Deferral
Commitment shall be credited promptly following each Plan Year to the Director's
Deferred Share Account as of the date the corresponding non-deferred portion of
his or her Required Retainer Shares and Voluntary Shares would have been issued
to the Director.
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<PAGE> 33
4.5 Withholding Taxes. If the Company is required to withhold any
taxes or other amounts from a Director's Deferred Fees or Deferred Shares
pursuant to any state, Federal or local law, such amounts shall, to the extent
possible, be deducted from the Director's Fees or Required Retainer Shares or
Voluntary Shares before such amounts are credited as described in Sections 4.2
and 4.4 above. Any additional withholding amount required shall be paid by the
Director to the Company as a condition of crediting his or her Accounts.
ARTICLE V. DEFERRED FEE ACCOUNT
5.1 Determination of Deferred Fee Account. On any particular date, a
Director's Deferred Fee Account shall consist of the aggregate amount credited
thereto pursuant to Section 4.2, plus any interest credited pursuant to Section
5.2, minus the aggregate amount of distributions, if any, made from such
Deferred Fee Account.
5.2 Crediting of Interest. Each Deferred Fee Account to which Fees have
been credited in dollar amounts shall be increased by the amount of interest
earned since the immediately preceding Accounting Date. Interest shall be
credited at the Declared Rate as of each Accounting Date based on the average
daily balance of the Director's Deferred Fee Account since the immediately
preceding Accounting Date, but after the Deferred Fee Account has been adjusted
for any contributions or distributions to be credited or deducted for such
period. Interest for the period prior to the first Accounting Date applicable to
a Deferred Fee Account shall be prorated.
5.3 Adjustments to Deferred Fee Accounts. Each Director's Deferred Fee
Account shall be immediately debited with the amount of anv distributions
under the Plan to or on behalf of the Director or, in the event of his or her
death, his or her Beneficiary.
5.4 Statements of Deferred Fee Accounts. As soon as practicable after
the end of each Plan Year, a statement shall be furnished to each Director or,
in the event of his or her death, to his or her Beneficiary showing the status
of his or her Deferred Fee Account as of the end of the Accounting Period, any
changes in such Account since the end of the immediately preceding Accounting
Period, and such other information as the Administrator shall determine.
5.5 Vesting of Deferred Fee Account. A Director shall be 100% vested in
his or her Deferred Fee Account at all times.
ARTICLE VI. DEFERRED SHARE ACCOUNT
6.1 Determination of Deferred Share Account. On any particular date, a
Director's Deferred Share Account shall consist of the aggregate number of
Deferred Shares credited thereto pursuant to Section 4.4, plus any dividend
equivalents credited pursuant to Section 6.2, minus the aggregate amount of
distributions, if any, made from such Deferred Share Account.
6.2 Crediting of Dividend Equivalents. Each Deferred Share Account
shall be credited as of the end of each Accounting Period with additional
Deferred Shares equal in value to the amount of cash dividends paid by the
Company during such Accounting Period on that number of Shares equivalent to the
number of Deferred Shares in such Deferred Share Account during such Accounting
Period. The dividend equivalents shall be valued by dividing the dollar value of
such dividend equivalents by the Fair Market Value on the Accounting Date next
following the dividend payment date. Until a Director or his or her Beneficiary
receives his or her entire Deferred Share Account, the unpaid balance thereof
credited in Deferred Shares shall be credited with dividend equivalents as
provided in this Section 6.2.
6.3 Adjustments to Deferred Share Accounts. Each Director's Deferred
Share Account shall be immediately debited with the amount of any distributions
under the Plan to or on behalf of the Director or, in the event of his or her
death, his or her Beneficiary.
6.4 Statements of Deferred Share Accounts. As soon as practicable after
the end of each Plan Year, a statement shall be furnished to each Director
or, in the event of his or her death, to his or her Beneficiary showing the
status of his or her Deferred Share Account as of the end of the Accounting
Period, any changes
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<PAGE> 34
in such Account since the end of the immediately preceding Accounting Period,
and such other information as the Administrator shall determine.
6.5 Vesting of Deferred Share Account. A Director shall be 100% vested
in his or her Deferred Share Account at all times.
ARTICLE VII. DISTRIBUTION OF BENEFITS
7.1 Settlement Date. A Director, or in the event of such Director's
death, his or her Beneficiary shall be entitled to all or a portion of the
balance in such Director's Deferred Fee Account and Deferred Share Account, as
provided in this Article VII, following such Director's Settlement Date or
Dates.
7.2 Amount to be Distributed. The amount to which a Director, or in the
event of such Director's death, his or her Beneficiary is entitled in accordance
with the following provisions of this Article VII shall be based on the
Director's adjusted balances in his or her Deferred Fee Account and Deferred
Share Account determined as of the Accounting Date coincident with or next
following his or her Settlement Date or Dates.
7.3 In-Service Distribution. A Director may irrevocably elect to
receive a pre-termination distribution of all or any specified percentage of
his or her Deferred Fees or Deferred Shares for any Plan Year on or commencing
not earlier than the beginning of the third Plan Year following the Plan Year
such Fees and Shares otherwise would have been payable. A Director's election of
a pre-termination distribution shall he made in a Participation Agreement filed
for the Plan Year as provided in Section 4.1 or Section 4.3. A Director shall
elect irrevocably to receive such Deferred Fees and/or Deferred Shares as a
pre-termination distribution under one of the forms provided in Section 7.4 or
Section 7.5.
7.4 Form of Distribution - Deferred Fees. As soon as practicable after
the end of the Accounting Period in which a Director's Settlement Date occurs,
but in no event later than thirty days following the end of such Accounting
Period, the Company shall distribute or cause to be distributed, to the Director
the balance of the Director's Deferred Fee Account as determined under Section
7.2, under one of the forms provided in this Section 7.4. Notwithstanding the
foregoing, if elected by the Director, the distribution of all or a portion of
the Director's Deferred Fee Account may be made or may commence at the
beginning of the Plan Year next following his or her Settlement Date. In the
event of a Director's death, the balance of his or her Deferred Fee Account
shall be distributed to his or her Beneficiary in a lump sum.
Distribution of a Director's Deferred Fee Account shall be made in one
of the following forms as elected by the Director.
(a) by payment in cash in a single lump sum;
(b) by payment in cash in not greater than ten annual
installments; or
(c) a combination of (a) and (b) above. The Director shall
designate the percentage payable under each option.
The Director's election of the form of distribution shall be made by written
notice filed with the Administrator at least one year prior to the Director's
voluntary retirement as a Director. Any such election may be changed by the
Director at any time and from time to time without the consent of any other
person by filing a later signed written election with the Administrator,
provided that any election made less than one year prior to the Director's
voluntary termination as a Director shall not be valid, and in such case payment
shall be made in accordance with the Director's prior election.
The amount of cash to be distributed in each installment shall be
equal to the quotient obtained by dividing the Director's Deferred Fee Account
balance as of the date of such installment payment by the number of installment
payments remaining to be made to or in respect of such Director at the time of
calculation.
If a Director falls to make an election in a timely manner as provided
in this Section 7.4, distribution shall be made in cash in a lump sum.
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7.5 Form of Distribution - Deferred Shares. As soon as practicable
after the end of the Accounting Period in which a Director's Settlement Date
occurs, but in no event later than thirty days following the end of such
Accounting Period, the Company shall distribute or cause to be distributed, to
the Director a number of Shares equal to the number of Deferred Shares in the
Director's Deferred Share Account as determined under Section 7.2, under one of
the forms provided in this Section 7.5. Notwithstanding the foregoing, if
elected by the Director, the distribution of all or a portion of the Director's
Deferred Share Account may be made or may commence at the beginning of the Plan
Year next following his or her Settlement Date. In the event of a Director's
death, the number of Shares equal to the number of Deferred Shares in his or her
Deferred Share Account shall be distributed to his or her Beneficiary in a
single distribution.
Distribution of a Director's Deferred Share Account shall be made in
one of the following forms as elected by the Director.
(a) by payment in Shares or cash in a single distribution;
(b) by payment in Shares or cash in not greater than ten annual
installments; or
(c) a combination of (a) and (b) above. The Director shall
designate the percentage payable under each option.
The Director's election of the form of distribution shall be made by written
notice filed with the Administrator at least one year prior to the Director's
voluntary retirement as a Director. Any such election may be changed by the
Director at any time and from time to time without the consent of any other
person by filing a later signed written election with the Administrator,
provided that any election made less than one year prior to the Director's
voluntary termination as a Director shall not be valid, and in such case
payment shall be made in accordance with the Director's prior election.
The number of Shares to be distributed in each installment shall be
equal to the quotient obtained by dividing the number of Deferred Shares in the
Director's Deferred Share Account as of the date of such installment payment by
the number of installment payments remaining to be made to or in respect of such
Director at the time of calculation. Fractional Shares shall be rounded down to
the nearest whole Share, and such fractional amount shall be re-credited as a
fractional Deferred Share in the Director's Deferred Share Account.
If a Director elects payment in a single distribution in cash, the
amount of the payout shall be equal to the Fair Market Value of the Deferred
Shares in the Director's Deferred Share Account on the Settlement Date. If such
Director elects payout in installments in cash, an amount equal to the Fair
Market Value of the Deferred Shares in the Director's Deferred Share Account on
the Settlement Date shall be transferred to the Director's Deferred Fee Account
pending distribution.
If a Director fails to make an election in a timely manner as provided
in this Section 7.5, distribution of the Director's Deferred Share Account shall
be made in Shares in a single distribution.
7.6 Special Distributions. Notwithstanding any other provision of this
Article VII, a Director may elect to receive a distribution of part or all of
his or her Deferred Fee Account and/or Deferred Share Account in one or more
distributions if (and only if) the amount in the Director's Deferred Fee Account
and/or the number of the Shares in the Director's Deferred Share Account subject
to such distribution is reduced by 10 percent. Any distribution made pursuant to
such an election shall be made within sixty days of the date such election is
submitted to the Administrator. The remaining 10 percent of the portion of the
electing Director's Deferred Fee Account and/or Deferred Share Account subject
to such distribution shall be forfeited.
7.7 Beneficiary Designation. As used in the Plan the term "Beneficiary"
means:
(a) The person last designated as Beneficiary by the Director in
writing on a form prescribed by the Administrator;
(b) If there is no designated Beneficiary or if the person so
designated shall not survive the Director, such Director's spouse; or
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<PAGE> 36
(c) If no such designated Beneficiary and no such spouse is
living upon the death of a Director, or if all such persons die prior
to the distribution of the Director's balance in his or her Deferred
Fee Account and Deferred Share Account, then the legal representative
of the last survivor of the Director and such persons, or, if the
Administrator shall not receive notice of the appointment of any such
legal representative within one year after such death, the heirs-at-law
of such survivor shall be the Beneficiaries to whom the then remaining
balance of such Accounts shall be distributed (in the proportions in
which they would inherit his or her intestate personal property).
Any Beneficiary designation may be changed from time to time by the filing of a
new form. No notice given under this Section 7.7 shall be effective unless and
until the Administrator actually receives such notice.
7.8 Facility of Payment. Whenever and as often as any Director or his
or her Beneficiary entitled to payments hereunder shall be under a legal
disability or, in the sole judgment of the Administrator, shall otherwise be
unable to apply such payments to his or her own best interests and advantage,
the Administrator in the exercise of its discretion may direct all or any
portion of such payments to be made in any one or more of the following ways:
(i) directly to him or her; (ii) to his or her legal guardian or conservator, or
(iii) to his or her spouse or to any other person, to be expended for his or her
benefit; and the decision of the Administrator, shall in each case be final and
binding upon all persons in interest.
ARTICLE VIII. ADMINISTRATION, AMENDMENT AND TERMINATION
8.1 Administration. The Plan shall be administered by the
Administrator. The Administrator shall have such powers as may be necessary to
discharge its duties hereunder. The Administrator may, from time to time,
employ, appoint or delegate to an agent or agents (who may be an officer or
officers of the Company) and delegate to them such administrative duties as it
sees fit, and may from time to time consult with legal counsel who may be
counsel to the Company. The Administrator shall have no power to add to,
subtract from or modify any of the terms of the Plan, or to change or add to any
benefits provided under the Plan, or to waive or fail to apply any requirements
of eligibility for a benefit under the Plan. No member of the Administrator
shall act in respect of his or her own Deferred Fee Account or his or her own
Deferred Share Account. All decisions and determinations by the Administrator
shall be final and binding on all parties. No member of the Administrator shall
be liable for any such action taken or determination made in good faith. All
decisions of the Administrator shall be made by the vote of the majority,
including actions and writing taken without a meeting. All elections, notices
and directions under the Plan by a Director shall be made on such forms as the
Administrator shall prescribe.
8.2 Amendment and Termination. The Board may alter or amend this Plan
from time to time or may terminate it in its entirety; provided, however, that
no such action shall, without the consent of a Director, affect the rights in
any Shares issued or to be issued to such Director, in any Deferred Shares in a
Director's Deferred Share Account or in any amounts in a Director's Deferred Fee
Account; and further provided, that, without further approval by the
shareholders of the Company no such action shall (a) increase the total number
of Shares available for issuance under this Plan specified in Article X or (b)
otherwise cause Rule 16b-3 to become inapplicable to this Plan.
ARTICLE IX. FINANCING OF BENEFITS
9.1 Financing of Benefits. The Shares and benefits payable in cash
under the Plan to a Director or, in the event of his or her death, to his or her
Beneficiary shall he paid by the Company from its general assets. The right to
receive payment of the Shares and benefits payable in cash represents an
unfunded, unsecured obligation of the Company. No person entitled to payment
under the Plan shall have any claim, right, security interest or other interest
in any fund, trust, account, insurance contract, or asset of the Company which
may be responsible for such payment.
9.2 Security for Benefits. Notwithstanding the provisions of Section
9.1, nothing in this Plan shall preclude the Company from setting aside Shares
or funds in trust ("Trust") pursuant to one or more trust agreements between a
trustee and the Company. However, no Director or Beneficiary shall have any
secured
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interest or claim in any assets or property of the Company or the Trust and all
Shares or funds contained in the Trust shall remain subject to the claims of the
Company's general creditors.
ARTICLE X. SHARES SUBJECT TO PLAN
10.1 Shares Subject to Plan. Subject to adjustment as provided in this
Plan, the total number of Shares which may be issued under this Plan shall be
50,000.
10.2 Adjustments. In the event of any change in the outstanding Shares
by reason of (a) any stock dividend, stock split, combination of shares,
recapitalization or any other change in the capital structure of the Company,
(b) any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing,
the number and kind of shares specified in Article III, the number or kind of
Shares that may be issued under the Plan as specified in Article X and the
number of Deferred Shares in a Director's Deferred Share Account shall
automatically be adjusted so that the proportionate interest of the Directors
shall be maintained as before the occurrence of such event. Such adjustment
shall be conclusive and binding for all purposes with respect to the Plan.
ARTICLE XI. PRIOR PLANS
11.1 1992 Incentive Equity Plan. No further options shall be issued to
the Directors under Section 8 of the Company's 1992 Incentive Equity Plan on or
after July 1, 1996.
11.2 Plan for Deferred Payment of Director's Fees. Upon the approval of
this Plan by the shareholders of the Company, the Prior Plan shall be
discontinued, except that any amount remaining payable to former Directors in
the Prior Plan shall be paid in accordance with its terms. Participants in the
Prior Plan who are currently Directors shall be covered by this Plan and the
bookkeeping entries representing Shares theretofore credited to the account of
any current Director in the Prior Plan prior to such discontinuance shall be
transferred to a Deferred Share Account for such Director. Any deferral
election by a Director in force under the Prior Plan shall continue in effect
in accordance with its terms.
ARTICLE XII. GENERAL PROVISIONS
12.1 Interests Not Transferable; Restrictions on Shares and Rights to
Shares. No rights to Shares or other benefits payable in cash shall be assigned,
pledged, hypothecated or otherwise transferred by a Director or any other
person, voluntarily or involuntarily, other than (i) by will or the laws of
descent and distribution, or (ii) pursuant to a domestic relations order meeting
the definition of a qualified domestic relations order under the Code. No person
shall have any right to commute, encumber, pledge or dispose of any other
interest herein or right to receive payments hereunder, nor shall such interests
or payments be subject to seizure, attachment or garnishment for the payments of
any debts, judgments, alimony or separate maintenance obligations or be
transferable by operation of law in the event of bankruptcy, insolvency or
otherwise, all payments and rights hereunder being expressly declared to be
nonassignable and nontransferable.
12.2 Governing Law. The provisions of this Plan shall be governed by
and construed in accordance with the laws of the State of Ohio.
12.3 Withholding Taxes. To the extent that the Company is required to
withhold Federal, state or local taxes in connection with any component of a
Director's compensation in cash or Shares and the amounts available to the
Company for such withholding are insufficient, it shall be a condition to the
receipt of any Shares that the Director make arrangements satisfactory to the
Company for the payment of the balance of such taxes required to be withheld,
which arrangement may include relinquishment of the Shares. The Company and a
Director may also make similar arrangements with respect to payment of any other
taxes derived from or related to the payment of Shares with the respect to which
withholding is not required.
12.4 Rule 16b-3. This Plan is intended to comply with Rule 16b-3 as in
effect prior to May 1, 1991. The Administrator may, however, elect at any time
to have some other version of Rule 16b-3 apply if permitted by
9
<PAGE> 38
applicable law. If at any time Rule 16b-3 as promulgated on February 8, 1991 or
at any later date shall become applicable to the Plan, if necessary for
acquisition of Shares under the Plan to continue to be exempt under Rule 16b-3,
no election to have Fees paid in Shares shall become effective pursuant to
Section 3.2 (b) hereof until 6 months after such election is made. In addition,
the Board may make such other changes in the terms or operation of the Plan as
may then be necessary or appropriate to comply with such Rule including,
without limitation, by eliminating any restriction originally included in the
Plan to comply with Rule 16b-3 that may no longer be required. Without limiting
the generality of the foregoing, the Board may change the number of Restricted
Shares to be awarded under Section 3.1 from time to time if such change would
not cause Directors participating in the Plan to cease to be "disinterested
persons" within the meaning of Rule 16b-3, and the Board may provide for annual
election of Voluntary Shares pursuant to Section 3.2 if such election would be
permitted by Rule 16b-3.
12.5 Miscellaneous. Headings are given to the sections of this Plan
soley as a convenience to facilitate reference. Such headings, numbering an
paragraphing shall not in any case be deemed in any way material or relevant to
the construction of this Plan or any provision thereof. The use of the singular
shall also include within its meaning the plural, and vice versa.
10
<PAGE> 1
Exhibit 10(x)
Severance Pay Plan for
Key Employees of Cleveland-Cliffs Inc
-------------------------------------
1. GENERAL STATEMENT OF PURPOSE. With the high level of corporate acquisition
and restructuring activity over the past several years, employees are
understandably concerned about their careers and their personal financial
security. As a result, even rumors of acquisitions and restructuring cause
employees to consider major career changes in an effort to assure financial
security for themselves and their families.
This Severance Pay Plan for Key Employees of Cleveland-Cliffs Inc (the
"Plan") is designed to assure fair treatment of Key Employees (as defined
below) in the event of a Change of Control (as defined below). In such
circumstances, it would permit Key Employees to make critical career
decisions in an atmosphere free of time pressure and financial uncertainty,
increasing their willingness to remain with Cleveland-Cliffs Inc
("Cleveland-Cliffs") notwithstanding the outcome of a possible Change of
Control transaction.
2. EFFECTIVE AND TERMINATION 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.
3. DEFINITIONS.
a. Average Incentive Pay. The term "Average Incentive Pay" shall mean an
amount which is the greater of (1) the average amount of Incentive Pay
awarded to the Key Employee for the three calendar years immediately
prior to the Key Employee's termination of employment, or (2) the
amount of the most recent award of Incentive Pay.
b. Base Salary. The term "Base Salary" shall mean, with respect to each
Key Employee, the annual base compensation of such Key Employee at the
rate in effect immediately prior to the Change of Control, or at such
higher rate as may be in effect immediately prior to the Key
Employee's termination of employment.
c. Change of Control. The term "Change of Control" shall mean the
occurrence of any of the following events:
(1) Cleveland-Cliffs shall merge into itself, or be merged or
consolidated with, another corporation and as a result of such merger
or consolidation less than
<PAGE> 2
2
70% of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former
shareholders of Cleveland-Cliffs as the same shall have existed
immediately prior to such merger or consolidation;
(2) Cleveland-Cliffs shall sell or transfer to one or more persons,
corporations or entities, in a single transaction or a series of
related transactions, more than one-half of the assets accounted for
on the Statement of Consolidated Financial Position of
Cleveland-Cliffs as "properties" or "investments in associated
companies" (or such replacements for these accounts as may be adopted
from time to time) unless by an affirmative vote of two-thirds of the
members of the Board of Directors, the transaction or transactions are
exempted from the operation of this provision based on a good faith
finding that the transaction or transactions are not within the
intended scope of this definition for purposes of this instrument;
(3) A person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on the date hereof) of the Securities Exchange
Act of 1934, shall become the beneficial owner (as defined in Rule
13d-3 of the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934) of 30% or more of the outstanding
voting securities of Cleveland-Cliffs (whether directly or
indirectly); or
(4) During any period of three consecutive years, including, without
limitation, the year 1991, individuals who at the beginning of any
such period constitute the Board of Directors of Cleveland-Cliffs
cease, for any reason, to constitute at least a majority thereof,
unless the election, or the nomination for election by the
shareholders of Cleveland-Cliffs, of each Director first elected
during any such period was approved by a vote of at least one-third of
the Directors of Cleveland-Cliffs who are Directors of
Cleveland-Cliffs on the date of the beginning of any such period.
d. Committee. The term "Committee" shall mean the Compensation Committee
of the Board of Directors of Cleveland-Cliffs.
e. Company. The term "Company" shall mean, with respect to a Key
Employee, Cleveland-Cliffs or the Selected Affiliate which pays such
Key Employee's compensation.
<PAGE> 3
3
f. For Cause. The term "For Cause" shall mean an act that is materially
inimical to the best interests of the Company and that constitutes on
the part of the Key Employee common law fraud, a felony, or other
gross malfeasance of duty.
g. Incentive Pay. The term "Incentive Pay" shall mean the annual
compensation and awards allocated to a Key Employee pursuant to any
incentive compensation plans and arrangements of the Company
including, but not limited to, the Incentive Bonus Plan and the 1987
Incentive Equity Plan.
h. Industry Service and Credited Years of Industry Service. The term
"Industry Service" shall mean professionally related service, prior to
the Key Employee's employment by the Company, by a Key Employee as an
employee within the iron and steel industry or an industry to which
such Key Employee's position with the Company relates. A Key Employee
shall be given credit for one year of Industry Service for every two
years of service with the Company, as designated in the case of each
Key Employee in writing by, or in minutes of the actions of, the
Committee, and such years of credited Industry Service shall be
defined as "Credited Years of Industry Service".
i. Key Employee. The term "Key Employee" shall mean any employee of the
Company who, at the time of the Change of Control, holds a position as
(1) a Senior Vice President, Vice President or Secretary of
Cleveland-Cliffs, or (2) a mine manager. Notwithstanding the
foregoing, employees who would otherwise be Key Employees shall not be
Key Employees for purposes of this Plan if they have entered into an
Employment Agreement or similar arrangement with the Company providing
for the payment of severance compensation in specified circumstances
following a Change of Control. In addition, Key Employee shall include
such other employees of the Company as shall be designated in writing
by, or in minutes of the actions of, the Committee.
j. Selected Affiliate. The term "Selected Affiliate" means (1) any
corporation in an unbroken chain of corporations beginning with
Cleveland-Cliffs if each of the corporations other than the last
corporation in the chain owns or controls, directly or indirectly,
stock possessing not less than 50 percent of the total combined voting
power of all classes of stock in one of the other corporations, or (2)
any partnership or joint venture in which one or more of such
corporations is a partner or venturer, each of which shall be selected
by the Committee.
<PAGE> 4
4
k. Supplemental Retirement Plan or SRP. The term "Supplemental Retirement
Plan" or "SRP" shall mean the Cleveland-Cliffs Inc Supplemental
Retirement Benefit Plan (As Amended and Restated Effective January 1,
1991).
4. ELIGIBILITY UNDER THIS PLAN.
a. Subject to the limitations described below, this Plan applies to Key
Employees who are employed on the date that a Change of Control
occurs. The Company reserves the right, at any time prior to the
occurrence of a Change of Control, to amend, modify, change or
terminate this Plan with or without notice or any liability to Key
Employees. This Plan shall not be amended, modified, changed or
terminated after the occurrence of a Change of Control without the
written consent of each Key Employee.
b. A Key Employee will be eligible for Severance Compensation and other
benefits under this Plan if, within three years after the occurrence
of a Change of Control:
(1) The Key Employee's employment with the Company is terminated by
the Company other than For Cause.
(2) The Key Employee voluntarily terminates his or her employment
with the Company following the occurrence of any of the following
events:
(i) The failure to elect, reelect or otherwise maintain the Key
Employee in the office or position in the Company which the
Key Employee held immediately prior to the Change of
Control;
(ii) A reduction in the Key Employee's Base Salary in effect
immediately prior to the Change of Control, or a reduction
in the Key Employee's opportunity for Incentive Pay
(including, but not limited to, a reduction in the target
bonus percentage applicable to the Key Employee immediately
prior to the Change of Control) or a reduction or
termination of any benefits described in Section 5.b. hereof
to which the Key Employee was entitled immediately prior to
the Change of Control;
<PAGE> 5
5
(iii) A determination by the Key Employee made in good faith that
as a result of the Change of Control and a change in
circumstances thereafter significantly affecting his or her
position, including without limitation a change in the scope
of the business or other activities for which he or she was
responsible immediately prior to the Change of Control, he
or she has been rendered substantially unable to carry out,
has been substantially hindered in the performance of, or
has suffered a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties
attached to the position held by the Key Employee
immediately prior to the Change of Control;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of Cleveland-Cliffs or the transfer of all or
a significant portion of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization or otherwise) to which all or
a significant portion of its business and/or assets have
been transferred (directly or by operation of law) shall
have assumed all duties and obligations of the Company under
this Plan pursuant to Section 15 hereof; or
(v) The Company relocates its principal executive offices,
requires the Key Employee to change his or her principal
location of work to any location which is in excess of 25
miles from the location thereof immediately prior to the
Change of Control, or requires the Key Employee to travel
away from his or her office in the course of discharging his
or her responsibilities or duties hereunder significantly
more (in terms of either consecutive days or aggregate days
in any calendar year) than was required of him or her prior
to the Change of Control, without, in any case, his or her
prior written consent.
5. SEVERANCE COMPENSATION.
a. Severance Pay. Each Key Employee who is terminated in accordance with
Section 4.b. shall, within five business days after such termination:
<PAGE> 6
6
(1) Receive severance pay from the Company in a lump sum payment (the
"Severance Payment") in an amount equal to the present value (using a
discount rate prescribed for purposes of valuation computations under
Section 280G of the Internal Revenue Code of 1986 as amended (the
"Code") or any successor provision thereto or if no such rate is so
prescribed, a rate equal to the then applicable interest rate
prescribed by the Pension Benefit Guaranty Corporation for benefit
valuations in connection with non-multiemployer pension plan
terminations assuming the immediate commencement of benefit payments
(the "Discount Rate") equivalent to:
(i) For a Key Employee who is a corporate officer of Cleveland-Cliffs
at the senior vice presidential level or higher, the sum of his
or her Base Salary multiplied by two plus his or her Average
Incentive Pay multiplied by two.
(ii) For a Key Employee other than one described in subparagraph
a.(1)(i) of this Section 5, the sum of his or her Base Salary
multiplied by one plus his or her Average Incentive Pay
multiplied by one.
(2) Receive from the Company a lump sum payment (the "SRP Payment") in an
amount equal to the sum of the future pension benefits (converted to a
lump sum of actuarial equivalence) which the Key Employee would have
been entitled to receive under the SRP, as the same may be further
amended prior to a Change of Control and as modified by Section 6
hereof (assuming Base Salary at the rate in effect immediately prior
to the termination of employment and Incentive Pay equivalent to the
amount of Average Incentive Pay), if the Key Employee had remained in
the full-time employment of the Company until the expiration of the
third anniversary of the occurrence of the Change of Control.
The calculation of the SRP Payment and its actuarial equivalence shall
be made as of the date the Key Employee is terminated. The lump sum of
actuarial equivalence shall be calculated as of the third anniversary
of the occurrence of the Change of Control using the assumptions and
factors used in the SRP, and such sums shall be discounted to the date
of payment using the Discount Rate.
<PAGE> 7
7
Payment of the SRP Payment by the Company shall be deemed to be a
satisfaction of all obligations of the Company to the Key Employee
under the SRP.
b. Health and Life Benefits. Each Key Employee who is terminated in accordance
with Section 4.b., and his or her eligible dependents, will receive
continued health and life insurance benefits as follows:
(1) A Key Employee described in Section 5.a.(1)(i) will be covered under
the health and life insurance plans that covered him or her
immediately before the date of termination until the earlier of (i)
the expiration of the second anniversary of the date of termination,
or (ii) the date upon which the Key Employee becomes eligible for
health and life insurance benefits as a result of subsequent
employment.
(2) A Key Employee described in Section 5.a.(1)(ii) will be covered
under the health and life insurance plans that covered him or her
immediately before the date of termination until the earlier of (i)
the expiration of the first anniversary of the date of termination or
(ii) the date upon which the Key Employee becomes eligible for health
and life insurance benefits as a result of subsequent employment.
c. Welfare Benefit Continuation Following Termination. Each Key Employee who
is terminated in accordance with Section 4.b. hereof shall, upon the
earlier to occur of (1) the date upon which the Key Employee would have
otherwise reached 30 years of continuous service with the Company but for
his or her termination of employment after the Change of Control, or (2)
the date upon which the sum of the Key Employee's years of continuous
service with the Company that the Key Employee would have attained as of
the third anniversary of the Change of Control (but for his or her
termination of employment) and the Key Employee's Credited Years of
Industry Service (as defined in Section 3.h. hereof), is equal to 30 years,
receive the following post-retirement welfare benefits:
(i) medical, hospital, surgical and prescription drug coverage,
equivalent to that presently furnished by the Company to officers
who retire after January 1, 1990 for the lifetime of the Key
Employee and the lifetime of his or her spouse, and to the Key
Employee's eligible dependents for their periods of eligibility,
through insurance or otherwise;
<PAGE> 8
8
(ii) life insurance on the Key Employee, to the Key Employee during
his or her retirement, equivalent to that presently furnished by
the Company to officers who retire after January 1, 1990; and
(iii) without otherwise limiting the purposes or effect of this
Section 5.c. hereof, welfare benefits payable to the Key Employee
or his or her spouse or dependents pursuant to this Section 5.c.
shall be reduced to the extent comparable welfare benefits are
payable pursuant to Section 5.b. hereof or are actually received
by the Key Employee or his or her spouse or dependents from
another employer of the Key Employee.
d. Stock Options and Restricted Stock. Upon a Key Employee's termination
in accordance with Section 4.b., all stock options granted under the
1979 Restricted Stock Plan, the 1987 Incentive Equity Plan, the 1992
Incentive Equity Plan, or any successor plan or similar plan, shall be
vested, and the restrictions on any restricted stock awarded under the
1979 Restricted Stock Plan, the 1987 Incentive Equity Plan, the 1992
Incentive Equity Plan, or any successor plan or similar plan, shall be
released.
e. Outplacement Counseling. Each Key Employee who is terminated in
accordance with Section 4.b. shall be reimbursed by the Company for
reasonable expenses incurred for outplacement counseling (1) which are
pre-approved by Cleveland-Cliffs Chief Human Resources Officer, (2)
which do not exceed 15% of the Key Employee's Base Salary, and (3)
which are incurred by the Key Employee within six months following
such termination.
f. Calculation. The calculation of all payments of compensation and other
benefits to be provided to each affected Key Employee under this Plan
shall be made by Hewitt Associates ("Hewitt"), or such other actuarial
firm selected by Cleveland-Cliffs' independent accountants and
satisfactory to each affected Key Employee. The Company shall provide
to such actuarial firm all information requested by such actuarial
firm as necessary for or helpful to it to make the calculations
hereunder.
6. SUPPLEMENTAL RETIREMENT BENEFIT PLAN. The Company hereby waives the
discretionary right, at any time subsequent to the date of a Change of
Control, to amend or terminate the SRP as to the Key Employee as provided
in paragraph 8
<PAGE> 9
9
thereof or to terminate the rights of the Key Employee or his or her
beneficiary under the SRP in the event the Key Employee engages in a
competitive business as provided in any plan or arrangement between the
Company and the Key Employee, including but not limited to, provisions of
paragraph 4 of the SRP, or any similar provisions of any such plan or
arrangement or other plan or arrangement supplementing or superseding the
same. The Company agrees that in consideration for each Key Employee's
continuing to perform services for the Company, this Section 6 shall
constitute a "Supplemental Agreement", as defined in paragraph 1.K of the
SRP, between the Company and each such Key Employee. If, within three years
after the occurrence of a Change of Control, (1) the Company shall
terminate the Key Employee's employment other than For Cause, or (2) the
Key Employee shall terminate his or her employment pursuant to Section
4.b.(2) hereof, for purposes of computing the Key Employee's period of
continuous service and of calculating and paying his or her benefit under
the SRP:
a. The Key Employee shall be credited with years of continuous service at
the time of his or her termination of employment with the Company (by
death or otherwise) equal to the number of years of continuous service
he or she would have had if he or she had continued his or her
employment with the Company until the expiration of the third
anniversary of the occurrence of the Change of Control, and had he or
she attained his or her chronological age at the expiration of the
third anniversary of the occurrence of the Change of Control. In
addition, the Key Employee shall be eligible for a 30-year pension
benefit based upon his or her years of continuous service as computed
under the preceding sentence. The Key Employee shall be eligible to
commence the 30-year pension benefit on the earlier of (1) the date
upon which the Key Employee would have otherwise reached 30 years of
continuous service with Cleveland-Cliffs and any Selected Affiliate
but for his or her termination of employment after the Change of
Control, or (2) the date upon which the sum of the Key Employee's
years of continuous service (as computed in the first sentence of this
subparagraph a.) and his or her Credited Years of Industry Service (as
defined in Section 3.h. hereof) is equal to 30 years.
b. The Key Employee shall be a "Participant" in the SRP, notwithstanding
any limitations therein.
A copy of the SRP is attached to this Agreement as Exhibit A. The SRP is
incorporated in all respects herein; provided, however, that the terms of this
Agreement shall take precedence to the extent they are contrary to provisions
contained in the SRP.
<PAGE> 10
10
7. LIMITATION AND INDEMNIFICATION.
a. Notwithstanding anything in this Plan to the contrary, the Company
shall not be obligated to pay to any Key Employee any amount of money,
or provide the Key Employee with any benefits, which are in excess of
the then maximum amount which the Company can deduct for Federal
income tax purposes.
b. Without limiting the generality of paragraph a. of this Section 7, if
any Key Employee is a "disqualified individual", as defined in Section
280G(c) of the Code, the present value of payments under this Plan
made to the Key Employee shall not in the aggregate be greater than
the excess, if any, of (1) 299% of the Key Employee's "base amount",
as determined under Section 280G of the Code, or any successor
provision thereto, over (2) the aggregate present value of all
payments in the nature of compensation (other than the payments under
this Agreement) to or for the Key Employee's benefit that are
considered "contingent on a change" in ownership or control of the
Company as determined under Section 280G(b)(2) of the Code, or any
successor provision thereto. If the application of the preceding
sentence should require a reduction in benefits, such reduction shall
be implemented first, by reducing any non-cash benefits to the extent
necessary, and second, by reducing any cash benefits to the extent
necessary. In each case, the reductions shall be made starting with
the latest payment or benefit. In no event, however, will any benefit
be reduced to the extent such benefit is specifically excluded by
Section 280G(b) of the Code as a "parachute payment" or as an "excess
parachute payment". Any decisions regarding the requirement or
implementation of such reductions shall be made by Jones, Day, Reavis
& Pogue or such other tax counsel selected by the Company's
independent accountants and acceptable to the Executive.
c. Unless otherwise prohibited by applicable law, if, notwithstanding the
application of paragraph b. of this Section 7, an amount paid to the
Key Employee under this Plan is subject to the excise tax imposed by
Section 4999 of the Code, or any successor provision thereto, the
Company shall pay to the Key Employee an additional amount in cash
(the "Additional Payment") equal to the amount necessary to cause the
aggregate remuneration received by the Key Employee under this Plan,
including such additional cash payment (net of all federal, state and
local income taxes and all taxes payable as the result of the
application of Sections 280G and 4999 of the Code or
<PAGE> 11
11
any successor provision thereto) to be equal to the aggregate
remuneration the Key Employee would have received, excluding such
Additional Payment (net of all federal, state and local income taxes),
as if Section 280G and 4999 (and any successors thereto) had not been
enacted into law.
8. MITIGATION. A Key Employee shall not be required to mitigate the amount of
any payment or benefit provided for in this Plan by seeking other
employment or otherwise.
9. TIMING OF SEPARATION PAY, ETC. Separation Pay and the Additional Payment
are not included as earnings for the purpose of calculating benefits under
any employee benefit plan of the Company. The Separation Pay and the
Additional Payment shall not be made from any benefit plan funds, and shall
constitute an unfunded unsecured obligation of the Company. Separation Pay
and the Additional Payment shall be paid in a lump sum on the date of
termination or promptly thereafter. Upon the request of the Key Employee
and at the option of the Company, Separation Pay may be paid in two equal
installments with the first installment to be made at the time of
termination, and the second installment to be made on the January 1st
immediately after the date of termination. Separation Pay and the
Additional Payment shall be net of any income, excise or employment taxes
which are required to be withheld from such payment.
10. CONFIDENTIALITY AND COMPETITIVE ACTIVITY. Payment of the severance pay and
benefits set forth in Sections 5 and 6 hereof to a Key Employee is
conditioned upon the Key Employee agreeing in writing with the Company
that:
a. All trade secrets, customer lists, and other confidential business
information are the exclusive property or the Company, and the Key
Employee shall not at any time directly or indirectly reveal or cause
to be revealed to any person or entity such trade secrets, customer
lists and other confidential business information obtained as a result
of the Key Employee's employment or relationship with the Company.
b. For a period of twelve (12) months from and after any termination of
employment following a Change of Control, the Key Employee shall not
become an officer, director, joint venturer, employee, consultant,
5-percent or more shareholder (directly or indirectly) of, or promote
or assist (financially or otherwise), any entity which competes in any
business in which the Company or any of its affiliates are engaged as
of the date of the Change of Control. For this purpose, business is
defined as the iron and steel industry.
<PAGE> 12
12
11. RELEASE. Payment of the severance pay and benefits set forth in Sections 5
and 6 hereof to a Key Employee is conditioned upon the Key Employee
executing and delivering a release satisfactory to the Company releasing
Cleveland-Cliffs and each Selected Affiliate from any and all claims,
demands, damages, actions and/or causes of action whatsoever, which he or
she may have had on account of the termination of his or her employment,
including, but not limited to claims of discrimination, including on the
basis of sex, race, age, national origin, religion, or handicapped status
(with all applicable periods during which the Key Employee may revoke the
release or any provision thereof having expired), and any and all claims,
demands and causes of action for retirement (other than under the Pension
Plan for Salaried Employees of Cleveland-Cliffs Inc or under any "welfare
benefit plan" of the Company (as the term "welfare benefit plan" is defined
in Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended)), severance or other termination pay, and because, pursuant to
Section 5.a, the Key Employee is entitled to lump sum payments of Incentive
Pay and benefits under the SRP, under the SRP and under the incentive
compensation plans and arrangements of the Company described in Section
3.d. Such release shall not, however, apply to the ongoing obligations of
the Company arising under this Plan, or rights of indemnification the Key
Employee may have under Cleveland-Cliffs' Regulations or by contract or by
statute.
12. LEGAL FEES AND EXPENSES.
a. It is the intent of the Company that no Key Employee be required to
incur the expenses associated with the enforcement of his or her
rights under this Plan by litigation or other legal action because the
cost and expense thereof would substantially detract from the benefits
intended to be extended to the Key Employee hereunder. Accordingly, if
it should appear to the Key Employee that the Company has failed to
comply with any of its obligations under this Plan or in the event
that the Company or any other person takes any action to declare this
Plan void or unenforceable, or institutes any litigation designed to
deny, or to recover from, the Key Employee the benefits intended to be
provided to the Key Employee hereunder, the Company irrevocably
authorizes the Key Employee from time to time to retain counsel of his
or her choice, at the expense of the Company as hereafter provided, to
represent the Key Employee in connection with the initiation or
defense of any litigation or other legal action, whether by or against
the Company or any Director, officer, stockholder or other person
affiliated with the Company in any jurisdiction.
<PAGE> 13
13
Notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company irrevocably consents
to the Key Employee's entering into an attorney-client relationship
with such counsel, and in that connection the Company and the Key
Employee agree that a confidential relationship shall exist between
the Key Employee and such counsel. The Company shall pay or cause to
be paid and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Key Employee as a result of
the Company's failure to perform under this Plan or any provision
hereof or as a result of the Company or any person contesting the
validity or enforceability of this Plan or any provision hereof as
aforesaid; or as a result of the Company or any person contesting the
validity or enforceability of this Plan or any provision thereof.
b. To ensure that the provisions of this Plan can be enforced by the Key
Employee, a trust arrangement ("Trust No. 2") has been established
between Ameritrust Company National Association, as Trustee
("Trustee"), and Cleveland-Cliffs. The Trust Agreement No. 2 ("Trust
Agreement No. 2") dated October 28, 1987, as amended and/or restated,
between the Trustee and Cleveland-Cliffs is attached as Exhibit B and
shall be considered a part of this Plan and shall set forth the terms
and conditions relating to payment under Trust Agreement No. 2 for
attorneys' fees and related fees and expenses pursuant to Section
12.a. hereof owed by the Company. The Key Employee shall make demand
on the Company for any payments due the Key Employee pursuant to
Section 12.a. hereof prior to making demand therefor on the Trustee
under Trust Agreement No. 2. Payments by such Trustee shall discharge
the Company's liability under Section 12.a. hereof only to the extent
that trust assets are used to satisfy such liability.
c. Upon the earlier to occur of (1) a Change of Control or (2) a
declaration by the Board of Directors of Cleveland-Cliffs that a
Change of Control is imminent, Cleveland-Cliffs shall promptly to the
extent it has not previously done so, and in any event within five (5)
business days, transfer to the Trustee to be added to the principal of
the Trust under Trust Agreement No. 2 the sum of TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000) less any principal in such Trust as of the
date of such transfer. Any payments of attorneys' and related fees and
expenses by the Trustee pursuant to Trust Agreement No. 2 shall, to
the extent thereof, discharge the Company's obligation hereunder, it
being the intent of Cleveland-Cliffs that assets in such
<PAGE> 14
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Trust be held as security for the Company's obligation under Section
12.a. hereof. The Key Employee understands and acknowledges that the
entire corpus of the Trust under Trust Agreement No. 2 will be
$250,000 and that said amount will be available to discharge not only
the obligations of the Company to the Key Employee under Section 12.a.
hereof, but also similar obligations of the Company to other employees
under similar provisions.
13. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Plan shall create
any right or duty on the part of the Company or the Key Employee to have
the Key Employee remain in the employment of the Company at any time prior
to a Change of Control. The Key Employee is an employee at will, and
following a Change of Control the Company may terminate him or her at any
time for any reason if the Company pays the Severance Compensation provided
for under Section 5 of this Plan.
14. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable
under this Plan all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
15. SUCCESSORS AND BINDING EFFECT.
a. The Company shall require any successor, (including without limitation
any persons acquiring directly or indirectly all or substantially all
of the business and/or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise, and such successor
shall thereafter be deemed the Company for the purposes of this Plan),
to assume and agree to perform the obligations under this Plan in the
same manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan shall be
binding upon and inure to the benefit of the Company and any successor
to the Company, but shall not otherwise be assignable, transferable or
delegable by the Company.
b. The rights under this Plan shall inure to the benefit of and be
enforceable by the Key Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees and/or
legatees.
c. The rights under this Plan are personal in nature and neither the
Company nor any Key Employee shall, without the consent of the other,
assign, transfer or delegate this Plan or any rights or obligations
hereunder except as expressly provided in this Section 15. Without
limiting the generality of the foregoing,
<PAGE> 15
15
a Key Employee's right to receive payments hereunder shall not be
assignable, transferable or delegable, whether by pledge, creation of
a security interest or otherwise, other than by a transfer by his or
her will or by the laws of descent and distribution and, in the event
of any attempted assignment or transfer contrary to this Section 15,
the Company shall have no liability to pay any amount so attempted to
be assigned, transferred or delegated.
d. The obligation of the Company to make payments and/or provide benefits
hereunder shall represent an unsecured obligation of the Company.
e. The Company and each Key Employee recognize that each party will have
no adequate remedy at law for breach by the other of any of the
agreements contained herein and, in the event of any such breach, the
Company and each Key Employee hereby agree and consent that the other
shall be entitled to a decree of specific performance, mandamus or
other appropriate remedy to enforce performance of obligations under
this Plan.
16. GOVERNING LAW. The validity, interpretation, construction and performance
of this Plan shall be governed by the laws of the State of Ohio, without
giving effect to the principles of conflict of laws of such State.
17. VALIDITY. If any provision of this Plan or the application of any provision
hereof to any person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Plan and the application of such
provision to any other person or circumstances shall not be affected, and
the provision so held to be invalid, unenforceable or otherwise illegal
shall be reformed to the extent (and only to the extent) necessary to make
it enforceable, valid and legal.
18. CAPTIONS. The captions in this Plan are for convenience of reference only
and do not define, limit or describe the scope or intent of this Plan or
any part hereof and shall not be considered in any construction hereof.
19. ADMINISTRATION OF PLAN.
a. In General. The Plan shall be administered by Cleveland-Cliffs, which
shall be the named fiduciary under the Plan. Cleveland-Cliffs shall
have the sole and absolute discretion to interpret where necessary all
provisions of the Plan (including, without limitation, by supplying
omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan), to
<PAGE> 16
16
determine the rights and status under the Plan of Key Employees or
other persons, to resolve questions or disputes arising under the plan
and to make any determinations with respect to the benefits payable
hereunder and the persons entitled thereto as may be necessary for the
purposes of the Plan. Without limiting the generality of the
foregoing, Cleveland-Cliffs is hereby granted the authority (1) to
determine whether a particular employee is a "Key Employee" under the
Plan, and (2) to determine whether a particular Key Employee is
eligible for Severance Compensation and other benefits under the Plan.
b. Delegation of Duties. Cleveland-Cliffs may delegate any of its
administrative duties, including, without limitation, duties with
respect to the processing, review, investigation, approval and payment
of Severance Compensation and Additional Payments, to a named
administrator or administrators.
c. Regulations. Cleveland-Cliffs shall promulgate any rules and
regulations it deems necessary in order to carry out the purposes of
the Plan or to interpret the terms and conditions of the Plan;
provided, however, that no rule, regulation or interpretation shall be
contrary to the provisions of the Plan.
d. Claims Procedure. Cleveland-Cliffs shall determine the rights of any
employee of the Company to any Severance Compensation or an Additional
Payment hereunder. Any employee or former employee of the Company who
believes that he or she is entitled to receive Severance Compensation
or an Additional Payment under the Plan, including other than that
initially determined by Cleveland-Cliffs, may file a claim in writing
with the Cleveland-Cliffs' Chief Human Resources Officer.
Cleveland-Cliffs shall, no later than 90 days after the receipt of a
claim, either allow or deny the claim by written notice to the
claimant. If a claimant does not receive written notice of
Cleveland-Cliffs' decision on his or her claim within such 90-day
period, the claim shall be deemed to have been denied in full.
A denial of a claim by Cleveland-Cliffs, wholly or partially, shall be
written in a manner calculated to be understood by the claimant and
shall include:
(1) the specific reason or reasons for the denial;
(2) specific reference to pertinent Plan provisions on which the
denial is based;
<PAGE> 17
17
(3) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(4) an explanation of the claim review procedure.
A claimant whose claim is denied (or his or her duly authorized
representative) may, within 30 days after receipt of denial of his or her
claim, request a review of such denial by Cleveland-Cliffs by filing with
the Secretary of Cleveland-Cliffs a written request for review of his or
her claim. If the claimant does not file a request for review with
Cleveland-Cliffs within such 30-day period, the claimant shall be deemed to
have acquiesced in the original decision of the Company on his or her
claim. If a written request for review is so filed within such 30-day
period, Cleveland-Cliffs shall conduct a full and fair review of such
claim. During such full review, the claimant shall be given the opportunity
to review documents that are pertinent to his or her claim and to submit
issues and comments in writing and, if he or she requests a hearing, to
present his or her case in person at a hearing scheduled by
Cleveland-Cliffs. Cleveland-Cliffs shall notify the claimant of its
decision on review within 60 days after receipt of a request for review.
Notice of the decision on review shall be in writing. If the decision on
review is not furnished to the claimant within such 60-day period, the
claim shall be deemed to have been denied on review.
e. Revocability of Action. Any action taken by Cleveland-Cliffs with respect
to the rights or benefits under the Plan of any employee shall be revocable
by Cleveland-Cliffs as to payments or distributions not yet made to such
person, and acceptance of Severance Compensation or an Additional Payment
under the Plan constitutes acceptance of and agreement to Cleveland-Cliffs
making any appropriate adjustments in future payments or distributions to
such person to offset any excess or underpayment previously made to him or
her.
f. Execution of Receipt. Upon receipt of any Severance Compensation or an
Additional Payment hereunder, Cleveland-Cliffs reserves the right to
require any Key Employee to execute a receipt evidencing the amount and
payment of such Severance Compensation and/or Additional Payment.
<PAGE> 18
8266Q
Exhibits Intentionally Omitted
<PAGE> 1
Exhibit 10(z)
CLEVELAND-CLIFFS INC
--------------------
VOLUNTARY NON-QUALIFIED
DEFERRED COMPENSATION PLAN
(AMENDED AND RESTATED AS OF DECEMBER 1, 1996)
---------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
---------
PURPOSE
-------
1.1 Statement of Purpose; Effective Date................................. 1
ARTICLE II
----------
DEFINITIONS
-----------
2.1 Account............................................................. 1
2.2 Base Salary......................................................... 1
2.3 Beneficiary......................................................... 1
2.4 Board............................................................... 2
2.5 Bonus............................................................... 2
2.6 Cash Award.......................................................... 2
2.7 Cash Dividend Benefit............................................... 2
2.8 Change in Control................................................... 2
2.9 Code................................................................ 3
2.10 Committee........................................................... 3
2.11 Company............................................................. 3
2.12 Compensation........................................................ 3
2.13 Declared Rate....................................................... 3
2.14 Deferral Account.................................................... 3
2.15 Deferral Benefit.................................................... 3
2.16 Deferred Share Award Account........................................ 3
2.17 Deferred Share Award Benefit........................................ 3
2.18 Determination Date.................................................. 3
2.19 Eligible Employee................................................... 3
2.20 Emergency Benefit................................................... 4
2.21 Employer............................................................ 4
2.22 Employment Agreement................................................ 4
2.23 Employment Agreement Contribution................................... 4
2.24 Fair Market Value................................................... 4
2.25 Matching Account.................................................... 4
2.26 Matching Amount..................................................... 4
2.27 Matching Percentage................................................. 4
2.28 Participant......................................................... 4
2.29 Participation Agreement............................................. 4
2.30 Plan................................................................ 4
2.31 Plan Year........................................................... 4
2.32 Savings Plan........................................................ 5
2.33 Selected Affiliate.................................................. 5
2.34 Share............................................................... 5
2.35 Share Award......................................................... 5
2.36 Unit................................................................ 5
ARTICLE III
-----------
<PAGE> 3
Page
----
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 Eligibility......................................................... 5
3.2 Participation....................................................... 5
3.3 Termination of Participation........................................ 6
3.4 Ineligible Participant.............................................. 6
ARTICLE IV
----------
DEFERRAL OF COMPENSATION, CASH AWARDS AND SHARE AWARDS
- ------------------------------------------------------
4.1 Deferral of Compensation............................................ 7
4.2 Matching Amounts.................................................... 7
4.3 Deferral of Cash Awards............................................. 7
4.4 Crediting Deferred Compensation, Matching Amounts,
Cash Awards and Employment Agreement
Contributions....................................................... 7
4.5 Deferral of Share Awards............................................ 8
4.6 Crediting of Deferred Share Awards.................................. 8
ARTICLE V
---------
BENEFIT ACCOUNTS
----------------
5.1 Investment of Deferral and Matching Accounts........................ 8
5.2 Determination of Account............................................ 9
5.3 Crediting of Interest............................................... 9
5.4 Determination of Deferred Share Award Account....................... 9
5.5 Crediting of Dividend Equivalents................................... 10
5.6 Statements.......................................................... 10
5.7 Vesting of Account.................................................. 10
ARTICLE VI
----------
PAYMENT OF BENEFITS
-------------------
6.1 Payment of Deferral Benefit on Termination of
Service or Death.................................................... 10
6.2 Payment of Deferred Share Award Benefit on
Termination of Service or Death..................................... 11
6.3 Emergency Benefit................................................... 11
6.4 In-Service Distribution............................................. 11
6.5 Form of Payment..................................................... 13
6.6 Commencement of Payments............................................ 14
6.7 Special Distributions............................................... 14
6.8 Small Benefit....................................................... 15
ARTICLE VII
-----------
BENEFICIARY DESIGNATION
-----------------------
7.1 Beneficiary Designation............................................. 15
7.2 Amendments.......................................................... 15
<PAGE> 4
Page
----
7.3 No Designation..................................................... 15
7.4 Effect of Payment.................................................. 15
ARTICLE VIII
------------
ADMINISTRATION
--------------
8.1 Committee.......................................................... 15
8.2 Agents............................................................. 16
8.3 Binding Effect of Decisions........................................ 16
8.4 Indemnity of Committee............................................. 16
ARTICLE IX
----------
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
9.1 Amendment......................................................... 16
9.2 Termination....................................................... 16
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Funding........................................................... 17
10.2 Nonassignability.................................................. 17
10.3 Legal Fees and Expenses........................................... 18
10.4 Withholding Taxes................................................. 18
10.5 Captions.......................................................... 19
10.6 Governing Law..................................................... 19
10.7 Successors........................................................ 19
10.8 Right to Continued Service........................................ 19
10.9 Prior Plan Provisions............................................. 19
<PAGE> 5
CLEVELAND-CLIFFS INC
--------------------
VOLUNTARY NON-QUALIFIED
DEFERRED COMPENSATION PLAN
(AMENDED AND RESTATED AS OF DECEMBER 1, 1996)
---------------------------------------------
ARTICLE I
---------
PURPOSE
-------
1.1 STATEMENT OF PURPOSE; EFFECTIVE DATE. This is the
Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred Compensation Plan (the
"Plan") made in the form of this Plan and in related agreements between an
Employer and certain management and highly compensated employees. The purpose of
the Plan is to provide management and highly compensated employees of the
Employers with the option to defer the receipt of a portion of their regular
compensation, bonuses or performance shares payable for services rendered to the
Employer. It is intended that the Plan will assist in attracting and retaining
qualified individuals to serve as officers and key managers of the Employers.
The Plan, originally effective as of June 1, 1989, as amended, is amended and
restated as of December 1, 1996.
ARTICLE II
----------
DEFINITIONS
-----------
When used in this Plan and initially capitalized, the following
words and phrases shall have the meanings indicated:
2.1 ACCOUNT. "Account" means the sum of a Participant's
Deferral Account and Matching Account under the Plan.
2.2 BASE SALARY. "Base Salary" means a Participant's base
earnings paid by an Employer to a Participant without regard to any increases or
decreases in base earnings as a result of an election to defer base earnings
under this Plan, or an election between benefits or cash provided under a plan
of an Employer maintained pursuant to Section 125 or 401(k) of the Code.
2.3 BENEFICIARY. "Beneficiary" means the person or persons
designated or deemed to be designated by the Participant pursuant to Article VII
to receive benefits payable under the Plan in the event of the Participant's
death.
<PAGE> 6
2
2.4 BOARD. "Board" means the Board of Directors of the Company.
2.5 BONUS. "Bonus" means a Participant's annual bonus paid by
an Employer to a Participant under the Cleveland-Cliffs Inc Management
Performance Incentive Plan without regard to any decreases as a result of an
election to defer all or any portion of a bonus under this Plan, or an election
between benefits or cash provided under a plan of an Employer maintained
pursuant to Section 401(k) of the Code.
2.6 CASH AWARD. "Cash Award" means any compensation payable in
cash to an Eligible Employee for his or her services to the Company or a
Selected Affiliate pursuant to the Company's 1992 Incentive Equity Plan.
2.7 CASH DIVIDEND BENEFIT. "Cash Dividend Benefit" means an
in-service distribution described in Section 6.4(c).
2.8 CHANGE IN CONTROL. "Change in Control" means the occurrence
of any of the following events:
(a) The Company shall merge into itself, or be merged or
consolidated with, another corporation and as a result of such merger
or consolidation less than 70% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the aggregate
by the former shareholders of the Company as the same shall have
existed immediately prior to such merger or consolidation;
(b) The Company shall sell or otherwise transfer all or
substantially all of its assets to any other corporation or other legal
person, and immediately after such sale or transfer less than 70% of
the combined voting power of the outstanding voting securities of such
corporation or person is held in the aggregate by the former
shareholders of the Company as the same shall have existed immediately
prior to such sale or transfer;
(c) A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the Securities
Exchange Act of 1934, shall become the beneficial owner (as defined in
Rule 13d-3 of the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934) of 30% or more of the outstanding
voting securities of the Company (whether directly or indirectly); or
(d) During any period of three consecutive years, individuals
who at the beginning of any such period constitute the Board of
Directors of the Company cease, for any reason, to constitute at least
a majority thereof, unless the election, or the nomination for election
by the
<PAGE> 7
3
shareholders of the Company, of each Director first elected during any
such period was approved by a vote of at least one-third of the
Directors of the Company who are Directors of the Company on the date
of the beginning of any such period.
2.9 CODE. "Code" means the Internal Revenue Code of 1986, as
amended.
2.10 COMMITTEE. "Committee" has the meaning set forth in
Section 8.1.
2.11 COMPANY. "Company" means Cleveland-Cliffs Inc and any
successor thereto.
2.12 COMPENSATION. "Compensation" means the Base Salary and
Bonus payable with respect to an Eligible Employee for each calendar year.
2.13 DECLARED RATE. "Declared Rate" for any period means the
Moody's Corporate Average Bond Yield, as adjusted on the first business day of
each January, April, July and October.
2.14 DEFERRAL ACCOUNT. "Deferral Account" means the account
maintained on the books of the Employer pursuant to Article V for the purpose of
accounting for (i) the amount of Compensation that a Participant elects to defer
under the Plan, (ii) the portion of a Cash Award that a Participant elects to
defer under the Plan, and (iii) an Employment Agreement Contribution (if any)
made on behalf of a Participant.
2.15 DEFERRAL BENEFIT. "Deferral Benefit" means the benefit
payable to a Participant or his or her Beneficiary pursuant to Article VI and
based on such Participant's Account.
2.16 DEFERRED SHARE AWARD ACCOUNT. "Deferred Share Award
Account" means the account maintained on the books of the Employer for a
Participant pursuant to Article V.
2.17 DEFERRED SHARE AWARD BENEFIT. "Deferred Share Award
Benefit" means the benefits payable in Shares to a Participant or his or her
Beneficiary pursuant to Article V and based on such Participant's Deferred Share
Award Account.
2.18 DETERMINATION DATE. "Determination Date" means a date on
which the amount of a Participant's Account is determined as provided in Article
V. The last business day of each month and any other date selected by the
Committee shall be a Determination Date.
2.19 ELIGIBLE EMPLOYEE. "Eligible Employee" means a senior
corporate officer of the Company or a full-time salaried
<PAGE> 8
4
employee of an Employer who has a Management Performance Incentive Plan Salary
Grade EX-28 or above.
2.20 EMERGENCY BENEFIT. "Emergency Benefit" has the meaning set
forth in Section 6.3.
2.21 EMPLOYER. "Employer" means, with respect the Participant,
the Company or the Selected Affiliate which pays such Participant's
Compensation.
2.22 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.
2.23 EMPLOYMENT AGREEMENT CONTRIBUTION. "Employment
Agreement Contribution" means any amount contributed to the Plan by an Employer
pursuant to an Employment Agreement.
2.24 FAIR MARKET VALUE. "Fair Market Value" means the average
of the highest and lowest sales prices of a Share on the specified date (or, if
no Share was traded on such date, on the next preceding date on which it was
traded) as reported in The Wall Street Journal.
2.25 MATCHING ACCOUNT. "Matching Account" means the account
maintained on the books of an Employer pursuant to Article V for the purpose of
accounting for the Matching Amount for each Participant.
2.26 MATCHING AMOUNT. "Matching Amount" means the amount
credited to a Participant's Matching Account under Section 4.3.
2.27 MATCHING PERCENTAGE. "Matching Percentage" means the
matching contribution percentage in effect for a specific Plan Year under the
Savings Plan.
2.28 PARTICIPANT. "Participant" means any Eligible Employee who
elects to participate by filing a Participation Agreement as provided in Section
3.2.
2.29 PARTICIPATION AGREEMENT. "Participation Agreement" means
the agreement filed by a Participant, in the form prescribed by the Committee,
pursuant to Section 3.2.
2.30 PLAN. "Plan" means the Cleveland-Cliffs Inc Voluntary
Non-Qualified Deferred Compensation Plan, as amended from time to time.
2.31 PLAN YEAR. "Plan Year" means a twelve-month period
commencing January 1 and ending the following December 31.
<PAGE> 9
5
2.32 SAVINGS PLAN. "Savings Plan" means, with respect to a
Participant, one or more of the Cliffs and Associated Employers Salaried
Employees Supplemental Retirement Savings Plan and the Northshore Mining Company
and Silver Bay Power Company Retirement Savings Plan for which he or she is
eligible to contribute.
2.33 SELECTED AFFILIATE. "Selected Affiliate" means (1) any
corporation in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the chain owns or
controls, directly or indirectly, stock possessing not less than 50 per cent of
the total combined voting power of all classes of stock in one of the other
corporations, or (2) any partnership or joint venture in which one or more of
such corporations is a partner or venturer, each of which shall be selected by
the Committee.
2.34 SHARE. "Share" means a share of common stock of the
Company.
2.35 SHARE AWARD. "Share Award" means any compensation payable
in Shares to an Eligible Employee for his or her services to the Company or a
Selected Affiliate pursuant to the Company's 1992 Incentive Equity Plan.
2.36 UNIT. "Unit" means an accounting unit equal in value to
one (1) Share. The number of Units included in any Deferred Share Award Account
shall be adjusted as appropriate to reflect any stock dividend, stock split,
recapitalization, merger or other similar event affecting Shares.
ARTICLE III
-----------
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 ELIGIBILITY. Eligibility to participate in the Plan for any
Plan Year with respect to deferral of Compensation is limited to those Eligible
Employees who have elected to make the maximum elective contributions permitted
them under the terms of the Savings Plan for such Plan Year. Any Eligible
Employee is eligible to participate in the Plan for any Plan Year with respect
to deferral of a Cash Award and/or a Share Award.
3.2 PARTICIPATION. 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. A properly completed
and executed Participation Agreement shall be filed on or prior to the December
31 immediately preceding the Plan Year in which the Participant's participation
in the Plan will commence. The election to participate shall be effective on the
first day of
<PAGE> 10
6
the Plan Year following receipt by the Committee of the Participation Agreement.
In the event that an Eligible Employee first becomes eligible to participate in
the Plan or first commences employment during the course of a Plan Year, a
Participation Agreement shall be filed with the Committee not later than 30 days
following his eligibility date or date of employment. Each Participation
Agreement shall be effective only with regard to (i) Compensation earned and
payable following the later of the effective date of the Participation Agreement
or the date the Participation Agreement is filed with the Committee, and (ii) a
Cash Award and/or a Share Award the payment of which, if subsequently earned, is
not earlier than the beginning of the second Plan Year following the date the
Participation Agreement is filed with the Committee.
3.3 TERMINATION OF PARTICIPATION. A Participant may elect to
terminate his or her participation in the Plan by filing a written notice
thereof with the Committee. The termination shall be effective at any time
specified by the Participant in the notice but (i) with respect to deferral of
Compensation not earlier than the first day of the Plan Year immediately
succeeding the Plan Year in which such notice is filed with the Committee, and
(ii) with respect to deferral of a Cash Award and/or a Share Award, only with
respect to a Cash Award and/or a Share Award which becomes vested not earlier
than the last day of the Plan Year which next follows the Plan Year in which
such notice is filed with the Committee. Amounts credited to such Participant's
Account or Deferred Share Award Account with respect to periods prior to the
effective date of such termination shall continue to be payable pursuant to,
receive interest on (where applicable), and otherwise governed by, the terms of
the Plan. Notwithstanding any other provision of this Article III, a Participant
who is actively employed by the Employer and who elects a distribution pursuant
to Section 6.7 shall immediately terminate his or her participation in the Plan
for the balance, if any, of the Plan Year during which the Participant's
election is submitted to the Committee and for the next two Plan Years.
3.4 INELIGIBLE PARTICIPANT. Notwithstanding any other
provisions of this Plan to the contrary, if the Committee determines that any
Participant may not qualify as a "management or highly compensated employee"
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or regulations thereunder, the Committee may determine, in
its sole discretion, that such Participant shall cease to be eligible to
participate in this Plan. Upon such determination, the Employer shall make an
immediate lump sum payment to the Participant equal to the vested amount
credited to his Account and Deferred Share Award Account. Upon such payment no
benefit shall thereafter be payable under this Plan either to the Participant or
any Beneficiary of the Participant, and all of the Participant's elections as to
the time and manner of payment
<PAGE> 11
7
of his or her Account and Deferred Share Award Account will be deemed to be
cancelled.
ARTICLE IV
----------
DEFERRAL OF COMPENSATION, CASH AWARDS AND SHARE AWARDS
------------------------------------------------------
4.1 DEFERRAL OF COMPENSATION. With respect to each Plan Year, a
Participant may elect to defer a specified dollar amount or percentage of his or
her Compensation, provided the amount of Compensation the Participant elects to
defer under this Plan and the Savings Plan shall not exceed, in the aggregate,
the sum of 25% (50% effective January 1, 1997) of his or her Base Salary net of
such Participant's pretax elective deferrals under the Savings Plan, if any,
plus 100% of his or her Bonus. A Participant may choose to have amounts of
Compensation deferred under this Plan deducted from his or her Base Salary,
Bonus or a combination of both. A Participant may change the dollar amount or
percentage of his or her Compensation to be deferred by filing a written notice
thereof with the Committee. Any such change shall be effective as of the first
day of the Plan Year immediately succeeding the Plan Year in which such notice
is filed with the Committee. Notwithstanding the foregoing, any Employment
Agreement Contribution shall be deferred in accordance with the terms of the
Employment Agreement.
4.2 MATCHING AMOUNTS. An Employer shall provide Matching
Amounts under this Plan with respect to each Participant who is eligible to be
allocated matching contributions under the Savings Plan. The total Matching
Amounts under this Plan on behalf of a Participant for each Plan Year shall not
exceed (i) the Matching Percentage of the Compensation deferred by a Participant
under Section 4.1, up to a maximum of 7% of Compensation, less (ii) the Employer
matching contributions allocated to the Participant under the Savings Plan for
such Plan Year.
4.3 DEFERRAL OF CASH AWARDS. A Participant may elect to defer
all or a specified dollar amount or percentage of his or her Cash Award with
respect to a Plan Year, to be credited to his or her Deferral Account. A
Participant may change the dollar amount or percentage of his or her Cash Award
to be deferred by filing a written notice thereof with the Committee, which
shall be effective only with respect to Cash Awards which become vested not
earlier than the last day of the Plan Year which next follows the Plan Year in
which such notice is filed with the Committee.
4.4 CREDITING DEFERRED COMPENSATION, MATCHING AMOUNTS, CASH
AWARDS AND EMPLOYMENT AGREEMENT CONTRIBUTIONS.
(a) The amount of Compensation that a Participant elects to
defer shall be credited by the Employer to the
<PAGE> 12
8
Participant's Deferral Account as of the time such Compensation
would otherwise become payable to the Participant.
(b) 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.
(c) The amount of any Cash Award that a Participant elects to
defer shall be credited to the Participant's Deferral Account as of the
time such Cash Award would otherwise become payable to the Participant.
(d) The Matching Amount under the Plan for each Participant
shall be credited by the Employer to the Participant's Matching Account
at the same time that matching contributions are allocated under the
Savings Plan.
4.5 DEFERRAL OF SHARE AWARDS. A Participant may elect to defer
all or a specified number of Shares, or percentage of his or her Share Award
with respect to a Plan Year, to be credited to his or her Deferred Share Award
Account in Units. A Participant may change the percentage of his or her Share
Awards to be deferred by filing a written notice thereof with the Committee,
which shall be effective only with respect to Share Awards which become vested
not earlier than the last day of the Plan Year which next follows the Plan Year
in which such notice is filed with the Committee. No fractional Shares shall be
deferred, but the number of Shares deferred shall be rounded down to the nearest
whole Share.
4.6 CREDITING OF DEFERRED SHARE AWARDS. The number of Shares in
a Share Award or percentage of Share Awards that a Participant elects to defer
shall be credited to the Participant's Deferred Share Award Account in Units as
of the time such Share Award would otherwise become payable to the Participant.
The number of Units credited to the Participant's Deferred Share Award Account
shall be equal to the number of Shares of a Participant's Share Award which the
Participant has elected to defer.
ARTICLE V
---------
BENEFIT ACCOUNTS
----------------
5.1 INVESTMENT OF DEFERRAL AND MATCHING ACCOUNTS. As soon as
practicable after the crediting of any amount to a Participant's Deferral
Account or Matching Account, the Company may, in its sole discretion, direct
that the Company invest the amount credited, in whole or in part, in such
property (real,
<PAGE> 13
9
personal, tangible or intangible), other than securities of the Company,
(collectively the "Investments"), as the Committee shall direct, or may direct
that the Company retain the amount credited as cash to be added to its general
assets. The Committee may, but is under no obligation to, direct the investment
of amounts credited to a Participant's Deferral Account or Matching Account in
accordance with requests made by the Participant and communicated to the
Committee. Earnings from Investments shall be credited to a Participant's
Deferral Account or Matching Account and shall be reinvested, as soon as
practicable, in the manner provided above. The Company shall be the sole owner
and beneficiary of all Investments, and all contracts and other evidences of the
Investments shall be registered in the name of the Company. The Company, under
the direction of the Committee, shall have the unrestricted right to sell any of
the Investments included in any Participant's Deferral Account or Matching
Account, and the unrestricted right to reinvest the proceeds of the sale in
other Investments or to credit the proceeds of the sale to a Participant's
Deferral Account or Matching Account as cash. Amounts credited to a
Participant's Deferral Account or Matching Account that are not invested in
Investments shall be credited to a Participant's Account as cash.
5.2 DETERMINATION OF ACCOUNT. As of each Determination Date, a
Participant's Account shall consist of the following: (i) the balance of the
Participant's Account as of the immediately preceding Determination Date, plus
(ii) the Participant's deferred Compensation, Matching Amounts, deferred Cash
Awards and Employment Agreement Contribution (if any) credited pursuant to
Section 4.4 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 (iii) any losses or other diminution in the value
of assets in such Account since the immediately preceding Determination Date,
minus (iv) the aggregate amount of distributions, if any, made from such
Participant's Account since the immediately preceding Determination Date.
5.3 CREDITING OF INTEREST. As of each Determination Date, the
amounts credited to a Participant's Account as cash shall be increased by the
amount of interest earned since the immediately preceding Determination Date.
Interest shall be credited at the Declared Rate as of such Determination Date
based on the balance of the cash amounts credited to the Account since the
immediately preceding Determination Date, but after such Account has been
adjusted for any contributions or distributions to be credited or deducted for
such period. Interest for the period prior to the first Determination Date
applicable to a Participant's Account shall be deemed earned ratably over such
period.
5.4 DETERMINATION OF DEFERRED SHARE AWARD ACCOUNT. On any
particular date, a Participant's Deferred Share Award
<PAGE> 14
10
Account shall consist of the aggregate number of Units credited thereto pursuant
to Section 4.6, plus any dividend equivalents credited pursuant to Section 5.5,
minus the aggregate amount of distributions, if any, made from such Deferred
Share Award Account.
5.5 CREDITING OF DIVIDEND EQUIVALENTS. Each Deferred Share
Award Account shall be credited, as of the payment date of any cash dividend
paid on Shares, with additional Units equal in value to the amount of cash
dividends paid by the Company on that number of Shares equivalent to the Units
in such Deferred Share Award Account on such payment date. Such dividend
equivalents shall be valued using Fair Market Value. A Participant may elect to
convert the Units representing such dividend equivalents to cash to be credited
to his or her Deferral Account by filing a written notice thereof with the
Committee, which shall be effective only with respect to cash dividends paid
after the Plan Year in which such notice is filed with the Committee. Until a
Participant or his or her Beneficiary receives his or her entire Deferred Share
Award Account, the unpaid balance thereof credited in Units shall earn dividend
equivalents as provided in this Section 5.5, except as provided in Section
6.4(c).
5.6 STATEMENTS. The Committee shall cause to be kept a detailed
record of all transactions affecting each Participant's Account and Deferred
Share Award Account and shall provide to each Participant, within 120 days after
the close of each Plan Year, a written statement setting forth a description of
the Investments and Units in such Participant's Account and Deferred Share Award
Account and the cash balance, if any, of such Participant's Account, as of the
last day of the preceding Plan Year and showing all adjustments made thereto
during such Plan Year.
5.7 VESTING OF ACCOUNT. Subject to the provisions of any
Employment Agreement relating to an Employment Agreement Contribution (if any),
a Participant shall be 100% vested in his or her Account and Deferred Share
Award Account at all times.
ARTICLE VI
----------
PAYMENT OF BENEFITS
-------------------
6.1 Upon the earlier of (i) termination of service of the
Participant as an employee of the Employer and all Selected Affiliates, for
reasons other than death, or (ii) the death of a Participant, the Employer
shall, in accordance with this Article VI, pay to the Participant or his or her
Beneficiary, as the case may be, a Deferral Benefit equal to the balance of his
or her vested Account determined pursuant to Article V, less any amounts
previously distributed; provided,
<PAGE> 15
11
however, that the Participant may by written notice filed with the Committee at
least one (1) year prior to the Participant's voluntary termination of
employment with, or retirement from, the Company and any affiliate of the
Company, whether or not such affiliate is a Selected Affiliate, elect to defer
commencement of the payment of his or her Deferral Benefit until a date selected
in such election. Any such election may be changed by the Participant at any
time and from time to time without the consent of any other person by filing a
later signed written election with the Committee; provided that any election
made less than one (1) year prior to the Participant's voluntary termination of
employment or retirement shall not be valid, and in such case payment shall be
made in accordance with the Participant's prior election, or otherwise in
accordance with the first sentence of this Section 6.1.
6.2 PAYMENT OF DEFERRED SHARE AWARD BENEFIT ON TERMINATION OF
SERVICE OR DEATH. Upon the earlier of (i) termination of service of the
Participant as an employee of the Employer and all Selected Affiliates, for
reasons other than death, or (ii) the death of a Participant, the Employer
shall, in accordance with this Article VI, pay to the Participant or his or her
Beneficiary, as the case may be, a Deferred Share Award Benefit equal to the
balance of the Units in his or her Deferred Share Award Account determined
pursuant to Article V, less any amounts previously distributed.
6.3 EMERGENCY BENEFIT. In the event that the Committee, upon
written petition of a Participant, determines, in its sole discretion, that the
Participant has suffered an unforeseeable 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, Matching Account and Deferred Share Award Account as of the
date of such payment. For purposes of this Section 6.3, an "unforeseeable
financial emergency" shall mean an unexpected need for cash arising from an
illness, disability, casualty loss, sudden financial reversal or other such
unforeseeable occurrence. Cash needs arising from foreseeable events such as the
purchase of a house or education expenses for children shall not be considered
to be the result of an unforeseeable financial emergency. The amount of the
Deferral Benefit and Deferred Share Award Benefit otherwise payable under the
Plan to such Participant shall be adjusted to reflect the early payment of the
Emergency Benefit.
6.4 IN-SERVICE DISTRIBUTION.
(a) A Participant may elect to receive an in-service
distribution of his or her deferred Compensation, Matching Amount and
earnings thereon with respect to a Plan Year beginning at any time at
least four years after the date
<PAGE> 16
12
such Compensation otherwise would have been first payable. A
Participant's election for an in-service distribution from his or her
Account with respect to a Plan Year shall be filed in writing with the
Committee before the first day of the Plan Year in which his or her
deferred Compensation otherwise would have been first payable. The
Participant may elect to receive an in-service distribution as provided
in Section 6.5(a); provided, however, that Section 6.5(c) shall not
apply to an in-service distribution. Any Deferral Benefit paid to the
Participant as an in-service distribution shall reduce the amount of
Deferral Benefit otherwise payable to the Participant under the Plan.
(b) A Participant may elect to receive an in-service
distribution of his or her deferred Share Award and earnings with
respect to a Plan Year beginning at any time at least four (4) years
after the date such deferred Share Award otherwise would have been
first payable. A Participant's election for an in-service distribution
from his or her Deferred Share Award Account with respect to a Plan
Year shall be filed in writing with the Committee not later than during
the second Plan Year preceding the date the Share Award otherwise would
have been first payable. The Participant may elect to receive such
Deferred Share Award Benefit as an in-service distribution as provided
in Section 6.5(b); provided, however, that Section 6.5(c) of the Plan
shall not apply to such an in-service distribution. Any Deferred Share
Award Benefit paid to the Participant as an in-service distribution
shall reduce the amount of Deferred Share Award Benefit otherwise
payable to the Participant under the Plan.
(c) A Participant may elect to receive an in-service
distribution of his or her deferred Cash Award and earnings with a
respect to a Plan Year beginning at any time at least four (4) years
after the date such deferred Cash Award otherwise would have been first
payable. A Participant's election for an in-service distribution from
his or her Account with respect to a Cash Award for a Plan Year shall
be filed in writing with the Committee not later during the second Plan
Year preceding the date the Cash Award otherwise would have been first
payable. The Participant may elect to receive such Deferral Benefit as
an in-service distribution as provided in Section 6.5(a); provided,
however, that Section 6.5(c) shall not apply to such an in-service
distribution. Any Deferral Benefit paid to the Participant is an
in-service distribution shall reduce the amount of Deferral Benefits
otherwise payable to the Participant under the Plan.
(d) A Participant may elect to receive an in-service
distribution of a Cash Dividend Benefit equal to the amount of the
dividend equivalent to be credited to his or her
<PAGE> 17
13
Deferred Share Award Account pursuant to Section 5.5 as of the payment
date of a cash dividend on Shares. A Participant's election for a Cash
Dividend Benefit shall be filed in writing with the Committee not later
than during the second Plan Year preceding the date the dividend
equivalent otherwise would be so credited to his or her Deferred Share
Award Account.
6.5 FORM OF PAYMENT.
(a) The Deferral Benefit payable pursuant to Section 6.1,
Section 6.4(a) or Section 6.4(c) shall be paid in one of the following
forms, as elected by the Participant in his or her Participation
Agreement or by written notice as provided in subsection (c) below:
(1) Annual payments of a fixed amount which shall
amortize the vested Account balance, or the in-service
distribution portion thereof, as of the payment commencement
date elected by the Participant over a period not to exceed
fifteen years (together, in the case of each payment, with
earnings thereon credited after the payment commencement date
pursuant to Article V).
(2) A lump sum.
(3) A combination of (1) and (2) above. The
Participant shall designate the percentage payable under each
option.
Notwithstanding the foregoing, the Committee may, at any time, direct
that installment payments under (1) or (3) above shall be made
quarterly.
(b) The Deferred Share Award Benefit payable pursuant to
Section 6.2 or Section 6.4(b) shall be paid in whole Shares plus cash
equal in value to any fractional Share in one of the forms set forth in
Section 6.5(a), without interest, but with dividend equivalents
reinvested as provided in Section 5.5; subject, however, to Section
6.4(d). For the purpose of this Section 6.5(b), each distribution from
a Deferred Share Award Account shall be valued on the basis of the Fair
Market Value of the Shares on the date prior to the date payment of
such distribution is made.
(c) The Participant's election of the form of payment shall be
made by written notice filed with the Committee at least one (1) year
prior to the Participant's voluntary termination of employment with, or
retirement from, the Company and any affiliate of the Company, whether
or not such affiliate is a Selected Affiliate. Any such election
<PAGE> 18
14
may be changed by the Participant at any time and from time to time
without the consent of any other person by filing a later signed
written election with the Committee; provided that any election made
less than one (1) year prior to the Participant's voluntary termination
of employment or retirement shall not be valid, and in such case
payment shall be made in accordance with the Participant's prior
election; and provided, further, that the Committee may, in its sole
discretion, waive such one (1) year period upon a request of the
Participant made while an active employee of the Company.
(d) The amount of each installment under Section 6.5(a) shall
be equal to the quotient obtained by dividing the Participant's Account
balance as of the date of such installment payment by the number of
installment payments remaining to be made to or in respect of such
Participant at the time of calculation.
(e) The Cash Dividend Benefit payable pursuant to Section
6.4(c) shall be in the form of a lump sum.
(f) If a Participant fails to make an election with respect to
his or her Account in a timely manner as provided in this Section 6.4,
distribution shall be made in ten (10) annual installments of cash or
Shares, as applicable.
(g) A Participant's Deferral Benefit and Deferred Share Award
Benefit (or the remaining portions thereof if payment to the
Participant had commenced) shall be distributed to his or her
Beneficiary in the form of a single lump sum payment following his or
her death.
6.6 COMMENCEMENT OF PAYMENTS. Commencement of payments under
Section 6.1 or Section 6.2 of the Plan shall begin as soon as practicable, and
in accordance with the payment commencement date elected by the Participant,
following receipt of notice by the Committee of an event which entitles a
Participant (or a Beneficiary) to payments under the Plan.
6.7 SPECIAL DISTRIBUTIONS. Notwithstanding any other provision
of this Article VI, a Participant, whether or not in pay status, may elect to
receive a distribution of part or all of his or her Account or Deferred Share
Award Account in one or more distributions if (and only if) the amount in either
of such accounts subject to such distribution is reduced by six percent (6%).
Any distribution made pursuant to such an election shall be made within 60 days
of the date such election is submitted to the Committee. The remaining six
percent (6%) of the portion of the electing Participant's account subject to
such distribution shall be forfeited.
<PAGE> 19
15
6.8 SMALL BENEFIT. In the event the Committee determines that
the balance of the Participant's Account and Deferred Share Award Account is
less than $50,000 at the time of commencement of payments, the Employer may pay
the benefit in the form of a lump sum payment, notwithstanding any provision of
the Plan to the contrary. Such lump sum payment shall be equal to the balance of
the Participant's Account, or the portion thereof payable to a beneficiary.
ARTICLE VII
-----------
BENEFICIARY DESIGNATION
-----------------------
7.1 BENEFICIARY DESIGNATION. Each Participant shall have the
right, at any time, to designate any person or persons as his Beneficiary to
whom payment under the Plan shall be made in the event of his or her death prior
to complete distribution to the Participant of his or her Deferral Benefit or
Deferred Share Award Benefit. Any Beneficiary designation shall be made in a
written instrument filed with the Committee and shall be effective only when
received in writing by the Committee.
7.2 AMENDMENTS. Any Beneficiary designation may be changed by a
Participant by the filing of a new Beneficiary designation, which will cancel
all Beneficiary designations previously filed.
7.3 NO DESIGNATION. If a Participant fails to designate a
Beneficiary as provided above, or if all designated Beneficiaries predecease the
Participant, then the Participant's designated Beneficiary shall be deemed to be
the Participant's estate.
7.4 EFFECT OF PAYMENT. Payment to a Participant's Beneficiary
(or, upon the death of a Beneficiary, to the Beneficiary's estate) shall
completely discharge the Employer's obligations under the Plan.
ARTICLE VIII
------------
ADMINISTRATION
--------------
8.1 COMMITTEE. The administrative committee for the Plan (the
"Committee") shall be those members of the Compensation Committee of the Board
who are not Participants, as long as there are at least three such members. If
there are not at least three such non-participating persons on the Compensation
Committee, the chief executive officer of the Company shall appoint other
non-participating Directors or Company officers to serve on the Committee. The
Committee shall supervise the administration and operation of the Plan, may from
time to time adopt rules and
<PAGE> 20
16
procedures governing the Plan and shall have authority to construe and interpret
the Plan (including, without limitation, by supplying omissions from, correcting
deficiencies in, or resolving inconsistencies and ambiguities in, the language
of the Plan).
8.2 AGENTS. The Committee may appoint an individual, who may be
an employee of the Company, to be the Committee's agent with respect to the
day-to-day administration of the Plan. In addition, the Committee may, from time
to time, employ other agents and delegate to them such administrative duties as
it sees fit, and may from time to time consult with counsel who may be counsel
to the Company.
8.3 BINDING EFFECT OF DECISIONS. Any decision or action of the
Committee with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan shall be final and
binding upon all persons having any interest in the Plan.
8.4 INDEMNITY OF COMMITTEE. The Company shall indemnify and
hold harmless the members of the Committee and their duly appointed agents under
Section 8.2 against any and all claims, loss, damage, expense or liability
arising from any action or failure to act with respect to the Plan, except in
the case of gross negligence or willful misconduct by any such member or agent
of the Committee.
ARTICLE IX
----------
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
9.1 AMENDMENT. The Company, on behalf of itself and of each
Selected Affiliate may at any time amend, suspend or reinstate any or all of the
provisions of the Plan, except that no such amendment, suspension or
reinstatement may adversely affect any Participant's Account or Deferred Share
Award Account, as it existed as of the effective date of such amendment,
suspension or reinstatement, without such Participant's prior written consent.
Written notice of any amendment or other action with respect to the Plan shall
be given to each Participant.
9.2 TERMINATION. The Company, on behalf of itself and of each
Selected Affiliate, in its sole discretion, may terminate this Plan at any time
and for any reason whatsoever. Upon termination of the Plan, the Committee shall
take those actions necessary to administer any Accounts or Deferred Share Award
Accounts existing prior to the effective date of such termination; provided,
however, that a termination of the Plan shall not adversely affect the value of
a Participant's Account or Deferred Share Award Account, the earnings from
Investments credited to a Participant's Account under Section 5.1, the
<PAGE> 21
17
interest on cash amounts credited to a Participant's Account under Section 5.3,
the crediting of dividend equivalents to a Participant's Deferred Share Award
Account under Section 5.5, or the timing or method of distribution of a
Participant's Account, or Deferred Share Award Account, without the
Participant's prior written consent.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 FUNDING. Participants, their Beneficiaries, and their
heirs, successors and assigns, shall have no secured interest or claim in any
property or assets of the Employer. The Employer's obligation under the Plan
shall be merely that of an unfunded and unsecured promise of the Employer to pay
money in the future. Notwithstanding the foregoing, in the event of a Change in
Control, the Company shall create an irrevocable trust to hold funds to be used
in payment of the obligations of Employers under the Plan, and the Company shall
fund such trust in an amount equal to no less than the total value of the
Participants' Accounts or Deferred Share Award Accounts under the Plan as of the
Determination Date immediately preceding the Change in Control, provided that
any funds contained therein shall remain liable for the claims of the respective
Employer's general creditors.
10.2 NONASSIGNABILITY. No right or interest under the Plan of a
Participant or his or her Beneficiary (or any person claiming through or under
any of them), other than the surviving spouse of any deceased Participant, shall
be assignable or transferable in any manner or be subject to alienation,
anticipation, sale, pledge, encumbrance or other legal process or in any manner
be liable for or subject to the debts or liabilities of any such Participant or
Beneficiary. If any Participant or Beneficiary (other than the surviving spouse
of any deceased Participant) shall attempt to or shall transfer, assign,
alienate, anticipate, sell, pledge or otherwise encumber his or her benefits
hereunder or any part thereof, or if by reason of his or her bankruptcy or other
event happening at any time such benefits would devolve upon anyone else or
would not be enjoyed by him or her, then the Committee, in its discretion, may
terminate his or her interest in any such benefit to the extent the Committee
considers necessary or advisable to prevent or limit the effects of such
occurrence. Termination shall be effected by filing a written "termination
declaration" with the Secretary of the Company and making reasonable efforts to
deliver a copy to the Participant or Beneficiary whose interest is adversely
affected (the "Terminated Participant").
As long as the Terminated Participant is alive, any benefits
affected by the termination shall be retained by the
<PAGE> 22
18
Employer and, in the Committee's sole and absolute judgment, may be paid to or
expended for the benefit of the Terminated Participant, his or her spouse, his
or her children or any other person or persons in fact dependent upon him or her
in such a manner as the Committee shall deem proper. Upon the death of the
Terminated Participant, all benefits withheld from him or her and not paid to
others in accordance with the preceding sentence shall be disposed of according
to the provisions of the Plan that would apply if he or she died prior to the
time that all benefits to which he or she was entitled were paid to him or her.
10.3 LEGAL FEES AND EXPENSES. It is the intent of the Company
and each Selected Affiliate that no Eligible Employee or former Eligible
Employee be required to incur the expenses associated with the enforcement of
his rights under this Plan by litigation or other legal action because the cost
and expense thereof would substantially detract from the benefits intended to be
extended to an Eligible Employee hereunder. Accordingly, if it should appear
that the Employer has failed to comply with any of its obligations under this
Plan or in the event that the Employer or any other person takes any action to
declare this Plan void or unenforceable, or institutes any litigation designed
to deny, or to recover from, the Eligible Employee the benefits intended to be
provided to such Eligible Employee hereunder, the Employer irrevocably
authorizes such Eligible Employee from time to time to retain counsel of his
choice, at the expense of the Employer as hereafter provided, to represent such
Eligible Employee in connection with the initiation or defense of any litigation
or other legal action, whether by or against the Employer or any director,
officer, stockholder or other person affiliated with the Employer in any
jurisdiction. Notwithstanding any existing or prior attorney-client relationship
between the Employer and such counsel, the Employer irrevocably consents to such
Eligible Employee's entering into an attorney-client relationship with such
counsel, and in that connection the Employer and such Eligible Employee agree
that a confidential relationship shall exist between such Eligible Employee and
such counsel. The Employer shall pay and be solely responsible for any and all
attorneys' and related fees and expenses incurred by such Eligible Employee as a
result of the Employer's failure to perform under this Plan or any provision
thereof; or as a result of the Employer or any person contesting the validity or
enforceability of this Plan or any provision thereof.
10.4 WITHHOLDING TAXES. If the Employer is required to withhold
any taxes or other amounts from a Participant's deferred Compensation,
Employment Agreement Contribution, deferred Cash Award or deferred Share Award
pursuant to any state, federal or local law, such amounts shall, to the extent
possible, be withheld from the Participant's Compensation, Cash Award or Share
Award before such amounts are credited under the Plan. Any additional
withholding amount required shall be paid
<PAGE> 23
19
by the Participant to the Employer as a condition to the crediting of deferred
Compensation, deferred Cash Award or deferred Share Award to the Participant's
Account and Deferred Share Award Account, respectively. The Employer may
withhold any required state, federal or local taxes or other amounts from any
benefits payable in cash or Shares to a Participant or Beneficiary.
10.5 CAPTIONS. The captions contained herein are for
convenience only and shall not control or affect the meaning or construction
hereof.
10.6 GOVERNING LAW. The provisions of the Plan shall be
construed and interpreted according to the laws of the State of Ohio.
10.7 SUCCESSORS. The provisions of the Plan shall bind and
inure to the benefit of the Company, its selected Affiliates, and their
respective successors and assigns. The term successors as used herein shall
include any corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise, acquire all or substantially all of the
business and assets of the Company or a Selected Affiliate and successors of any
such corporation or other business entity.
10.8 RIGHT TO CONTINUED SERVICE. Nothing contained herein shall
be construed to confer upon any Eligible Employee the right to continue to serve
as an Eligible Employee of the Employer or in any other capacity.
10.9 PRIOR PLAN PROVISIONS. The provisions of the Plan in
effect prior to December 1, 1996 shall govern periods prior to such date.
Executed this 12th day of December, 1996.
CLEVELAND-CLIFFS INC
By: /s/ R.F. Novak
----------------------------------
Vice President-Human Resources
<PAGE> 1
Exhibit 10(aa)
CLEVELAND-CLIFFS INC
LONG-TERM PERFORMANCE SHARE PROGRAM
-----------------------------------
ARTICLE I
---------
GENERAL
-------
1.1 INCENTIVE EQUITY PLAN. The provisions of this Long-Term Performance
Share Program ("Performance Share Program") shall supplement and operate under
the provisions of the Cleveland-Cliffs Inc ("Company") 1992 Incentive Equity
Plan ("1992 ICE Plan"), approved by the shareholders of the Company on April 14,
1992, as may be amended from time to time, a copy of which 1992 ICE Plan is
attached hereto as Appendix A. Unless otherwise expressly qualified by the terms
of this Performance Share Program, the conditions contained in the 1992 ICE Plan
shall be applicable to the Performance Share Program. In the event of any
conflict between the terms of this Performance Share Program and the 1992 ICE
Plan, the 1992 ICE Plan shall control.
1.2 PURPOSE. The purpose of the Performance Share Program is to align
the interests of key executives and managerial employees of the Company and its
subsidiaries directly with the interests of the shareholders of the Company in
increasing the Company's long-term value and exceeding the performance of peer
companies.
1
<PAGE> 2
ARTICLE II
----------
DEFINITIONS
-----------
All terms used herein with initial capital letters shall have the
meanings assigned to them in Article I and the following additional terms, when
used herein with initial capital letters, shall have the following meanings:
2.1 "BOARD" shall have the meaning assigned thereto in the 1992 ICE
Plan.
2.2 "CHANGE IN CONTROL" shall mean the date on which any of the
following is effective:
(a). The Company shall merge into itself, or be merged or
consolidated with, another corporation and as a result of such merger or
consolidation less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company as the same shall have existed immediately prior to
such merger or consolidation;
(b). The Company shall sell or otherwise transfer all or
substantially all of its assets to any other corporation or other legal person,
and immediately after such sale or transfer less than 70% of the combined voting
power of the outstanding voting securities of such corporation or person is held
in the aggregate by the former shareholders of the Company as the same shall
have existed immediately prior to such sale or transfer;
(c). A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange
Act of 1934, shall become the beneficial owner (as defined in Rule 13d-3 of the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934) of 30% or more of the outstanding voting securities of the Company
(whether directly or indirectly); or
2
<PAGE> 3
(d). During any period of three consecutive years, individuals
who at the beginning of any such period constitute the Board cease, for any
reason, to constitute at least a majority thereof, unless the election, or the
nomination for election by the shareholders of the Company, of each Director
first elected during any such period was approved by a vote of at least
one-third of the Directors of the Company who are Directors of the Company on
the date of the beginning of any such period.
2.3 "CODE" shall have the meaning assigned thereto in the 1992 ICE Plan.
2.4 "COMMITTEE" shall have the meaning assigned thereto in the 1992 ICE
Plan.
2.5 "COMMON SHARES" shall have the meaning assigned thereto in the 1992
ICE Plan.
2.6 "COVERED EMPLOYEES" shall mean those Participants named in the proxy
statement summary compensation table of the Company for that year, or are
determined by the Committee likely to become a "covered employee" within the
meaning of Section 162(m) of the Code.
2.7 "DATE OF GRANT" shall mean the date specified by the Committee on
which a grant of Performance Shares shall become effective, which shall not be
earlier than the date on which the Committee takes action with respect thereto.
2.8 "DISABILITY" shall mean the disability of a Participant as defined
by the long-term disability plan of the Company in effect for such Participant.
2.9 "MANAGEMENT OBJECTIVES" shall have the meaning assigned thereto in
the 1992 ICE Plan.
2.10 "MARKET VALUE PRICE" shall mean the latest available closing price
of a Common Share of the Company on the New York Stock Exchange at the relevant
time.
3
<PAGE> 4
2.11 "PARTICIPANT" shall have the meaning assigned thereto in the 1992
ICE Plan.
2.12 "PERFORMANCE PERIOD" shall have the meaning assigned thereto in the
1992 ICE Plan.
2.13 "PERFORMANCE SHARE" shall have the meaning assigned thereto in the
1992 ICE Plan.
2.14 "PARTICIPANT AWARD AND AGREEMENT" shall mean the agreement entered
into between the Participant and the Company pursuant to Section 5.3(b)(iv) of
this Performance Share Program.
2.15 "PERFORMANCE SHARES EARNED" shall mean the number of Common Shares
of the Company (or cash equivalent) earned by a Participant following the
conclusion of a Performance Period in which a required minimum of Management
Objectives were met or exceeded.
2.16 "PLAN YEAR" shall mean a period corresponding to the calendar year
of the Company.
2.17 "RETIREMENT" shall mean retirement as defined in the retirement
plan of the Company, including without limitation any supplemental retirement
plan.
2.18 "RULE 16b-3" shall have the meaning assigned thereto in the 1992
ICE Plan.
2.19 "SUBSIDIARY" shall have the meaning assigned thereto in the 1992
ICE Plan.
4
<PAGE> 5
ARTICLE III
-----------
TERM OF PERFORMANCE SHARE PROGRAM
---------------------------------
3.1 TERM. The Performance Share Program shall be effective from March
31, 1994, the date of adoption by the Committee, and shall remain in effect
until terminated by the Committee.
ARTICLE IV
----------
ADMINISTRATION
--------------
4.1 COMMITTEE. The Performance Share Program shall be administered by
the Committee, which shall be constituted so as to enable the Performance Share
Program to comply with the administration requirement of Code Section 162(m). A
majority of the Committee shall constitute a quorum, and the acts of the members
of the Committee who are present at any meeting thereof at which a quorum is
present, or acts unanimously approved by the members of the Committee in
writing, shall be the acts of the Committee.
4.2 AUTHORITY AND DETERMINATIONS. Subject to the terms of the 1992 ICE
Plan, the Committee shall have full and complete authority, in its sole and
absolute discretion to: (i) exercise all of the powers granted to it under the
1992 ICE Plan and Performance Share Program; (ii) interpret and implement the
Performance Share Program and any related document; (iii) prescribe rules and
guidelines relating to the Performance Share Program; (iv) make all
determinations necessary or advisable in administering the Performance Share
Program; and (v) correct any defect, supply any omission and reconcile any
inconsistency in the Performance Share Program. No member of the Committee shall
be liable for any such action taken or determination made in good faith.
5
<PAGE> 6
4.3 EXPENSES. The Company shall pay all costs and expenses of
administering the Performance Share Program, including but not limited to the
payment of expert or consulting fees.
4.4 DELEGATION. The Committee may delegate to the Chief Executive
Officer of the Company the authority to execute and deliver such instruments and
documents, do all such acts, and take all such other steps deemed necessary,
advisable or convenient for the effective administration of the Performance
Share Program in accordance with its terms and purpose, except that the
Committee may not delegate any authority with respect to decisions regarding the
Management Objectives, amount or other material terms of any awards of
Performance Shares.
4.5 CODE SECTION 162(m).
(a). It is intended that this Performance Share Program and the
Performance Shares Earned, satisfy and be interpreted in a manner that satisfies
the applicable requirements of Code Section 162(m) so that the tax deduction for
the Company for performance-base compensation for services performed by such
Participants is not disallowed in whole or in part by the operation of such Code
Section. If any provision of the Performance Share Program or if any Performance
Shares Earned would otherwise frustrate or conflict with the intent expressed in
this Section, that provision to the extent possible shall be interpreted and
deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provision shall be deemed void as
applicable to such Participants.
(b). The Committee may, in its sole discretion, require the
deferral of receipt of all or a portion of Performance Shares Earned by a
Covered Employee so as to assure the Company will not be prevented from
deducting the value of the Performance Shares Earned by a Covered Employee. Any
such deferral required by
6
<PAGE> 7
the Committee for a Covered Employee shall be in accordance with the terms and
conditions of an agreement between the Covered Employee and the Committee, and
such deferral shall remain in effect until the earlier of Retirement of the
Covered Employee or such time as receipt of the Performance Shares Earned would
no longer prevent the Company from deducting the value of the Performance Shares
Earned.
ARTICLE V
---------
OPERATION OF THE PERFORMANCE SHARE PROGRAM
------------------------------------------
5.1 ESTABLISHMENT OF PERFORMANCE PERIOD AND MANAGEMENT OBJECTIVES.
Within 90 days of the beginning of each year, the Committee shall establish the
Performance Period and the Management Objectives for achievement from the
beginning to the end of the Performance Period.
5.2 ADJUSTMENT OF MANAGEMENT OBJECTIVES. The Committee may only adjust
the Management Objectives as permitted under the 1992 ICE Plan. No adjustment of
the Management Objectives shall be permitted in respect of any Performance
Shares granted to any Participant who is, or is determined by the Committee to
be likely to become, a Covered Employee.
5.3 PERFORMANCE SHARE GRANTS.
(a). At the start of each Performance Period, the Committee shall
determine the Participants to be granted Performance Shares with due regard to
the relative position of such Participant in the Company, salary level and such
other factors as the Committee, in its discretion, deems appropriate. Upon such
determination, the Committee shall grant such designated Participant a number of
Performance Shares to be earned on the basis of achievement of the Management
Objectives over the Performance Period.
7
<PAGE> 8
(b). The Committee shall authorize grants of Performance Shares
in accordance with the following:
(i) Each grant shall specify the number of Performance
Shares to which it pertains.
(ii) Each grant shall specify the Performance Period.
(iii) Each grant shall specify the Management Objectives
that are to be achieved by the Company and a required minimum
level of achievement below which no payment of Performance Shares
will be made. Each grant of Performance Shares shall set forth a
formula for determining the amount of any payment to be made if
performance is at or above the required minimum level and shall
specify the maximum amount of any payment to be made.
(iv) Each grant shall be evidenced by an agreement, which
shall be executed on behalf of the Company by the Chief Executive
Officer, or by such officer of the Company as may be designated
by the Chief Executive Officer, and delivered to and accepted by
the Participant. The agreement shall state the specific
Management Objectives, target level of achievement, payout for
the Performance Period, and that the Performance Shares are
subject to all of the terms and conditions of the 1992 ICE Plan,
this Performance Share Program and such other terms and
provisions as the Committee may determine consistent with this
Performance Share Program.
(c). The Committee may provide for such adjustments in the number
of Common Shares covered by outstanding Performance Shares granted hereunder, as
may be provided for under Section 10 (anti-dilution provisions) of the 1992 ICE
Plan.
8
<PAGE> 9
5.4 PERFORMANCE SHARES EARNED.
(a). At the end of each Performance Period, the Committee shall
assess the degree to which the Management Objectives were achieved and certify
in writing, prior to any payment, whether the Management Objectives and any
other material terms are in fact satisfied.
(b). Payout of Performance Shares Earned shall be based upon the
degree of achievement of the Management Objectives by the Company, all as to be
more particularly set forth in the Participant's Award and Agreement.
(c). Upon such certification as provided for in Section (a) above,
the Committee shall advise the Participant as to the number of Performance
Shares Earned.
(d). Each Performance Share Earned shall entitle the holder to
receive Common Shares of the Company (or cash or a combination of Common Shares
and cash, as decided by the Committee in its sole discretion).
(e). In the event the final Market Value Price per share of a Common
Share at the end of the Performance Period exceeds twice the Market Value Price
per share of a Common Share on the Date of Grant, the number of Common Shares to
be earned as Performance Shares Earned will be reduced proportionately to the
extent necessary to prevent the value of the Performance Shares Earned paid to
any Participant from exceeding a value equal to twice the Market Value Price per
share of the Common Shares award on the Date of Grant, as such Performance
Shares Earned may be adjusted under Section 10 (anti-dilution provision) of the
1992 ICE Plan, and subject, however, to Section 7.3.
9
<PAGE> 10
ARTICLE VI
----------
PAYMENT OF AWARDS
-----------------
6.1 PAYMENT. Performance Shares Earned shall be paid as soon as
practicable after the receipt of audited financial statements relating to the
last fiscal year of the Performance Period and the written certification by the
Committee.
ARTICLE VII
-----------
HARDSHIP, TERMINATIONS OF EMPLOYMENT AND CHANGE IN CONTROL
----------------------------------------------------------
7.1 HARDSHIP AND APPROVED ABSENCE. In the event of leave of absence to
enter public service with the consent of the Company or other leave of absence
approved by the Company, or in the event of hardship or other special
circumstances, of a Participant who holds any Performance Shares that have not
been fully earned, the Committee may in its sole discretion take any action that
it deems to be equitable under the circumstances or in the best interests of the
Company, including without limitation waiving or modifying any limitation with
respect to any award under this Performance Share Program; provided, however,
that no such action shall be taken with respect to any Covered Employee. If no
such equitable action is taken by the Committee for a Participant who is not a
Covered Employee, the Participant shall forfeit all right to any Performance
Shares that would have been earned for the Performance Period in which the leave
of absence or other special circumstances occurred.
7.2 DEATH, DISABILITY, RETIREMENT OR OTHER. In the event the employment
of a Participant with the Company is terminated before completion of a
Performance Period(s) because of death, Disability, Retirement, or other reasons
and the Management Objectives are achieved by the Company for the Performance
10
<PAGE> 11
Period to the minimum required level or greater, such Participant, or the
beneficiary of such Participant, may be eligible to receive all or a portion of
the Performance Shares granted to such Participant as Performance Shares Earned,
as is determined in accordance with the Participant's Award and Agreement.
7.3 CHANGE IN CONTROL. In the event a Change in Control occurs before
completion of a Performance Period(s), all Performance Shares granted to a
Participant shall immediately become Performance Shares Earned, the value of
which shall be paid in cash within 10 days of the Change in Control. In the
event of a Change in Control, the number of Common Shares to be earned as
Performance Shares Earned will not be reduced proportionately, as otherwise
provided for in Section 5.4(e), to the extent necessary to prevent the cash
value of the Performance Shares Earned paid to any Participant from exceeding a
value equal to twice the Market Value Price per share of the Common Shares award
on the Date of Grant.
SECTION VIII
------------
MISCELLANEOUS
-------------
8.1 WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
of Performance Shares Earned to a Participant under this Performance Share
Program, and the amounts available to the Company for such withholding are
insufficient, it shall be a condition to the receipt of such payment of
Performance Shares Earned or the realization of such benefit that the
Participant make arrangements satisfactory to the Company for payment of the
balance of such taxes required to be withheld. If necessary, the Committee may
require relinquishment of a portion of such Performance Shares Earned. The
Participant
11
<PAGE> 12
may elect to satisfy all or any part of any such withholding obligation by
surrendering to the Company a portion of the Common Shares that are issued or
transferred or that become nontransferable by the Participant, and the Common
Shares so surrendered by the Participant shall be credited against any such
withholding obligation at the Market Value Price per share of such Common Shares
on the date of such surrender; provided, however, if the Participant is subject
to Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"), such
election (if then required by Rule 16b-3 under the Exchange Act) shall be
subject to approval by the Committee.
8.2 CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. No Participant shall have any
claim or right to be granted another award under the Performance Share Program.
This Performance Share Program shall not confer upon any Participant any right
with respect to the continuance of employment or other service with the Company
or any Subsidiary and shall not interfere in any way with any right that the
Company or any Subsidiary would otherwise have to terminate any employment or
other service of the Participant at any time.
8.3 BENEFICIARIES. Any payments of Performance Shares Earned due under
this Performance Share Program to a deceased Participant shall be paid to the
beneficiary designated by the Participant and filed with the Company. If no such
beneficiary has been designated or survives the Participant, payment shall be
made to the estate of the Participant. A beneficiary designation may be changed
or revoked by a Participant at any time, provided the change or revocation is
filed with the Company.
8.4 NON-TRANSFERABILITY. The rights and interest of a Participant under
this Performance Share Program, including amounts payable, may not be assigned,
pledged, or transferred, except, in the event of the death of a Participant, to
12
<PAGE> 13
his or her designated beneficiary as provided in the Performance Share Program,
or in the absence of such designation, by will or the laws of descent and
distribution.
8.5 AMENDMENTS.
(a). This Performance Share Program may be amended from time to
time by the Committee; provided, however, that any such amendment shall not be
inconsistent with the terms of the 1992 ICE Plan.
(b). The 1992 ICE Plan and this Performance Share Program are
intended to comply with and be subject to Rule 16b-3 as in effect prior to May
1, 1991.
8.6 GOVERNING LAW. This Performance Share Program shall be construed
and governed in accordance with the laws of the State of Ohio.
13
<PAGE> 1
Exhibit 10(dd)
FIRST AMENDMENT
TO
CLEVELAND-CLIFFS INC NONEMPLOYEE DIRECTORS'
-------------------------------------------
COMPENSATION PLAN
-----------------
RECITALS
--------
WHEREAS, Cleveland-Cliffs Inc ("Company"), with approval of the
Company's shareholders on May 14, 1996, established the Cleveland-Cliffs Inc
Nonemployee Directors' Compensation Plan ("Plan"), effective July 1, 1996; and
WHEREAS, the Company desires to amend the Plan to (i) provide that the
10% reduction for Special Distributions under Section 7.6 of the Plan be changed
to a 6% reduction and (ii) require that a Director who elects a Special
Distribution terminate participation in the deferral portion of the Plan for two
full calendar years ("Amendment"); and
WHEREAS, the Board of Directors of the Company has approved the
Amendment in accordance with the provisions of Section 8.2 of the Plan and such
Amendment does not require approval by the shareholders of the Company.
NOW, THEREFORE, the Plan is hereby amended by the First Amendment, such
First Amendment to be effective as of the date set forth herein as follows:
1. The Plan is amended, effective as of November 12, 1996, by
deleting in its entirety Section 7.6 and substituting the following therein:
"7.6 Special Distributions. Notwithstanding any other
provision of this Article VII, a Director may elect to receive a
distribution of part or all of his or her Deferred Fee Account and/or
Deferred Share Account in one or more distributions if (and only if)
the amount in the Director's Deferred Fee Account and/or the number of
the Shares in the Director's
1
<PAGE> 2
Deferred Share Account subject to such distribution is reduced by 6
percent. Any distribution made pursuant to such an election shall be
made within sixty days of the date such election is submitted to the
Administrator. The remaining 6 percent of the portion of the electing
Director's Deferred Fee Account and/or Deferred Share Account subject
to such distribution shall be forfeited. Notwithstanding any other
provision of this Article VII, a Director who is currently serving as a
Director and who elects a distribution pursuant to Section 7.6 shall
immediately terminate his or her participation in the deferral portion
of the Plan for the balance, if any, of the Plan Year during which the
Director's election is submitted to the Committee and for the next two
Plan Years."
2. Except as amended by this First Amendment, the Plan
shall remain in full force and effect.
Executed in Cleveland, Ohio, as of November 12, 1996.
CLEVELAND-CLIFFS INC
By /s/ M.T. Moore
------------------------------------
Chairman and Chief Executive Officer
And /s/ J.E. Lenhard
------------------------------------
Secretary
2
<PAGE> 1
Exhibit 11
Computation of Earnings Per Share
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
(In Millions, Except Per
Share Amounts)
Year Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Earnings per share, as reported:
Average shares outstanding 11.6 11.9 12.1
======= ======= =======
Income before extraordinary item $ 61.0 $ 60.9 $ 42.8
Extraordinary item -- (3.1) --
------- ------- -------
Net income $ 61.0 $ 57.8 $ 42.8
======= ======= =======
Income per share:
Income before extraordinary item $ 5.26 $ 5.10 $ 3.54
Extraordinary item -- (.26) --
------- ------- -------
Net income $ 5.26 $ 4.84 $ 3.54
======= ======= =======
Primary earnings per share:
Average shares outstanding 11.6 11.9 12.1
Net effect of dilutive stock options -
based on the treasury stock method
using average market price -- .1 --
------- ------- -------
Average shares and equivalents 11.6 12.0 12.1
======= ======= =======
Income before extraordinary item $ 61.0 $ 60.9 $ 42.8
Extraordinary item -- (3.1) --
------- ------- -------
Net income $ 61.0 $ 57.8 $ 42.8
======= ======= =======
Income per share:
Income before extraordinary item $ 5.26 $ 5.08 $ 3.54
Extraordinary item -- (.26) --
------- ------- -------
Net income $ 5.26 $ 4.82 $ 3.54
======= ======= =======
</TABLE>
27
<PAGE> 2
<TABLE>
<CAPTION>
(In Millions, Except Per
Share Amounts)
Year Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fully diluted earnings per share:
Average shares outstanding 11.6 11.9 12.1
Net effect of dilutive stock options -
based on the treasury stock method
using higher of year-end or average
market price -- .1 --
------- ------- -------
Average fully diluted shares 11.6 12.0 12.1
======= ======= =======
Income before extraordinary item $ 61.0 $ 60.9 $ 42.8
Extraordinary item -- (3.1) --
------- ------- -------
Net income $ 61.0 $ 57.8 $ 42.8
======= ======= =======
Income per share:
Income before extraordinary item $ 5.26 $ 5.08 $ 3.54
Extraordinary item -- (.26) --
------- ------- -------
Net income $ 5.26 $ 4.82 $ 3.54
======= ======= =======
</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.
28
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS Exhibit 13(a)
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 1996, Cleveland-Cliffs earned $61.0 million, or $5.26 a share, including a
$1.3 million after-tax property damage insurance recovery. Earnings for the year
1995 were $57.8 million, or $4.84 a share, including an extraordinary after-tax
charge of $3.1 million and the effects of two significant "special items."
Excluding the insurance recovery, earnings in 1996 were $59.7 million, or $5.15
a share. Comparable earnings in 1995, excluding the extraordinary charge and the
special items, were $55.4 million, or $4.64 a share.
<TABLE>
<CAPTION>
Following is a summary of results for the years 1996, 1995, and 1994:
(In Millions, Except Per Share)
--------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income Before Special Items and
Extraordinary Charge
- Amount $59.7 $55.4 $42.8
- Per Share 5.15 4.64 3.54
Special Items
Prior Years' Tax Credit 12.2
Environmental Reserve (6.7)
Property Damage Insurance Recovery 1.3
----- ----- -----
1.3 5.5
----- ----- -----
Net Income Before Extraordinary Item
- Amount 61.0 60.9 42.8
- Per Share 5.26 5.10 3.54
Extraordinary Loss
on Early Extinguishment of Debt (3.1)
----- ----- -----
Net Income
- Amount $61.0 $57.8 $42.8
===== ===== =====
- Per Share $5.26 $4.84 $3.54
===== ===== =====
</TABLE>
Earnings per share in 1996 and 1995 reflect the favorable effect of repurchasing
shares under the Company's stock repurchase program ($.11 a share -1996; $.07 a
share - 1995). Repurchases in 1996 and 1995 were 495,800 shares and 284,500
shares, respectively.
1996 VERSUS 1995
- ----------------
Revenues were $518.1 million in 1996, an increase of $45.0 million from 1995.
Revenues from product sales and services totaled $451.7 million in 1996 compared
to $411.2 million in 1995. The $40.5 million increase was due to higher sales
volume and higher average price realizations. North American iron ore sales were
11.0 million tons in 1996 compared to 10.4 million tons in 1995. Royalties and
management fees revenue in 1996, including amounts paid by the Company as a
participant in the mining ventures, totaled $51.5 million, compared to $49.5
million in 1995.
29
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Net income for the year 1996 was $61.0 million, or $5.26 a share, including a
$1.3 million after-tax property damage insurance recovery on a January, 1996 ore
train derailment.
Earnings for 1995 were $57.8 million, or $4.84 a share, including an
extraordinary after-tax charge of $3.1 million on the early extinguishment of
debt as part of a $70 million long-term debt refinancing.
Net income before the extraordinary item for the year 1995 was $60.9 million, or
$5.10 a share. Included in 1995 earnings were two large special items recorded
in the second quarter: a $12.2 million tax credit resulting from the settlement
of prior years' tax issues, and a $6.7 million after-tax increase in the reserve
for environmental expenditures.
Excluding the special item, 1996 earnings were $59.7 million, or $5.15 a share,
an increase of $4.3 million from comparable earnings in 1995 of $55.4 million,
or $4.64 a share. The $4.3 million increase in comparable earnings was mainly
due to increased North American sales volume and price realizations, higher
Australian earnings, a non-recurring $1.8 million after-tax reserve against
accounts receivable in 1995 and lower interest expense, partly offset by higher
operating costs and a higher effective income tax rate in 1996. Operating costs
in 1996 were impacted by record cold weather in the first quarter and higher
employment and fuel costs.
Australian after-tax earnings were $12.4 million, or $1.07 per share in 1996.
Comparable earnings in 1995 were $9.0 million, or $.75 per share. The Australian
operation terminated production as planned in December, 1996 and is expected to
ship its remaining inventory during the first quarter of 1997.
1995 VERSUS 1994
- ----------------
Revenues were $473.1 million in 1995, an increase of $84.2 million from 1994.
Revenues from product sales and services in 1995 totaled $411.2 million, an
increase of $76.4 million from 1994, mainly due to higher North American sales
volume reflecting the full year effect of the acquisition of Northshore Mining
Company on September 30, 1994. North American iron ore sales were 10.4 million
tons in 1995 compared to 8.2 million tons in 1994. Royalty and management fee
revenue in 1995 totaled $49.5 million, an increase of $4.8 million due primarily
to increased production at Empire Mine in 1995.
Net income for the year 1995 was $57.8 million, or $4.84 a share, including an
extraordinary after-tax charge of $3.1 million incurred in December, 1995 on the
early extinguishment of debt as part of a $70 million long-term debt
refinancing.
Net income in 1994 was $42.8 million, or $3.54 a share.
Net income before the extraordinary item for the year 1995 was $60.9 million, an
increase of $18.1 million from 1994. Included in 1995 earnings were two large
special items recorded in the second quarter: a $12.2 million tax credit
resulting from the settlement of prior years' tax issues, and a $6.7 million
after-tax increase in the reserve for environmental expenditures.
30
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Excluding the special items and the extraordinary charge, earnings for 1995 were
$55.4 million, an increase of $12.6 million from 1994. The increase was mainly
due to the full year effect of the Northshore acquisition, higher Australian
earnings, and increased royalties and management fees, partially offset by a
higher effective income tax rate.
CASH FLOW AND LIQUIDITY
- -----------------------
At December 31, 1996, the Company had cash and marketable securities totaling
$169.4 million. The full amount of a $100.0 million unsecured revolving credit
facility was available. No principal payments are required to be made on
outstanding debt until senior unsecured notes in the amount of $70 million
mature in 2005.
In 1996, cash and marketable securities increased $20.6 million due to cash flow
from operating activities (before changes in operating assets and liabilities),
$89.6 million, partially offset by capital expenditures, $36.7 million,
repurchase of 495,800 of the Company's Common Shares in open market
transactions, $19.5 million, and dividends, $15.1 million.
North American pellet inventory investment at December 31, 1996 was $21.8
million, a decrease of $3.7 million from December 31, 1995. The decrease
occurred despite higher 1996 production, 0.6 million tons, and 0.4 million tons
of purchased ore. Inventories at the Savage River Mines in Australia decreased
$5.1 million, reflecting the planned termination of production.
<TABLE>
<CAPTION>
FOLLOWING IS A SUMMARY OF 1996 CASH FLOW:
(IN MILLIONS)
-------------
<S> <C>
Cash Flow from Operations
Before Changes in Operating Assets and Liabilities.............. $ 89.6
Changes in Operating Assets and Liabilities:
Marketable Securities ....................................... (8.2)
Other ....................................................... 2.0
-------
Net Cash From Operations.................................. 83.4
Capital Expenditures............................................... (36.7)
Repurchase of Common Shares........................................ (19.5)
Dividends.......................................................... (15.1)
Other (net)........................................................ .3
-------
Increase in Cash and Cash Equivalents........................... 12.4
Increase in Short-term Marketable Securities....................... 8.2
-------
Increase in Cash and Marketable Securities...................... $ 20.6
=======
</TABLE>
31
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
FOLLOWING IS A SUMMARY OF KEY LIQUIDITY MEASURES:
At December 31
(In Millions)
-----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash and Temporary Investments
Cash and Cash Equivalents ................. $152.3 $139.9 $140.6
Marketable Securities...................... 17.1 8.9 .8
------ ------ ------
Total $169.4 $148.8 $141.4
====== ====== ======
Working Capital.............................. $195.3 $189.2 $169.5
====== ====== ======
Ratio of Current Assets to Current
Liabilities................................ 2.9:1 2.9:1 2.7:1
</TABLE>
Additionally, at December 31, 1996, the Company had long-term investments of
$10.8 million, primarily consisting of LTV Common Stock (.8 million shares with
a market value of $10.0 million).
In 1996, $3.8 million of Australian government securities matured and were
converted to cash to finance obligations related to termination of production at
the Savage River Mines. The redemption of these investments, previously
classified as held-to-maturity securities, did not result in the recognition of
a gain or loss.
In 1995, the Company and the Internal Revenue Service reached agreement on
several issues raised during the examination of the Company's Federal income tax
returns for the tax years 1986 through 1988. The income tax settlement favorably
resolved a number of audit issues primarily arising from the Company's
restructuring program in the late 1980s when mining partnerships were
reorganized to cope with steel company bankruptcies and non-core businesses were
divested. During that period, the Company had reserved the potential tax
liabilities. Accordingly, a tax credit of $12.2 million was recorded in the
second quarter of 1995. As a result of the settlement and its related impact on
the tax years 1989 through 1993, the Company made additional tax and interest
payments of $11.8 million in the third quarter of 1995 and is entitled to tax
and interest refunds of $5.3 million, of which $2.3 million was received in
1996.
NORTH AMERICAN IRON ORE
- -----------------------
On September 29, 1995, McLouth Steel Products Company ("McLouth") petitioned for
protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of the
bankruptcy filing, the Company had an unreserved receivable from McLouth of $5.0
million, secured by liens on certain McLouth fixed assets. Reserves of $3.4
million have been recorded against the receivable.
On March 15, 1996, McLouth announced that it had begun a shutdown of its
operations due to inadequate funds. The Company had supplied 300,000 tons of
pellets to McLouth in 1996 prior to shutdown. The Company reserved all financial
exposure from the McLouth shutdown, except the remaining unreserved receivable
which is secured by first liens on property and equipment.
32
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
On June 26, 1996, the bankruptcy court approved the sale of McLouth's assets and
an agreement to settle secured claims, including the Company's secured claim.
Based on the terms of the agreement, the Company expects to recover the carrying
value of its secured claim. Proceeds from the sale of McLouth's assets will be
used primarily to satisfy administrative claims, including the Company's
administrative claim.
The Company's total shipments in 1996 were not affected by McLouth's bankruptcy
filing or the shutdown of its operations. Although sales to McLouth in 1996 were
only 0.3 million tons prior to shutdown in the first quarter, compared to 1.3
million tons for the full year 1995, sales of the remaining available tons in
1996 were made to other customers.
Three U.S. iron ore mining operations managed by subsidiaries of the Company are
operating under six-year, no strike labor agreements with the United
Steelworkers of America. The contracts, which were effective August 1, 1993,
cover the Empire and Tilden mines in Michigan and the Hibbing mine in Minnesota.
The agreements called for a limited economic re-opener in 1996, with interest
arbitration if the parties did not reach a negotiated settlement. The re-openers
were settled based on the pattern of recent steel company labor contract
settlements, plus certain features to motivate productivity. The contracts
expire on August 1, 1999. A labor agreement with the Wabush Mines' bargaining
unit reached in March, 1994, expired on March 1, 1996. A new Wabush labor
agreement was negotiated effective March 1, 1996 and will expire March 1, 1999.
The six North American mines managed by the Company produced a record 39.9
million tons of iron ore in 1996 compared with 39.6 million tons in 1995. The
Company's share of the North American production was 10.4 million tons in 1996
versus 9.8 million tons in 1995.
Most industry analysts are projecting continued strong North American steel
production and shipments in 1997 by integrated steel companies. The mines
managed by the Company are scheduled to operate at nearly full capacity again in
1997. The Company's nominated share of such capacity is 10.8 million tons.
Production schedules are subject to change during the year.
More than 85 percent of the Company's nominated capacity in 1997 has been
committed under multi-year contracts. The Company's current multi-year contracts
expire in various years starting in 1999. Maintenance of present sales volume is
dependent on renewal of such contracts and the general iron ore demand level.
The Company has demonstrated its ability to sustain sales volume through renewed
or new contracts. In December, 1996, the Company renewed its contract with AK
Steel, its largest customer, for up to 2.5 million tons annually through 1999.
AUSTRALIA
- ---------
Savage River Mines in Tasmania, Australia operated at its capacity of
approximately 1.6 million tons in 1996 and 1.5 million tons in 1995. Net income
increased to $12.4 million in 1996 from $9.0 million in 1995 due to higher sales
price realizations and volume, and lower operating cost, partially offset by a
higher Australian effective income tax rate and exchange rate effect.
33
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Production at Savage River Mines was terminated prior to year-end 1996 due to
exhaustion of the economically recoverable iron ore from surface mining.
Remaining inventory is expected to be shipped during the first quarter of 1997.
No significant earning contribution is expected in 1997. The mine operated two
years beyond the original schedule established when the Company acquired full
ownership in 1990. Termination costs have been provided in the Capacity
Rationalization Reserve.
The Company's subsidiary, Pickands Mather & Co. International ("PMI"), received
notice from the Tasmanian government in 1996 asserting certain environmental
obligations in connection with rehabilitating the Savage River Mine site. PMI
has asserted that all obligations to rehabilitate the mine and plant sites are
specified in the Rehabilitation Plan agreement between the State of Tasmania and
PMI, which agreement was formalized in June, 1990 by an Act of Parliament and
was a condition of PMI's acquisition of interests in the mine from Japanese
steel companies. PMI has provided reserves for all environmental and other
rehabilitation obligations specified in the Rehabilitation Plan.
On December 5, 1996, PMI and the State of Tasmania entered into a Deed of
Arrangement whereby the assets (including $8.7 million in cash) and all
environmental and rehabilitation obligations of the Savage River Mines will be
transferred to the Tasmanian government. The transfer is contingent on certain
events which are anticipated to be completed in March, 1997.
COAL
- ----
Pursuant to the Coal Industry Retiree Health Benefit Act of 1992 ("Benefit
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 1996 were $.8
million ($.7 million in 1995). 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 additional
beneficiaries related to two formerly operated joint venture coal mines. The
Company has actively contested the complaint and is awaiting a court decision.
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 1996 and 1995 were
approximately $.1 million. At December 31, 1996, the Company's coal retiree
reserve was $10.2 million, of which $1.4 million was current. The reserve is
reflected at present value, using a discount rate of 7.75%. Constitutional and
other legal challenges to various provisions of the Benefit Act by other former
coal producers are pending in the Federal Courts.
34
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
ACTUARIAL ASSUMPTIONS
- ---------------------
As a result of an increase in long-term interest rates, the Company re-evaluated
the interest rates used to calculate its pension and other postretirement
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 7.75% at December 31, 1996 from 7.25% at December 31, 1995. The
assumed long-term rate of return on pension assets was 8.75% at December 31,
1996 and 1995. The Company also adjusted its assumed long-term rate of return on
deposits on life insurance contracts to fund retiree life insurance benefits to
6.0% at December 31, 1996 from 8.0% at December 31, 1995 to reflect contract
provisions. The medical cost trend rate assumption used in the calculation of
its OPEB obligation reflects medical cost growth of 8.0% in 1997, decreasing by
.5% per year to a growth rate of 5.0% in the year 2003 and annually thereafter.
The changes in actuarial assumptions did not affect 1996 financial results;
however, in 1997 and subsequent years, the changes are projected to decrease
pension and OPEB expense by approximately $.4 million.
The Company is funding pension plans to the maximum amount deductible for income
tax purposes. For Plan Year 1996 (largely funded in calendar year 1997), the
Company plans to contribute $3.0 million, including its share of associated
companies' funding, a decrease of $2.1 million from Plan Year 1995.
ENVIRONMENTAL COSTS
- -------------------
The Company has a formal code of environmental conduct which promotes
environmental protection and restoration. The Company's obligations for known
environmental conditions at active mining operations, idle and closed mining
operations and other sites have been recognized based on estimates of the cost
of investigation and remediation at each site. If the cost can only be estimated
as a range of possible amounts with no specific amount being most likely, the
minimum of the range is accrued in accordance with generally accepted accounting
principles. Estimates may change as additional information becomes available.
Actual costs incurred may vary from the estimates due to the inherent
uncertainties involved. Any potential insurance recoveries have not been
reflected in the determination of the financial reserves.
At December 31, 1996, the Company had a reserve for environmental obligations,
including its share of the environmental obligations of associated companies, of
$23.7 million ($22.9 million at December 31, 1995), of which $4.0 million was
current. During 1996 and 1995, the Company provided $2.4 million and $13.2
million of additional environmental reserves respectively. The additional
environmental provisions reflect the Company's continuing review of estimated
investigation and remediation expense at all known sites. Net payments in 1996
were $1.6 million (1995 - $2.4 million).
35
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
CAPITAL INVESTMENT
- ------------------
North American Iron Ore
- -----------------------
The Company and its North American mine partners have substantially increased
capital expenditures in recent years to reduce operating costs and satisfy
orebody development requirements for maintenance of high production rates.
Capital equipment additions and replacements, including equipment acquired
through lease, totaled approximately $89.3 million (the Company's share - $26.4
million) in 1996 for the six Company-managed mines and supporting operations in
North America, of which $56.2 million (the Company's share - $22.2 million) was
classified as capital expenditures. Capital additions and replacements,
including leased equipment, are projected to total approximately $103.9 million
(the Company's share - $27.7 million) in 1997, with approximately $58.2 million
(the Company's share - $21.2 million) classified as capital expenditures, at the
six Company-managed mines and supporting operations in North America.
Reduced Iron
- ------------
The Company's strategy includes extending its business scope to produce and
supply reduced iron products to steelmakers. Reduced iron products contain
approximately 90% iron versus 65% for traditional iron ore pellets and are
higher quality than most scrap steel feed. The market for reduced iron is
relatively small, but is projected to increase at a higher rate than other iron
ore products.
On April 15, 1996, the Company announced an international joint venture to
produce and market premium quality reduced iron briquettes to the steel
industry. All project documents were signed on May 8, 1996. The venture's
participants, through subsidiaries, are Cleveland-Cliffs Inc, 46.5 percent; The
LTV Corporation, 46.5 percent; and Lurgi AG of Germany, 7.0 percent. The Company
manages the $150 million project, located in Trinidad and Tobago, and will be
responsible for sales by the venture company, Cliffs and Associates Limited. The
Company's share of capital expenditures is estimated to be $70 million, of which
$13.1 million was spent in 1996 and $46 million is expected to be spent in 1997.
No project financing will be used. Start-up is projected to occur in the fourth
quarter, 1998.
Cliffs and Associates Limited has entered into forward currency exchange
contracts to hedge the Deutsche Mark as part of the construction project. The
purpose of the contracts is to manage the risk of exchange rate fluctuations
with respect to a portion of project construction costs denominated in the
Deutsche Mark. The Company's share of outstanding contracts, which have varying
maturity dates to June 1, 1998, have an aggregate contract value of $10.8
million and an aggregate estimated fair value of $10.3 million, at December 31,
1996.
The Company anticipates further investment in reduced iron projects.
36
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Other
- -----
The Company periodically examines opportunities to increase profitability and
strengthen its business position by increasing its ownership of existing iron
ore mining ventures. Also, the Company is seeking investment opportunities to
broaden its scope as an operator of mining and pelletizing projects
internationally.
CAPITALIZATION
- --------------
In December, 1995, the Company completed a private placement of $70 million of
senior unsecured notes to an insurance company group. The notes bear a fixed
interest rate of 7.0 percent and are scheduled to be repaid with a single
principal payment in December, 2005. Proceeds from the placement were utilized
to retire $70 million of existing notes with an average interest rate of 8.77
percent and remaining annual principal repayments of $12.1 million per year in
the years 1996 through 1999 and $7.2 million in the years 2000 through 2002. In
1995, a $3.1 million after-tax ($4.8 million before tax) extraordinary charge
was incurred in the early extinguishment of the debt retired. Following is a
summary of long-term obligations:
<TABLE>
<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>
1996 $ 70.0 $ 2.9 $ 72.9 $ - $ 72.9
1995 70.0 6.3 76.3 6.6 82.9
1994 75.0 9.2 84.2 13.7 97.9
</TABLE>
In addition to the senior unsecured notes, the Company has a $100 million
revolving credit agreement. No borrowings are outstanding under this agreement
which was amended in July, 1996 to extend the expiration date by one year to
March 1, 2001.
At December 31, 1995, guaranteed obligations principally represented Empire Mine
debt obligations of LTV and Wheeling-Pittsburgh Steel Corporation. The Empire
Mine long-term debt was fully extinguished in December, 1996 (the Company's
share of Empire long-term debt principal payments was $3.9 million in 1996 and
$4.3 million in 1995 and 1994).
The ratio of effectively serviced long-term obligations to shareholders' equity
was .2:1 at December 31, 1996, .2:1 at December 31, 1995, and .3:1 at December
31, 1994.
37
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In January, 1995, the Company announced a program to repurchase up to 600,000 of
its Common Shares in the open market or in negotiated transactions. In July,
1996, the Company announced the expansion of this program to 1.0 million shares.
Under the combined program the Company has repurchased 780,300 shares through
December 31 at a total cost of $30.3 million (average price of $38.84 per
share). The shares will initially be retained as Treasury Stock.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. In addition to historical information, this
report contains forward-looking statements that are subject to risks and
uncertainties that could cause future results to differ materially from expected
results. Such statements are based on management's beliefs and assumptions made
on information currently available to it.
The Company's dominant business is the production and sale of iron ore pellets,
which is subject to the cyclical nature of the integrated steel industry.
Factors that could cause the Company's actual results to be materially different
from projected results include the following:
- Changes in the financial condition of integrated steel company
partners and customers;
- Domestic or international economic and political conditions;
- Unanticipated geological conditions or ore processing changes;
- Substantial changes in imports of steel or iron ore;
- Development of alternative steel-making technologies;
- Displacement of integrated steel production by electric furnace
production;
- Displacement of steel by competitive materials;
- Energy costs and availability;
- Labor contract negotiations;
- Changes in tax laws directly affecting mineral exploration and
development;
- Changes in laws, regulations or enforcement practices governing
environmental site remediation requirements and the technology
available to complete required remediation. Additionally, the
impact of inflation, the identification and financial condition of
other responsible parties, as well as the number of sites and
quantity and type of material to be removed, may significantly
affect estimated environmental remediation liabilities;
38
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
- Changes in laws, regulations or enforcement practices governing
compliance with environmental and safety standards at operating
locations; and,
- Accounting principles or policies imposed by the Financial
Accounting Standards Board or the Securities and Exchange
Commission.
The North American integrated steel industry has experienced high operating
rates in recent years. Most steel company partners and customers of the Company
have improved their financial condition due to improved operating results and
increased equity capital. However, the integrated steel industry continues to
have relatively high fixed costs and obligations.
The improvement in most integrated steel companies' financial positions has
reduced the major integrated business risk 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 Company is under no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
39
<PAGE> 12
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, 1996 and
1995, and the related statements of consolidated income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. 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 consolidated 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, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, 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.
ERNST & YOUNG LLP
Cleveland, Ohio
February 13, 1997
40
<PAGE> 13
STATEMENT OF CONSOLIDATED FINANCIAL POSITION Exhibit 13(c)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions)
December 31
-----------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 152.3 $ 139.9
Marketable securities 17.1 8.9
------ ------
169.4 148.8
Trade accounts receivable
(net of allowance, $1.1 in 1996 and $7.7 in 1995) 53.6 45.2
Receivables from associated companies 16.6 16.6
Inventories
Finished products 28.7 38.0
Work in process .9 .7
Supplies 15.4 17.0
------ ------
45.0 55.7
Deferred income taxes 4.4 14.1
Other 11.8 12.3
------ ------
TOTAL CURRENT ASSETS 300.8 292.7
PROPERTIES
Plant and equipment 249.7 240.3
Minerals 19.6 19.7
------ ------
269.3 260.0
Allowances for depreciation and depletion (141.6) (140.0)
------ ------
TOTAL PROPERTIES 127.7 120.0
INVESTMENTS IN ASSOCIATED COMPANIES 161.9 152.0
OTHER ASSETS
Long-term investments 10.8 16.3
Deferred charges 9.3 8.3
Deferred income taxes 11.9 11.2
Prepaid Pension 34.8 28.2
Miscellaneous 16.5 15.9
------ ------
TOTAL OTHER ASSETS 83.3 79.9
------ ------
TOTAL ASSETS $673.7 $644.6
====== ======
</TABLE>
41
<PAGE> 14
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions)
December 31
-----------
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 11.9 $ 16.0
Payables to associated companies 19.6 17.3
Accrued employment costs 26.5 27.2
Accrued expenses 19.2 17.5
Income taxes payable 5.3 .3
Reserve for capacity rationalization 11.1 10.5
Other 11.9 14.7
------ ------
TOTAL CURRENT LIABILITIES 105.5 103.5
LONG-TERM OBLIGATIONS 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 67.5 67.3
RESERVE FOR CAPACITY RATIONALIZATION 15.5 17.2
OTHER LIABILITIES 44.6 44.0
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 68.8 65.2
Retained income 432.0 386.1
Foreign currency translation adjustments .1 .3
Unrealized gain (loss) on available for sale securities,
net of tax (1.0) .1
Cost of 5,458,224 Common Shares in
treasury (1995 - 4,998,674 shares) (142.5) (123.8)
Unearned compensation (3.6) (2.1)
------ ------
TOTAL SHAREHOLDERS' EQUITY 370.6 342.6
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 673.7 $ 644.6
====== ======
<FN>
See notes to consolidated financial statements.
</TABLE>
42
<PAGE> 15
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
---------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
- --------
Product sales and service $ 451.7 $ 411.2 $ 334.8
Royalties and management fees 51.5 49.5 44.7
------- ------- -------
Total Operating Revenues 503.2 460.7 379.5
Property damage claim recovery 2.0 -- --
Investment income (securities) 9.5 9.3 7.9
Other income 3.4 3.1 1.5
------- ------- -------
Total Revenues 518.1 473.1 388.9
COSTS AND EXPENSES
- ------------------
Cost of goods sold and operating expenses 392.9 356.4 299.9
Administrative, selling and general expenses 16.7 15.1 15.9
Interest expense 4.6 6.5 6.6
Other expenses 8.4 23.5 9.0
------- ------- -------
Total Costs and Expenses 422.6 401.5 331.4
------- ------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 95.5 71.6 57.5
INCOME TAXES 34.5 10.7 14.7
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 61.0 60.9 42.8
EXTRAORDINARY LOSS
ON EARLY EXTINGUISHMENT OF DEBT
(NET OF TAX BENEFIT, $1.7 MILLION) -- (3.1) --
------- ------- -------
NET INCOME $ 61.0 $ 57.8 $ 42.8
======= ======= =======
NET INCOME PER COMMON SHARE
Before Extraordinary Item $ 5.26 $ 5.10 $ 3.54
Extraordinary Item -- (.26) --
------- ------- -------
Net Income $ 5.26 $ 4.84 $ 3.54
======= ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
43
<PAGE> 16
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
-----------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 61.0 $ 57.8 $ 42.8
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization:
Consolidated 6.6 6.1 3.7
Share of associated companies 11.0 10.7 10.7
Provision for deferred income taxes 10.9 5.5 (1.8)
Tax credit -- (12.2) --
Increases to environmental reserve 2.4 13.2 2.2
Extraordinary loss on debt extinguishment -- 4.8 --
Other (2.3) (1.2) (3.1)
------ ------ ------
Total before changes in operating assets and liabilities 89.6 84.7 54.5
Changes in operating assets and liabilities:
Marketable securities (8.2) (8.1) 92.3
Inventories and prepaid expenses 11.3 (15.7) 13.6
Receivables (8.4) 3.9 (11.6)
Payables and accrued expenses (.9) (6.8) 19.1
------ ------ ------
Total changes in operating assets and liabilities (6.2) (26.7) 113.4
------ ------ ------
Net cash from operating activities 83.4 58.0 167.9
INVESTING ACTIVITIES
Acquisition of Northshore Mining -- -- (97.3)
Weirton Preferred Stock redemption -- -- 25.0
Purchase of property, plant and equipment:
Consolidated (16.5) (16.6) (6.9)
Share of associated companies (20.2) (5.9) (4.0)
Sale of long-term investments 4.0 8.8 5.3
Other .4 (4.4) --
------ ------ ------
Net cash (used by) investing activities (32.3) (18.1) (77.9)
FINANCING ACTIVITIES
Principal payments on long-term debt:
Consolidated -- (75.0) --
Share of associated companies (3.9) (4.3) (4.3)
Debt prepayment fees -- (4.8) --
Proceeds from long-term debt -- 70.0 --
Repurchases of Common Shares (19.5) (10.7) --
Dividends (15.1) (15.5) (14.8)
Other -- .3 .6
------ ------ ------
Net cash (used by) financing activities (38.5) (40.0) (18.5)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (.2) (.6) 1.2
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12.4 (.7) 72.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 139.9 140.6 67.9
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 152.3 $ 139.9 $ 140.6
====== ====== ======
Taxes paid on income $ 20.6 $ 29.0 $ 17.6
Interest paid on debt obligations $ 4.9 $ 7.2 $ 6.5
<FN>
See notes to consolidated financial statements.
</TABLE>
44
<PAGE> 17
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, 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
Net income 57.8 57.8
Cash dividends - $1.30 a share (15.5) (15.5)
Change in unrealized gains,
net of tax (1.4) (1.4)
Stock plans
Restricted stock/stock options .3 .3
Performance shares 2.1 (.8) 1.3
Repurchases of Common Shares (10.7) (10.7)
Other (.6) (.6)
----- ----- ------ --- --- ----- ----- -----
BALANCE December 31, 1995 16.8 65.2 386.1 .3 .1 (123.8) (2.1) 342.6
Net income 61.0 61.0
Cash dividends - $1.30 a share (15.1) (15.1)
Change in unrealized gains,
net of tax (1.1) (1.1)
Stock plans
Restricted stock/stock options .4 .8 (1.1) .1
Performance shares 3.2 (.4) 2.8
Repurchases of Common Shares (19.5) (19.5)
Other (.2) (.2)
----- ----- ------ --- --- ----- ----- -----
BALANCE December 31, 1996 $ 16.8 $ 68.8 $ 432.0 $ .1 $ (1.0) $(142.5) $ (3.6) $ 370.6
===== ===== ====== === === ===== ===== =====
<FN>
See notes to consolidated financial statements.
</TABLE>
45
<PAGE> 18
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 and include, where appropriate, capitalized interest incurred during the
construction phase of qualifying assets (see Note C). The Company's share of
earnings of mining partnerships and companies 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 to integrated steel companies. 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 wholly-owned Australian operations had total revenues and pre-tax
operating profit of $56.1 million and $20.2 million, $45.8 million and $13.2
million, and $43.5 million and $5.6 million, in 1996, 1995 and 1994,
respectively. Total Australian assets were $28.5 million at December 31, 1996
(1995 - $31.8 million). The Australian operation terminated production as
planned in December, 1996 and is expected to ship its remaining inventory during
the first quarter of 1997.
Iron ore is marketed in North America, Europe, Asia, and Australia. The three
largest steel company customers' contributions to the Company's revenues were
15%, 12% and 11% in 1996; 17%, 11% and 10% in 1995; and 14%, 14% and 12% in
1994.
BUSINESS RISK: The North American steel industry experienced high operating
rates and generally positive financial results in 1996, 1995 and 1994. The
Company's integrated steel company partners and customers have generally
improved their financial condition over the three-year period as a result of
continued earnings and increased equity capital.
In recent years, the improvement in most steel companies' financial positions
has significantly reduced the major business risk faced by the Company, i.e.,
the potential financial failure and shutdown of significant customers or
partners with a resulting unmitigated loss of ore sales or royalty and
management fee income.
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,
unmitigated 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 (see Note E - McLouth Bankruptcy).
46
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cleveland-Cliffs Inc and Consolidated Subsidiaries
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 financial statement 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.
From time to time 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.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company does not engage in acquiring or
issuing derivative financial instruments for trading purposes. Derivative
financial instruments, in the form of forward currency exchange contracts, are
used by the Company to manage foreign exchange risks. These forward exchange
contracts are hedging transactions that have been entered into with the
objective of managing the risk of exchange rate fluctuations with respect to the
ordinary local currency obligations of the Company's operations. Gains and
losses are recognized in the same period as the hedged transaction.
The Company had $2.7 million and $4.5 million of Australian forward currency
exchange contracts at December 31, 1996 and 1995, respectively, and $7.1 million
and $4.8 million of Canadian forward currency exchange contracts at December 31,
1996 and 1995, respectively. The fair value of these currency exchange
contracts, which have varying maturity dates (to February 28, 1997 - Australian;
to December 31, 1997 - Canadian), is estimated to be $2.8 million for the
Australian contracts and $7.0 million for the Canadian contracts, based on the
December 31, 1996 forward rates.
47
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cleveland-Cliffs Inc and Consolidated Subsidiaries
Cliffs and Associates Limited has entered into a forward currency exchange
contract to hedge Deutsche Mark payments required to be made as part of the
Trinidad construction project (see Note C). The Company's share of outstanding
contracts, which have varying maturity dates to June 1, 1998, has an aggregate
contract value of $10.8 million and an aggregate estimated fair value of $10.3
million, at December 31, 1996.
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 $2.9 million and $1.2 million at December 31, 1996 and
1995, respectively. The cost of other inventories is determined by the average
cost method.
PROPERTIES: Properties are stated at cost. Depreciation of plant and equipment
is computed principally by the straight-line method based on estimated useful
lives, not to exceed the life of the operating unit, and is not reduced when
operating units are temporarily idled. Depreciation on buildings, mining and
processing equipment is provided over the following estimated useful lives:
Buildings 45 Years
Mining Equipment 10-20 Years
Processing Equipment 15-45 Years
Depletion of mineral lands is computed using the units of production method
based upon proven mineral reserves.
ENVIRONMENTAL REMEDIATION COSTS: The Company accrues environmental remediation
obligations when the obligations are probable and can be reasonably estimated.
Costs of future expenditures are not discounted to their present value.
Recoveries from insurance companies or other parties are not recognized until
they become probable.
STOCK COMPENSATION: The Company applies the provisions of the Accounting
Principles Board Opinion No. 25 ("APB 25") and related Interpretations in
accounting for its stock option plans. Accordingly, compensation expense is not
recognized for stock options when the stock option price at the grant date is
equal to or greater than the fair market value of the stock at that date.
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, 1996, deferred development
costs were less than $1.0 million.
INCOME PER COMMON SHARE: Income 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.
48
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE A - ACCOUNTING AND DISCLOSURE CHANGES
In October, 1996, Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 96-1,
"Environmental Remediation Liabilities," the purpose of which is to improve the
manner in which existing authoritative accounting literature is applied in
recognizing, measuring and disclosing environmental remediation liabilities. The
statement is effective for fiscal years beginning after December 15, 1996. The
Company is evaluating the recording and disclosure requirements of this
statement, believes that it is substantially in compliance with the
requirements, and expects no significant financial statement effect.
NOTE B - NORTHSHORE MINE AND POWER PLANT ACQUISITION
On September 30, 1994, Cliffs Minnesota Minerals Company, a subsidiary of
Cleveland-Cliffs Inc, acquired Cyprus Amax Minerals Company's iron ore operation
and power plant (renamed Northshore Mining Company or "Northshore") in
Minnesota. The principal Northshore 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 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 15
years remaining at December 31, 1996.
The acquisition was accounted for as a purchase transaction. Pro forma results
of the Company's operations, assuming the acquisition had occurred at the
beginning of 1994, are shown in the following table:
<TABLE>
Pro Forma (Unaudited) 1994
--------------------- ----
<S> <C>
Total Revenues (Millions) $466.7
======
Net Income
----------
Amount (Millions) $ 47.0
======
Per Common Share $ 3.89
======
</TABLE>
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 1994, nor of results which may occur in
the future. Actual results could have been 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.
In June 1995, a $6 million pellet expansion project, at Northshore, which
involved the re-commissioning of an idled pelletizing unit, was completed. On an
annualized basis, the project added approximately .9 million tons of pellets, a
23 percent expansion of Northshore production.
49
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE C - INVESTMENTS IN ASSOCIATED COMPANIES
NORTH AMERICAN IRON ORE
- -----------------------
The Company's investments in associated mining companies ("ventures") are
accounted by the equity method and consist of its 40% interest in Tilden Mining
Company L.C. ("Tilden"), 22.5625% interest in Empire Iron Mining Partnership
("Empire"), 15% interest in Hibbing Taconite Company ("Hibbing"), and 7.69%
(7.01% in 1994) interest in Wabush Mines ("Wabush"). These ventures are managed
by the Company in North America. The other interests are owned by U.S. and
Canadian integrated steel companies.
Following is a summary of combined financial information of the operating
ventures:
<TABLE>
<CAPTION>
(In Millions)
-------------------------------------
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
INCOME
Gross revenue $1,043.7 $1,025.9 $968.2
Equity income 121.0 143.3 99.5
======== ======== ======
FINANCIAL POSITION
Properties - net $ 745.6 $ 761.5 $ 774.5
Other assets 163.4 138.6 107.1
Debt obligations -- (22.5) (39.8)
Other liabilities (204.9) (163.9) (147.4)
-------- ------- -------
Net assets $ 704.1 $ 713.7 $ 694.4
======== ======= =======
Company's equity in
underlying net assets $ 177.9 $ 185.1 $ 253.6
Company's investment $ 147.5 $ 152.0 $ 151.7
======== ======= =======
</TABLE>
The Company manages and operates all of the 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 $228.0 million in 1996 (1995-
$217.8 million; 1994-$212.5 million) of iron ore from certain ventures. During
1996, the Company earned royalties and management fees of $51.5 million (1995-
$49.5 million; 1994-$44.7 million) from ventures, of which $14.4 million in 1996
(1995-$13.7 million; 1994-$12.7 million) was paid by the Company as a
participant in the ventures. The payments made by the Company, as a participant
in the ventures, are reflected in royalties and management fees revenue and cost
of goods sold upon the sale of the product.
50
<PAGE> 23
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 the 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 ventures, acquisitions, and the Tilden reorganization. The Company's equity
in the income of ventures was $24.1 million in 1996 (1995-$24.3 million;
1994-$19.5 million).
The Company's effectively serviced share of long-term obligations of ventures,
including current portion, was $2.9 million as of December 31, 1996 (1995-$6.3
million).
REDUCED IRON
- ------------
On April 15, 1996, the Company announced an international joint venture to
produce and market premium quality reduced iron briquettes to the steel
industry. All project documents were signed on May 8, 1996. The venture's
participants, through subsidiaries, are the Company, 46.5 percent; The LTV
Corporation ("LTV"), 46.5 percent; and Lurgi AG of Germany, 7 percent. The
Company manages the project, located in Trinidad and Tobago, and will be
responsible for sales by the venture company, Cliffs and Associates Limited. The
Company's share of capital expenditures is estimated to be $70 million, of which
$13.1 million was spent in 1996 and $46 million is expected to be spent in 1997.
Start-up is projected to occur in the fourth quarter 1998.
The Company's investment in the venture is accounted by the equity method. The
investment at December 31, 1996 was $14.4 million and includes capitalized
interest on qualifying assets of $.3 million.
51
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE D - INVESTMENTS
<TABLE>
<CAPTION>
Following is a summary of investment securities:
(In Millions)
-------------------------------------------
Gross Estimated
Unrealized Fair
Cost Gains (Losses) Value
---- -------------- -----
December 31, 1996
-----------------
<S> <C> <C> <C>
Long-Term Investments
- ---------------------
Available-for-Sale
------------------
LTV Common Stock $11.5 $(1.5) $10.0
Held-to-Maturity
----------------
Australian Government Securities .8 -- .8
----- ----- -----
Total Long-Term Investments $12.3 $(1.5) $10.8
===== ===== =====
Marketable Securities
- ---------------------
Debt Instruments
----------------
Available-for-Sale $16.3 $ -- $16.3
Held-to-Maturity .8 -- .8
----- ----- -----
$17.1 $ -- $17.1
===== ===== =====
December 31, 1995
-----------------
Long-Term Investments
- ---------------------
Available-for-Sale
------------------
Debt Securities $ .1 $ -- $ .1
LTV Common Stock 11.5 .1 11.6
----- ----- -----
11.6 .1 11.7
Held-to-Maturity
----------------
Australian Government Securities 4.6 .3 4.9
----- ----- -----
Total Long-Term Investments $16.2 $ .4 $16.6
===== ===== =====
Marketable Securities
- ---------------------
Trading
-------
Debt Securities $ 8.9 $ -- $ 8.9
===== ===== =====
</TABLE>
52
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The contractual maturities of the long-term investments classified as
available-for-sale and held-to-maturity securities at December 31, 1996 and 1995
are shown below:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
(In Millions) (In Millions)
----------------- -----------------
Estimated Estimated
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Held-to-Maturity
- ----------------
Debt Instruments:
Due in one year or less $ .8 $ .8 $ 3.9 $ 4.1
Due after one year through three years -- -- .7 .8
----- ----- ----- -----
$ .8 $ .8 $ 4.6 $ 4.9
===== ===== ===== =====
</TABLE>
In 1996 and 1995, $3.8 million and $8.3 million of Australian government
securities, respectively, matured and were converted to cash and cash
equivalents. The redemption of these investments, previously classified as
held-to-maturity securities, did not result in the recognition of a gain or
loss.
NOTE E - MCLOUTH BANKRUPTCY
On September 29, 1995, McLouth Steel Products Company ("McLouth") petitioned for
protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of the
bankruptcy filing, the Company had an unreserved receivable from McLouth of $5.0
million, secured by liens on certain McLouth fixed assets. Reserves of $3.4
million have been recorded against the receivable.
On March 15, 1996, McLouth announced that it had begun a shutdown of its
operations due to inadequate funds. The Company had supplied approximately .3
million tons of pellets to McLouth in 1996 prior to shutdown. The Company
reserved all financial exposure from the McLouth shutdown, except the remaining
unreserved receivable which is secured by first liens on property and equipment.
On June 26, 1996, the bankruptcy court approved the sale of McLouth's assets and
an agreement to settle secured claims, including the Company's secured claim.
Based on the terms of the agreement, the Company expects to recover the carrying
value of its secured claim. Proceeds from the sale of McLouth's assets will be
used primarily to satisfy administrative claims, including the Company's
administrative claim.
The Company's total shipments in 1996 were not affected by McLouth's bankruptcy
filing or the shutdown of its operations. Although sales to McLouth in 1996 were
only 0.3 million tons prior to shutdown in the first quarter, compared to 1.3
million tons for the full year 1995 (representing 12.5 percent of the Company's
sales volume), sales of the remaining available tons in 1996 were made to other
customers.
53
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE F - 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 a restructuring of Savage River Mines
under which the previous participants in the venture paid $19.0 million to the
Company for closedown obligations. In 1996, $1.1 million was charged to the
reserve. During 1995 and 1994, $.5 million and $3.8 million, respectively, were
credited to the reserve. The balance at December 31, 1996 was $33.7 million,
with $7.1 million classified as a reduction of other current assets.
The reserve balance is principally for the termination of Savage River Mines
production and the permanent shutdown of the Republic Mine. The Republic Mine
shutdown was announced on January 30, 1996. The Savage River Mines provision has
been funded.
NOTE G - ENVIRONMENTAL RESERVES
The Company has a formal code of environmental conduct which promotes
environmental protection and restoration. The Company's obligations for known
environmental problems at active mining operations, idle and closed mining
operations and other sites have been recognized based on estimates of the cost
of required investigation and remediation at each site. If the cost can only be
estimated as a range of possible amounts with no specific amount being most
likely, the minimum of the range is accrued in accordance with generally
accepted accounting principles. Estimates may change as additional information
becomes available. Actual costs incurred may vary from the estimates due to the
inherent uncertainties involved. Any potential insurance recoveries have not
been reflected in the determination of the financial reserves.
The Company provided $2.4 million and $13.2 million of additional environmental
reserves in 1996 and 1995, respectively. In 1995, $9.9 million ($6.7 million
after-tax) was recorded in the second quarter. The additional environmental
provisions reflect the Company's continuing review of estimated investigation
and remediation expense at all known sites. Net payments in 1996 were $1.6
million (1995 - $2.4 million).
At December 31, 1996, the Company had an environmental reserve of $23.7 million
($22.9 million at December 31, 1995), of which $4.0 million was classified as
current. The reserve includes the Company's obligations for:
54
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
- 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 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 of site clean-up.
Significant site clean-up activities have taken place at
Cliffs-Dow since late 1993.
- Wholly-owned active and idle operations, including the Northshore
mine and Silver Bay power plant in Minnesota, acquired on
September 30, 1994. The Northshore/Silver Bay reserve is based on
an environmental investigation conducted by the Company and an
outside consultant in connection with the purchase.
- Other sites, including former operations, for which reserves are
based on the Company's estimated cost of investigation and
remediation of sites where expenditures may be incurred.
NOTE H - LONG-TERM OBLIGATIONS
In December, 1995, the Company completed a private placement of $70.0 million of
senior unsecured notes to an insurance company group. The proceeds were used to
retire existing notes in the same amount, held by another group of insurance
companies. The new notes, due in December, 2005, have a fixed interest rate of
7.0 percent, and replaced notes which had an average interest rate of 8.77
percent and remaining annual principal payments of $12.1 million per year in the
years 1996 through 1999 and $7.2 million in the years 2000 through 2002. The
retiring of the notes resulted in an extraordinary charge of $3.1 million
after-tax ($4.8 million before-tax). The senior unsecured note agreement
requires the Company to meet certain covenants related to net worth ($215.3
million at December 31, 1996), leverage, and other provisions. The Company was
in compliance with the debt covenants at December 31, 1996.
Effective March 1, 1995, the Company terminated its $75 million three-year
revolving credit agreement which was scheduled to expire on April 30, 1995, and
entered into a five-year, $100 million agreement. The agreement was amended in
July, 1996 to extend the expiration date by one year to March 1, 2001. No
borrowings are outstanding under the agreement.
55
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE I - LEASE OBLIGATIONS
The Company and its managed ventures lease certain mining, production, data
processing and other equipment under operating leases. The Company's operating
lease expense, including its share of the ventures, was $7.6 million in 1996,
$6.9 million in 1995 and $4.5 million in 1994.
The Company's share of properties of the Company's managed ventures at December
31, 1996 and 1995 include $4.3 million and $3.3 million, respectively, of
production equipment and service vehicles acquired under capital leases. The
Company's share of accumulated amortization of capital leases included in
respective allowances for depreciation, was $2.0 million and $1.2 million at
December 31, 1996 and 1995, respectively.
The Company's share of future minimum payments under capital leases and
noncancellable operating leases at December 31, 1996 is:
<TABLE>
<CAPTION>
(In Millions)
-------------
Year Ending Capital Operating
December 31 Leases Leases
----------- ------ ------
<S> <C> <C>
1997 $ .9 $ 8.0
1998 .8 7.8
1999 .7 6.9
2000 .6 5.8
2001 .3 4.3
2002 and thereafter .2 7.1
---- -----
Total minimum lease payments 3.5 $39.9
=====
Amounts representing interest (.7)
----
Present value of net minimum lease payments $2.8
====
</TABLE>
NOTE J - RETIREMENT BENEFITS
Pensions
- --------
The Company and its managed ventures 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 costs, including the Company's proportionate share of the costs of
ventures, were credits of $1.0 million and $1.2 million, in 1996 and 1995,
respectively, and a cost of $ .2 million in 1994. Components of the pension
(credits) costs were as follows:
56
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
(In Millions)
------------------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Service cost $ 3.8 $ 3.4 $ 3.7
Interest cost 13.2 15.3 14.4
Actual loss (return) on plan assets (32.4) (42.6) 1.5
Net amortization and deferral 14.4 22.7 (19.4)
------ ------ ------
$ (1.0) $ (1.2) $ .2
====== ====== ======
</TABLE>
Most of the Company's pension funds are held in diversified collective trusts
with the funds contributed by partners in the 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 ventures, at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In Millions)
-----------------------
1996 1995
---- ----
<S> <C> <C>
Plan assets at fair value $ 247.9 $ 249.1
Actuarial present value of benefit
obligation:
Vested benefits 152.1 187.9
Nonvested benefits 21.5 22.4
------- -------
Accumulated benefit obligation 173.6 210.3
Effect of projected compensation levels 14.0 23.3
------- -------
Projected benefit obligation 187.6 233.6
------- -------
Plan assets in excess of projected
benefit obligation 60.3 15.5
Unrecognized prior service costs 7.0 8.3
Unrecognized net asset at date of adoption
of FAS 87, net of amortization (23.7) (26.2)
Unrecognized net loss (gain) (14.1) 25.9
------- -------
Prepaid cost $ 29.5 $ 23.5
======= =======
</TABLE>
At December 31, 1996 and 1995, the Company had an additional liability of $2.3
million and $1.6 million, respectively, for certain plans where the fair value
of plan assets was less than the accumulated benefit obligation. The minimum
liability recognition resulted in the recording of a $2.3 million and $1.6
million intangible asset at December 31, 1996 and 1995, respectively.
The discount rate and weighted average rate of increase in compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 7.75% and 4.30% at December 31, 1996 (7.25% and 4.32% at
December 31, 1995), respectively. The expected long-term rate of return
assumption utilized for determining pension (credit) cost for the years 1996,
1995 and 1994 was 8.75%, 8.5% and 8%, respectively. The assumption remained
unchanged at 8.75% on December 31, 1996 for year 1997 pension cost (credit)
determination.
57
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The Company is funding its pension plans at the maximum amount deductible for
income tax purposes. For Plan Year 1996 (largely funded in calendar year 1997),
the Company plans to contribute $3.0 million, including its share of associated
companies' funding, a decrease of $2.1 million from Plan Year 1995. 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 ("OPEB")
- --------------------------------------
In addition to the Company's defined benefit pension plans, the Company and its
managed ventures currently provide retirement health care and life insurance
benefits to most full-time employees who meet certain length of service and age
requirements (a portion of which are pursuant to collective bargaining
agreements). 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.
The following table presents a reconciliation of the funded status of the
Company's OPEB obligations, including its proportionate share of the obligations
of ventures, at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In Millions)
----------------------------
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 54.6 $ 67.5
Fully eligible active plan participants 6.2 3.2
Other active plan participants 20.7 24.8
------ ------
Total obligation 81.5 95.5
Plan assets (14.3) (12.1)
------ ------
Accumulated postretirement benefit cost
obligation in excess of plan assets 67.2 83.4
Unrecognized prior service (cost) (.1) (.1)
Unrecognized gain (loss) 6.5 (9.2)
------ ------
Accrued postretirement benefit cost $ 73.6 $ 74.1
====== ======
</TABLE>
Net periodic postretirement benefit cost, including the Company's proportionate
share of the costs of ventures, includes the following components:
<TABLE>
<CAPTION>
(In Millions)
--------------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost $ 1.3 $ 1.2 $ 1.1
Interest cost 5.9 5.8 5.6
Return on plan assets (.9) (.6) (.5)
Net amortization and deferral -- (.4) .1
----- ----- -----
Net periodic postretirement benefit cost $ 6.3 $ 6.0 $ 6.3
===== ===== =====
</TABLE>
58
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The Company's medical cost trend rate assumption reflects projected medical cost
growth of 8.0% in 1997, decreasing by .5% per year to a growth rate of 5% for
the year 2003 and annually thereafter. The medical cost trend rate assumption
has a significant effect on the amounts reported. For example, changing the
assumed medical cost trend rate by one percentage point in each year would
change the accumulated postretirement benefit obligation, as of December 31,
1996 by $11.0 million, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1996 by $1.1 million.
Amounts include the Company's proportionate share of the costs of ventures.
Plan assets include deposits relating to funded life insurance contracts that
are available to fund retired employees' life insurance obligations.
Additionally, as part of the 1993 labor contracts at Empire, Hibbing, and
Tilden, Voluntary Employee Benefit Association Trusts ("VEBAs") were
established. Funding of the VEBAs began in 1994 to cover a portion of the
postretirement benefit obligations of these ventures. 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 discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% at December 31, 1996
(7.25% and 8.5% at December 31, 1995 and 1994, respectively). The expected
long-term rate of return on life insurance contract deposits was decreased to
6.0% at December 31, 1996 from 8.0% at December 31, 1995 to reflect contract
provisions. The expected return on VEBAs was increased to 7.75% at December 31,
1996 from 5.5% at December 31, 1995.
NOTE K - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(In Millions)
---------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions $21.2 $20.9
Other liabilities 18.8 20.1
Reserve for capacity rationalization 8.2 7.3
Deferred development 8.0 9.2
Product inventories 1.9 3.6
Current liabilities -- 6.7
Other 4.5 2.4
----- -----
Total deferred tax assets 62.6 70.2
Deferred tax liabilities:
Investment in ventures 25.2 24.5
Other 21.1 20.4
----- -----
Total deferred tax liabilities 46.3 44.9
----- -----
Net deferred tax assets $16.3 $25.3
===== =====
</TABLE>
59
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The components of provisions for income taxes before the extraordinary item are
as follows:
<TABLE>
<CAPTION>
(In Millions)
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current $23.6 $11.9 $16.5
Deferred 10.9 (1.2) (1.8)
----- ----- -----
$34.5 $10.7 $14.7
===== ===== =====
</TABLE>
In 1995, the Company and the Internal Revenue Service reached agreement on
several issues raised during the examination of the Company's federal income tax
returns for the tax years 1986 through 1988. The income tax settlement favorably
resolved a number of audit issues primarily arising from the Company's
restructuring program in the late 1980s when mining partnerships were
reorganized to cope with steel company bankruptcies and non-core businesses were
divested. During that period, the Company had reserved the potential tax
liabilities. Accordingly, a tax credit of $12.2 million was recorded in the
second quarter of 1995. As a result of the settlement and its related impact on
the tax years 1989 through 1993, the Company made additional tax and interest
payments of $11.8 million in the third quarter of 1995 and is entitled to tax
and interest refunds of $5.3 million of which $2.3 million was received in 1996.
The provision for income taxes included Australian federal income taxes of $7.5
million, $3.7 million, and $1.9 million for the years 1996, 1995 and 1994,
respectively.
The reconciliation of effective income tax rate before the extraordinary item
and United States statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease) due to:
Percentage depletion in excess
of cost depletion (5.9) (7.8) (7.9)
Effect of foreign taxes 5.3 1.7 .2
Prior years' tax adjustment (.2) (15.2) (1.5)
Corporate dividends received -- -- (1.0)
Other items - net 2.0 1.3 .8
---- ---- ----
Effective tax rate 36.2% 15.0% 25.6%
===== ===== =====
</TABLE>
Prior years' tax adjustment in 1995 includes the effect of the $12.2 million tax
credit.
60
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE L - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and fair value of the Company's financial instruments at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(In Millions)
-----------------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents $152.3 $152.3
Marketable securities:
Available-for-Sale 26.3 26.3
Held-to-Maturity 1.6 1.6
------ ------
Total securities 27.9 27.9
Long-term debt 70.0 68.0
</TABLE>
The fair value of the Company's long-term debt was determined based on a
discounted cash flow analysis and estimated borrowing rates. The Company,
including its share of the Trinidad venture, also has forward currency contracts
with a contract value of $20.6 million and a fair value of $20.1 million at
December 31, 1996.
NOTE M - 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.
61
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
The 1996 Nonemployee Directors' Compensation Plan authorizes the Company to
issue up to 50,000 Common Shares to nonemployee Directors. The Plan provides for
the grant of 1,000 Restricted Shares to nonemployee Directors first elected
after June 30, 1995 and also provides that nonemployee Directors must take at
least 50%, and may elect up to 100%, of their annual retainer and all other fees
in Common Shares. The Restricted Shares vest five years from the date of award.
In accordance with the provisions of the Financial Accounting Standards Board
Statement 123, "Accounting for Stock-Based Compensation," ("FASB 123") the
Company has elected to continue applying the provisions of the Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock-based compensation plans and, accordingly, does not recognize
compensation expense for stock options when the stock option price at the grant
date is equal to or greater than the fair market value of the stock at that
date. Had the Company applied the fair value method for valuing stock options,
as prescribed by FASB 123, the impact would not have been material to reported
net income or earnings per share for 1996 or 1995.
Stock option, restricted stock award, and performance share activities are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------ -----------------------
Shares Price Shares Price Shares Price
------- --------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Stock options:
Options outstanding
beginning of year 72,775 $ 8.51-40.56 82,182 $ 8.51-37.13 105,125 $ 8.51-34.80
Granted 109,500 41.69-45.00 5,000 39.44-40.56 5,500 35.50-37.13
Exercised (6,250) 20.12-24.32 (14,407) 8.51-35.50 (27,943) 8.51-34.80
Cancelled (18,600) 45.00 -- -- (500) 35.50
------- ------- --------
Options outstanding at end of year 157,425 8.51-45.00 72,775 8.51-40.56 82,182 8.51-37.13
Options exercisable at end of year 72,525 8.51-41.69 72,775 8.51-40.56 82,182 8.51-37.13
Restricted awards:
Awarded and restricted at beginning
of year 10,854 13,264 20,218
Awarded during the year 30,000 -0- 8,000
Vested (1,189) (2,410) (14,954)
Cancelled -- -- --
------- ------- -------
Awarded and restricted at end of year 39,665 10,854 13,264
Performance shares:
Allocated beginning of year 88,767 41,317 --
Allocated during the year 57,400 47,450 42,067
Forfeited (1,000) -- (750)
------- ------- -------
Allocated end of year 145,167 88,767 41,317
Reserved for future grants or awards
at end of year 342,157 469,457 521,907
</TABLE>
62
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cleveland-Cliffs Inc and Consolidated Subsidiaries
NOTE N - SHAREHOLDERS' EQUITY
As of December 31, 1996, 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, 1996, 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 approximately 185,000 Common Shares
reserved for these Rights.
In January, 1995, the Company announced a program to repurchase up to .6 million
of its Common Shares in the open market or in negotiated transactions. In July,
1996, the Company announced the expansion of this program to 1.0 million shares.
Under the combined program, the Company has repurchased 780,300 shares through
December 31, 1996 at a total cost of $30.3 million (average price of $38.84 per
share). The shares will initially be retained as Treasury Stock.
NOTE O - LITIGATION
The Company and its managed ventures 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> 36
QUARTERLY RESULTS OF OPERATIONS-(Unaudited) Exhibit 13(h)
(In Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
1996
----------------------------------------------------
Quarters
-----------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Total Revenues $59.8 $140.8 $166.7 $150.8 $518.1
Gross Profit 10.4 30.1 37.1 32.7 110.3
Net Income
Amount 3.6 17.8 21.3 18.3 61.0
Per Common Share .30 1.52 1.84 1.60 5.26
Second quarter results included a $1.3 million after-tax property damage
insurance recovery on a January, 1996 ore train derailment.
1995
----------------------------------------------------
Quarters
-----------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
Total Revenues $63.6 $118.9 $144.6 $146.0 $473.1
Gross Profit 10.4 26.4 33.4 34.1 104.3
Income Before Extraordinary Item
Amount 5.0 20.9 17.3 17.7 60.9
Per Common Share .41 1.75 1.45 1.49 5.10
Extraordinary Item -- -- -- (3.1) (3.1)
----- ------ ------ ------ ------
Net Income
Amount 5.0 20.9 17.3 14.6 57.8
Per Common Share .41 1.75 1.45 1.23 4.84
</TABLE>
Second quarter results included two special items: a $12.2 million tax credit
resulting from the settlement of prior years' tax issues, and a $6.7 million
after-tax increase in the reserve for environmental expenditures. Third quarter
results included a $1.8 million reserve against McLouth receivables. The fourth
quarter included an extraordinary after-tax charge of $3.1 million for
refinancing long-term debt.
Earnings per share reflect the favorable periodic repurchase of shares under the
Company's stock repurchase program. Total shares repurchased through December
31, 1996 were 780,300 shares (through December 31, 1995 - 284,500).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Share Price Performance and Dividends
Price Performance
-------------------------------------------------
1996 1995 Dividends
----------------- ----------------- ------------
High Low High Low 1996 1995
------- ------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $46-7/8 $40-1/4 $40-1/8 $36-1/2 $.325 $.325
Second Quarter 44-1/4 37-3/4 40-5/8 36-1/8 .325 .325
Third Quarter 40-1/8 36-1/4 46-3/4 38-5/8 .325 .325
Fourth Quarter 46-1/8 38 41-1/8 37 .325 .325
----- -----
Year 46-7/8 36-1/4 46-3/4 36-1/8 $1.30 $1.30
===== =====
</TABLE>
64
<PAGE> 37
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> 38
SUMMARY OF FINANCIAL AND OTHER STATISTICAL DATA Exhibit 13(j)
Cleveland-Cliffs Inc and Consolidated Subsidiaries
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR
Operating Earnings From Continuing Operations:
Operating Revenues - Product Sales and Services . . . . . . . . . $451.7 $411.2 $334.8
- Royalties and Management Fees . . . . . . . 51.5 49.5 44.7
-------------------------
- Total . . . . . . . . . . . . . . . . . . . 503.2 460.7 379.5
Cost of Goods Sold and Operating Expenses and AS&G Expenses . . . 409.6 371.5 315.8
-------------------------
Operating Earnings . . . . . . . . . . . . . . . . . . . . . . . 93.6 89.2 63.7
Net Income (Loss) - From Continuing Operations (a) . . . . . . . . 61.0 57.8 42.8
- From Discontinued Operations. . . . . . . . . . --- --- ---
-------------------------
- Total . . . . . . . . . . . . . . . . . . . . . 61.0 57.8 42.8
Net Income (Loss) Per Common Share - From Continuing Operations(a) 5.26 4.84 3.54
- From Discontinued Operations --- --- ---
-------------------------
- Total. . . . . . . . . . . . . 5.26 4.84 3.54
Distributions to Common Shareholders:
Quarterly Cash Dividends - Per Share . . . . . . . . . . . . . . 1.30 1.30 1.23
- Total . . . . . . . . . . . . . . . . 15.1 15.5 14.8
Special Dividends - Per Share . . . . . . . . . . . . . . --- --- ---
- Total . . . . . . . . . . . . . . . . --- --- ---
Spin-off of Securities - Per Share . . . . . . . . . . . . . . --- --- ---
- Total . . . . . . . . . . . . . . . . --- --- ---
Repurchase (Sale) of Common Shares . . . . . . . . . . . . . . . . 19.5 10.7 ---
Capital Expenditures (c). . . . . . . . . . . . . . . . . . . . . . 36.7 22.5 10.9
AT YEAR-END
Cash and Marketable Securities. . . . . . . . . . . . . . . . . . . 169.4 148.8 141.4
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 673.7 644.6 608.6
Long-Term Obligations Effectively Serviced (c) . . . . . . . . . . 72.9 76.3 84.2
Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 370.6 342.6 311.4
Book Value Per Common Share . . . . . . . . . . . . . . . . . . . . 32.59 28.96 25.74
Market Value Per Common Share. . . . . . . . . . . . . . . . . . . 45.38 41.00 37.00
- --------------------------------------------------------------------------------------------------------
IRON ORE PRODUCTION AND SALES STATISTICS (MILLIONS OF
GROSS TONS)
Production From Mines Managed By Cliffs:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 39.6 35.2
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.5 1.5
-------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.5 41.1 36.7
Cliffs' Share . . . . . . . . . . . . . . . . . . . . . . . . . 12.0 11.3 8.3
Cliffs' Sales From:
North American Mines . . . . . . . . . . . . . . . . . . . . . . 11.0 10.4 8.2
Australian Mine . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.5 1.5
-------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 11.9 9.7
- ----------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Common Shares Outstanding (Millions) - Average For Year . . . . . . 11.6 11.9 12.1
Common Shares Outstanding (Millions) - At Year End . . . . . . . . 11.4 11.8 12.1
Common Shares Price Range - High . . . . . . . . . . . . . . . . . $46-7/8 $46-3/4 $45-1/2
Common Shares Price Range - Low . . . . . . . . . . . . . . . . . . 36-1/4 36-1/8 34
Employees at Year-End (d) . . . . . . . . . . . . . . . . . . . . . 6,065 6,224 6,309
</TABLE>
(a) Results include after-tax net contributions of special items and
extraordinary charge of $2.4 million in 1995, recoveries on bankruptcy
claims of $23.2 million ($1.93 per share) and $47.1 million ( $4.03 per
share) in 1993 and 1990, respectively, and a $38.7 million ($3.23 per
share) after-tax charge for accounting changes in 1992. In addition, see
note B to the consolidated financial statements.
66
<PAGE> 39
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$268.1 $266.9 $271.6 $272.2 $294.9 $247.9 $303.5
39.7 43.8 45.8 37.7 55.6 50.2 40.8
- ---------------------------------------------------------------------------------------------
307.8 310.7 317.4 309.9 350.5 298.1 344.3
268.5 275.5 275.0 279.7 257.8 227.6 327.5
- ---------------------------------------------------------------------------------------------
39.3 35.2 42.4 30.2 92.7 70.5 16.8
54.6 (7.9) 53.8 73.8 62.5 42.6 30.2
--- --- --- --- (1.9) (3.4) (17.5)
- ---------------------------------------------------------------------------------------------
54.6 (7.9) 53.8 73.8 60.6 39.2 12.7
4.55 (.66) 4.55 6.31 5.37 3.12 1.88
--- --- --- --- (.17) (.26) (1.31)
- ---------------------------------------------------------------------------------------------
4.55 (.66) 4.55 6.31 5.20 2.86 .57
1.20 1.18 1.03 .80 .40 --- ---
14.4 14.1 12.1 9.3 4.7 --- ---
2.70 (b) --- 4.00 --- --- .79 (b) ---
32.4 (b) --- 47.0 --- --- 12.8 (b) ---
--- --- --- --- --- 3.55 (b) ---
--- --- --- --- --- 41.3 (b) ---
--- --- --- --- --- 125.2 (62.4)
5.0 5.2 7.3 11.2 14.6 8.4 2.0
161.0 128.6 95.9 96.0 95.5 52.4 109.8
549.1 537.2 478.7 510.9 415.2 390.6 665.6
88.6 92.1 65.0 82.4 93.4 145.7 183.5
280.4 269.5 290.8 290.8 226.0 168.6 395.4
23.25 22.47 24.40 24.88 19.36 14.53 21.02
37.38 35.63 36.13 27.13 29.00 26.63 14.88
- ---------------------------------------------------------------------------------------------
32.3 32.9 32.1 31.7 39.3 39.0 34.3
1.5 1.5 1.3 2.2 2.3 2.4 2.0
- ---------------------------------------------------------------------------------------------
33.8 34.4 33.4 33.9 41.6 41.4 36.3
6.8 7.3 7.0 6.6 8.9 9.1 5.0
6.4 6.0 6.0 6.5 7.5 6.7 5.5
1.4 1.3 1.3 0.3 --- --- ---
- ---------------------------------------------------------------------------------------------
7.8 7.3 7.3 6.8 7.5 6.7 5.5
- ---------------------------------------------------------------------------------------------
12.0 12.0 11.8 11.7 11.6 13.2 13.4
12.1 12.0 11.9 11.7 11.7 11.6 16.4
$37-1/2 $40-3/8 $36-1/2 $35 $34 $28 $21-3/8
28-3/4 29-1/2 25 19-5/8 25-3/4 14-1/4 9-1/4
5,973 6,388 6,500 6,695 7,522 7,638 8,328
<FN>
(b) Includes securities at market value on distribution date.
(c) Includes Cliffs'share of associated companies and equipment acquired on capital leases.
(d) Includes employees of managed mining ventures.
At December 31, 1996, the Company had 2,942 shareholders of record.
</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) Ohio
Cliffs and Associates Limited (3) Trinidad
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), (2) 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. Colorado
Cliffs of Canada Limited (1) Ontario, Canada
Cliffs Reduced Iron Corporation Delaware
Cliffs Reduced Iron Management Company (5) Delaware
Cliffs Resources, Inc. Delaware
Cliffs Synfuel Corp. Utah
Cliffs TIOP, Inc. (1), (6) Michigan
Empire-Cliffs Partnership (4) Michigan
Empire Iron Mining Partnership (7) Michigan
Escanaba Properties Company (1), (8) Michigan
Escanaba Properties Partnership (8) Michigan
Hibbing Taconite Company, a joint venture (9) Minnesota
Kentucky Coal Company Delaware
Lake Superior & Ishpeming Railroad Company (10) Michigan
Lasco Development Corporation (10) Michigan
Marquette Iron Mining Partnership (2) Michigan
Mattagami Mining Co. Limited (11) Ontario, Canada
Mesabi Radio Corporation (11) Minnesota
Minerais Midway Ltee-Midway Ore Company Ltd. (11) Quebec, Canada
Mines Hilton Ltee-Hilton Mines, Ltd. (11) Quebec, Canada
Northshore Mining Company (12) Delaware
Northshore Sales Company (13) Ohio
Peninsula Land Corporation (11) Michigan
- -----------------------------------------------------
See footnote explanation on pages 69-70.
68
<PAGE> 2
Jurisdiction
of
Incorporation
or
Name of Subsidiary Organization
- ------------------ ------------
Pickands Erie Corporation (11) Minnesota
Pickands Hibbing Corporation (9) Minnesota
Pickands Mather & Co. International Delaware
Pickands Mather Services Inc. (11) Delaware
Pickands Radio Co. Ltd. (11) Quebec, Canada
Robert Coal Company (14) Delaware
Savage River Motor Inn Pty. Ltd. (15) Tasmania
Seignelay Resources, Inc. (11) Delaware
Silver Bay Power Company (13) Delaware
Syracuse Mining Company (11) Minnesota
Tetapaga Mining Company Limited (1) Ohio
The Cleveland-Cliffs Iron Company Ohio
The Cleveland-Cliffs Steamship Company (1) Delaware
Tilden Mining Company L.C. (6) Michigan
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) 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.
Cleveland-Cliffs Ore Corporation also owns 100% of Cliffs Biwabik
Ore Corporation.
(3) Cliffs and Associates Limited is a Trinidad corporation. Cliffs
Reduced Iron Corporation has a 46.5% interest in Cliffs and
Associates Limited.
(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 Reduced
Iron Corporation, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
(6) Tilden Mining Company L.C. is a Michigan limited liability company.
Cliffs TIOP, Inc., a wholly-owned subsidiary of The Cleveland-Cliffs
Iron Company, has a 40% interest in Tilden Mining Company L.C.
69
<PAGE> 3
(7) 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.
(8) 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.
(9) Cliffs Mining Company has a 10% and Pickands Hibbing Corporation, a
wholly-owned subsidiary of Cliffs Mining Company, has a 5% interest
in Hibbing Taconite Company, a joint venture.
(10) Cliffs Resources, Inc. owns a 99.5% interest in Lake Superior &
Ishpeming Railroad Company. Lasco Development Corporation is a
wholly-owned subsidiary of Lake Superior & Ishpeming Railroad
Company.
(11) The named subsidiary is a wholly-owned subsidiary of Cliffs Mining
Company, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
(12) 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.
(13) 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.
(14) The named subsidiary is a wholly-owned subsidiary of Kentucky Coal
Company, which in turn is a wholly-owned subsidiary of
Cleveland-Cliffs Inc.
(15) 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.
70
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in 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, in the Registration Statement
(Form S-8 No. 33-48357) pertaining to the 1992 Incentive Equity Plan and the
related prospectus, 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, and in the Registration
Statement (Form S-8 No. 333-06049) pertaining to the Cleveland-Cliffs Inc
Nonemployee Director's Compensation Plan of our report dated February 13, 1997,
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, 1996.
ERNST & YOUNG LLP
Cleveland, Ohio
March 24, 1997
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, 1996, 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 11th day of March, 1996.
/s/M. T. Moore /s/J. C. Morley
- ------------------------------- -------------------------------
M. T. Moore J. C. Morley, Director
Chairman, President and Chief
Executive Officer and Director
(Principal Executive Officer) /s/S. B. Oresman
--------------------------------
S. B. Oresman, 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
Executive Vice President-Finance
/s/E. B. Jones (Principal Financial Officer)
- -------------------------------
E. B. Jones, Director
/s/R. Emmet
--------------------------------
/s/F. R. McAllister R. Emmet
- -------------------------------- Vice President and Controller
F. R. McAllister, Director (Principal Accounting Officer)
72
<TABLE> <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
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 152
<SECURITIES> 17
<RECEIVABLES> 70
<ALLOWANCES> 1
<INVENTORY> 45
<CURRENT-ASSETS> 301
<PP&E> 269
<DEPRECIATION> (141)
<TOTAL-ASSETS> 674
<CURRENT-LIABILITIES> 106
<BONDS> 0
<COMMON> 17
0
0
<OTHER-SE> 354
<TOTAL-LIABILITY-AND-EQUITY> 674
<SALES> 452
<TOTAL-REVENUES> 518
<CGS> 393
<TOTAL-COSTS> 409
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 96
<INCOME-TAX> 35
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-PRIMARY> 5.26
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99(a)
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(Dollars in Millions)
<TABLE>
<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, 1996:
Reserve for Capacity
Rationalization $ 34.8 $ 6.6 $ -- $ 7.7 $ 33.7
Allowance for Doubtful
Accounts 7.7 -- -- 6.6 1.1
Other 12.8 .7 1.5 6.7 8.3
Year Ended December 31, 1995:
Reserve for Capacity
Rationalization $ 34.3 $ 2.7 $ -- $ 2.2 $ 34.8
Allowance for Doubtful
Accounts 19.5 -- .2 12.0 7.7
Other 18.6 2.5 2.2 10.5 12.8
Year Ended December 31, 1994:
Reserve for Capacity
Rationalization $ 30.5 $ 5.4 $ -- $ 1.6 $ 34.3
Allowance for Doubtful
Accounts 19.5 -- -- -- 19.5
Other 13.7 .4 5.8 1.3 18.6
</TABLE>
Additions charged to other accounts in 1996, 1995 and 1994 were charged to
revenues.
Deductions to the reserve for capacity rationalization represent charges
associated with idle expense in 1996, 1995 and 1994. Deductions to the allowance
for doubtful accounts in 1996 and 1995 represent write-off of bankruptcy
receivables against the reserve.
73
