<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CLEVELAND-CLIFFS INC
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[CLEVELAND-CLIFFS INC LETTERHEAD]
March 22, 1999
To the Shareholders of
CLEVELAND-CLIFFS INC
The Annual Meeting of Shareholders of Cleveland-Cliffs Inc will be held at
The Forum Conference Center, located in One Cleveland Center, 1375 East Ninth
Street, Cleveland, Ohio 44114 on Tuesday, May 11, 1999 at 11:30 A.M. (Cleveland
time).
At the meeting, shareholders will act upon the election of Directors, a
proposal to approve an amendment to the Cleveland-Cliffs Inc 1992 Incentive
Equity Plan (As Amended and Restated as of May 13, 1997) and a proposal to
ratify the appointment of Ernst & Young LLP as independent public accountants.
An explanation of each of these matters is contained in the attached Proxy
Statement.
The Board of Directors and management believe that the proposed actions are
in the best interests of your Company. Whether or not you expect to be present
at the Annual Meeting, we urge you to exercise your voting right by signing and
dating the enclosed proxy card and returning it in the accompanying envelope to
ensure that your shares will be represented. Please note that failure to vote
surrenders voting power to those who exercise their voting right. If you attend,
you will be entitled to vote in person.
We look forward to meeting with you at the Annual Meeting.
Sincerely,
/s/ John C. Morley
JOHN C. MORLEY
Chairman of the Board
/s/ John S. Brinzo
JOHN S. BRINZO
President and Chief Executive Officer
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU INTEND TO BE PRESENT, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE> 3
[CLEVELAND CLIFFS INC LETTERHEAD]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 22, 1999
Dear Shareholder:
The Annual Meeting of Shareholders of Cleveland-Cliffs Inc, an Ohio
corporation ("Company"), will be held at The Forum Conference Center, located in
One Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio 44114 on Tuesday,
May 11, 1999 at 11:30 A.M. (Cleveland time) for the purpose of considering and
acting upon:
1. A proposal to elect 10 Directors to hold office until the next
Annual Meeting of Shareholders and until their successors are
elected;
2. A proposal to approve an amendment to the Cleveland-Cliffs Inc 1992
Incentive Equity Plan (As Amended and Restated as of May 13, 1997);
3. A proposal to ratify the appointment of Ernst & Young LLP as the
firm of independent public accountants to examine the financial
statements of the Company and its consolidated affiliates for the
year 1999; and
4. Such other matters as may properly come before the Annual Meeting
and any adjournment or adjournments thereof.
Shareholders of record at the close of business on March 15, 1999, are
entitled to notice of and to vote at such meeting and any adjournment or
adjournments thereof.
Very truly yours,
/s/ John E. Lenhard
JOHN E. LENHARD
Secretary and Associate General
Counsel
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU INTEND TO BE PRESENT, PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE> 4
[CLEVELAND CLIFFS INC LETTERHEAD]
------------------------------
PROXY STATEMENT
------------------------------
MARCH 22, 1999
SOLICITATION, USE AND REVOCATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of
Cleveland-Cliffs Inc, an Ohio corporation ("Company"), for use at the Annual
Meeting of Shareholders to be held on May 11, 1999, and any adjournment or
adjournments thereof ("Meeting"). Any proxy may be revoked by a later proxy, by
notice to the Company in writing or in open meeting, without affecting any vote
previously taken.
OUTSTANDING SHARES AND VOTING RIGHTS
As of March 15, 1999, the record date for the determination of persons
entitled to vote at the Meeting, there were 11,209,734 of the Company's Common
Shares, par value $1.00 per share ("Common Shares"), outstanding. Each Common
Share is entitled to one vote. This Proxy Statement and accompanying proxy card
are being first mailed or otherwise distributed to shareholders on or about
March 22, 1999.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
It is intended that proxies received will be voted, unless contrary
instructions are given, to elect the 10 nominees named in the following table to
serve until the next Annual Meeting of Shareholders and until their successors
shall be elected.
Should any nominee decline or be unable to accept such nomination to serve
as Director, an event which the Company does not currently anticipate, the
persons named as proxies reserve the right, in their discretion, to vote for a
lesser number or for substitute nominees designated by the Directors, to the
extent consistent with the Company's Regulations.
<PAGE> 5
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Based upon information received from the respective Directors and nominees
as of March 8, 1999 (except as otherwise indicated), the following information
is furnished with respect to each person nominated for election as a Director.
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATION AND FIRST BECAME
EMPLOYMENT DURING PAST FIVE YEARS DIRECTOR
-------------------------------------- ------------
<S> <C>
JOHN S. BRINZO, 57, President and Chief Executive Officer of 1997
the Company since November 10, 1997. Mr. Brinzo served
as the Company's Executive Vice President-Finance and
Planning from July 1, 1997 through November 9, 1997 and
Executive Vice President-Finance and Chief Financial
Officer since before 1994.
RONALD C. CAMBRE, 60, Chairman of the Board of Newmont 1996
Mining Corporation, an international mining company,
since January, 1995, President since June, 1994 and
Chief Executive Officer since November, 1993. Mr.
Cambre served as Vice Chairman of Newmont Mining
Corporation from November, 1993 to December, 1994; from
June, 1988 through September, 1993 Mr. Cambre served as
Vice President and Senior Technical Advisor to the
Office of the Chairman of Freeport-McMoRan Inc., a
natural resources company. Mr. Cambre is a Director of
Newmont Mining Corporation and W.R. Grace & Co.
ROBERT S. COLMAN, 57, Partner since February, 1991 of 1991
Colman, Furlong & Co., and since 1996 the founder of
Colman Partners, LLC, both private merchant banking
firms. Mr. Colman is a Director of First Health Group
Corp. and Van Wagoner Funds, Inc.
JAMES D. IRELAND III, 49, Managing Director since January, 1986
1993 of Capital One Partners, Inc., a private merchant
banking firm. Mr. Ireland is also President since
before 1994 of Briseis Capital Corporation, a private
merchant banking firm. Mr. Ireland was Chairman of the
Board from 1996 until March, 1998 of Sun Coast
Industries, Inc., a plastics producer.
G. FRANK JOKLIK, 70, President and Chief Executive Officer 1994
since November, 1995 of MK Gold Company, an
international mining company. Mr. Joklik was President
and Chief Executive Officer of the Salt Lake Organizing
Committee for the 2002 Olympic Winter Games from
August, 1997 until February, 1999. From March, 1980
through June, 1993 Mr. Joklik served as President and
Chief Executive Officer of Kennecott Corporation, an
international mining company. Mr. Joklik is a Director
of First Security Corporation and MK Gold Company.
LESLIE L. KANUK, 69, Professor of Marketing since before 1991
1994 at the Graduate School and University Center of
the City University of New York. Dr. Kanuk is a former
Chairman of the Federal Maritime Commission.
FRANCIS R. MCALLISTER, 56, President and Chief Operating 1996
Officer since January, 1998 of ASARCO Incorporated, an
international nonferrous metals mining company. Mr.
McAllister served as Executive Vice President-Copper
Operations from May, 1993 to January, 1998 and as
Executive Vice President and Chief Financial Officer
from April, 1992 through April, 1993 of ASARCO
Incorporated. Mr. McAllister is a Director of ASARCO
Incorporated and Southern Peru Copper Corporation.
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATION AND FIRST BECAME
EMPLOYMENT DURING PAST FIVE YEARS DIRECTOR
-------------------------------------- ------------
<S> <C>
JOHN C. MORLEY, 67, Chairman of the Board of the Company 1995
since November 10, 1997 and Chairman of the
Compensation and Organization Committee. Mr. Morley is
President since August, 1995 of Evergreen Ventures,
Ltd., a private investment firm. Mr. Morley is also
retired as President and Chief Executive Officer and
Director since before 1994 of Reliance Electric
Company, a manufacturer of electrical, mechanical power
transmission and telecommunications products and
systems. Mr. Morley is a Director of AMP Incorporated,
where he is a member of the Compensation and Management
Development Committee, Ferro Corporation, and Lamson &
Sessions, Inc.
STEPHEN B. ORESMAN, 66, President since January, 1991 of 1991
Saltash, Ltd., management consultants. Mr. Oresman was
with Booz-Allen & Hamilton, Inc., management
consultants, for 19 years where he was Senior Vice
President and Chairman of Booz-Allen & Hamilton
International, and previously held manufacturing
positions at Bausch & Lomb and Acme Steel. Mr. Oresman
is a Director of Angram Inc., Technology Solutions
Company and TriNet Corporate Realty Trust Inc.
ALAN SCHWARTZ, 58, Professor of Law at the Yale Law School 1991
and Professor at the Yale School of Management since
before 1994. Mr. Schwartz was a Professor of Law and
Social Science at the California Institute of
Technology from 1979 through July, 1987.
</TABLE>
Mr. Alton W. Whitehouse, currently a Director of the Company who will
attain age 72 this year, is not standing for re-election. In addition, Mr. M.
Thomas Moore, currently a Director of the Company and former Chairman and Chief
Executive Officer of the Company, is not standing for re-election in accordance
with the Company's governance guideline for retired officer Directors.
THE DIRECTORS RECOMMEND A VOTE FOR EACH OF THE NOMINEES LISTED ABOVE.
BOARD OF DIRECTORS AND BOARD COMMITTEES
The members of the Board of Directors have diversified professional
experience in general management, mining, finance, law, education, and other
fields. There is no family relationship among any of the nominees and executive
officers of the Company. Nine of the ten nominees have no present or former
employment relationship with the Company. None of the nominees have any business
relationship with the Company. All nominees are independent Directors except Mr.
Brinzo. The average age of the nominees is 61, ranging from 49 to 70. The
average service of the nominees is 6 years, ranging from one year to 13 years.
The Company has a progressive governance process with formal guidelines.
During 1998, seven meetings of the Board of Directors were held and twenty-eight
meetings of all Board committees were held. Directors also discharge their
responsibilities by review of Company reports to Directors, visits to Company
facilities, correspondence with the Chairman and the Chief Executive Officer,
and telephone conferences with the Chairman, the Chief Executive Officer and
Directors regarding matters of interest and concern to the Company. The
Directors have Executive, Audit, Board Affairs, Compensation and Organization,
Finance, Strategic Advisory, and Long Range Planning Committees. All committees
regularly report their activities, actions, and recommendations to the Board.
Seven Directors attended 100 percent of the meetings of the Board of Directors
and Board Committees of which they were a member; four Directors attended at
least 84 percent of such meetings and one Director attended 77 percent of such
meetings. Absences were generally due to temporary scheduling conflicts or
illness.
The Executive Committee consists of Messrs. Morley (chairman), Brinzo,
Cambre, Colman, Ireland and McAllister and Dr. Kanuk. This Committee normally
meets only when action is required before a regular Board meeting. It is
empowered to act for the full Board of Directors on all matters, except it has
no authority to fill vacancies among Directors or in any Committee of Directors,
change officers of the Company, or declare
3
<PAGE> 7
dividends. Its members presently include the chairmen of the other standing
committees. The Committee held no meetings during 1998.
The Audit Committee, consisting of Messrs. Colman (chairman), Cambre and
McAllister, reviews with the Company's management, the internal auditors and the
independent public accountants, the Company's policies and procedures with
respect to internal control; reviews significant accounting matters; approves
the audited financial statements prior to public distribution; approves any
significant changes in the Company's accounting principles or financial
reporting practices; reviews independent public accounting services; and
recommends to the Board of Directors the firm of independent public accountants
to examine the Company's financial statements. The Committee held two meetings
during 1998.
The Board Affairs Committee, consisting of Messrs. Ireland (chairman),
Morley, Schwartz and Whitehouse, administers the Company's compensation plans
for Directors; monitors the Board governance process and provides counsel to the
Board Chairman and the Chief Executive Officer on Board governance and other
matters; recommends changes in membership and responsibility of Board
committees; and acts as the Board's Nominating Committee and Proxy Committee in
the election of Directors. Shareholders wishing to nominate director candidates
for consideration by the Committee can do so by writing to the Secretary of the
Company, giving the candidate's name, appropriate biographical data and
qualifications. The Committee held four meetings during 1998.
The Compensation and Organization Committee, consisting of Messrs. Morley
(chairman), Cambre, Ireland, Joklik and Oresman recommends to the Board of
Directors the officers and compensation of officers; administers the Company's
compensation plans for officers; reviews organization and management
development; evaluates the performance of the Chief Executive Officer; and
obtains the advice of outside experts with regard to compensation matters. The
Committee held seven meetings during 1998.
The Finance Committee, consisting of Mr. McAllister (chairman), Dr. Kanuk,
and Messrs. Moore and Oresman, reviews the Company's financial condition,
financial policies, investment plans and benefit funds management. The Committee
recommends dividend and other actions to the Board of Directors. The Committee
held two meetings during 1998.
The Strategic Advisory Committee, consisting of Messrs. Morley (chairman),
Brinzo, Ireland, McAllister, Moore and Oresman, reviews corporate strategy and
related issues and provides counsel to the Chief Executive Officer and the Board
of Directors on such matters. The Committee held eight meetings during 1998.
The Long Range Planning Committee, consisting of the full Board of
Directors with Mr. Brinzo serving as chairman, facilitates informed decisions by
the Board through review of business plans and special topics of interest. The
Committee held five meetings during 1998.
DIRECTORS' COMPENSATION
During 1998, Directors who are not employees of the Company received an
annual retainer of $20,000 and a fee of $1,000 for each Board of Directors
meeting and a fee of $750 for each Board committee meeting attended. The
committee chairmen, except Mr. Brinzo, each received an annual retainer of
$2,500, and Mr. Morley received, in addition to his annual retainer, a monthly
retainer of $10,000 as non-executive Chairman of the Board. In 1999, the
Directors annual retainer fee was increased to $25,000, and the fee for each
Board Committee meeting attended was increased to $1,000.
During 1996, the Board of Directors of the Company adopted a Nonemployee
Directors' Compensation Plan, which was approved by the Company's shareholders
on May 14, 1996, providing for the award of 1,000 Restricted Shares to
nonemployee Directors first elected to the Board after June 30, 1995. The Plan
also provided that all Directors must take 50% of their retainer in Common
Shares and may elect to take up to 100% of the retainer and other fees in Common
Shares. In 1999, the Plan was amended to provide that all Directors must take
40% of their retainer in Common Shares and may elect to take up to 100% of the
retainer and other fees in Common Shares and that any new Director joining the
Board on or after January 1, 1999 will be awarded 2,000 Restricted Shares of the
Company. In addition, the Plan gives nonemployee Directors the opportunity to
defer all or a portion of their annual retainer and other fees, whether payable
in cash or Common Shares.
4
<PAGE> 8
In order to attract and retain qualified Directors, the Company has had a
Retirement Plan for Non-Employee Directors since 1984, which Plan was amended
and restated effective as of July 1, 1995 to provide for a joint and
survivorship benefit. The Plan also provides that upon completing five years of
service, a non-employee Director elected before July 1, 1995 receives during his
or her lifetime after retirement an amount equal to the annual retainer then
paid to nonemployee Directors. In 1995, a Nonemployee Directors' Supplemental
Compensation Plan was established for Directors first elected after June 30,
1995. Under such Supplemental Compensation Plan, a nonemployee Director with at
least five years of service receives after retirement a quarterly amount equal
to fifty percent of the stated quarterly retainer in effect at the time of
retirement for the period equal to the Director's service. Under either Plan, in
the event of a "change of control" causing the Director's retirement, he or she
receives the retirement payment prorated for any service less than five years.
Directors who join the Board on or after January 1, 1999 will not be eligible to
participate in either plan.
The Company has entered into trust agreements with Key Trust Company of
Ohio, N.A. relating to the Nonemployee Directors' Compensation Plan, the
Retirement Plan for Non-Employee Directors and the Nonemployee Directors'
Supplemental Compensation Plan, in order to establish arrangements for the
funding and payment of the Company's obligations to beneficiaries under such
Plans.
The Company entered into a retirement, non-competition, and consulting
agreement, effective July 31, 1998 ("Agreement") with M. Thomas Moore, a
Director of the Company, who is not seeking re-election in 1999 in accordance
with the Company's governance guideline for retired officer Directors.
Culminating a succession planning process, Mr. Moore voluntarily relinquished
his position as Chairman and Chief Executive Officer on November 9, 1997, became
an inactive employee under the Company's disability plan on January 1, 1998, and
retired effective July 31, 1998. Under the Agreement, Mr. Moore is prohibited
from competing with the Company for a period of five years commencing July 31,
1998, and is required to provide consulting services to the Company for a
three-year period commencing August 1, 1998. Pursuant to the Agreement, the
Company agreed to pay Mr. Moore a fee of $38,750 per month for 36 months
commencing August 1, 1998, and to increase his pension by $5,117 per month to
reflect credit for additional service and earnings.
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER PERSONS
The following table sets forth the amount and percent of Common Shares
which, as of March 8, 1999 (except as otherwise indicated), are deemed under the
rules of the Securities and Exchange Commission ("SEC") to be "beneficially
owned" by each Director (excluding the Chief Executive Officer), by each nominee
for Director, by the Company's five most highly compensated executive officers,
by such persons and the other executive officers as a group, and by any person
or "group" (as that term is used in the Securities Exchange Act of 1934) known
to the Company as of that date to be a "beneficial owner" of more than 5% of the
outstanding Common Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF "BENEFICIAL OWNERSHIP"(1)
-------------------------------------------------------------------
INVESTMENT
DIRECTORS AND NOMINEES POWER VOTING POWER
(EXCLUDING DIRECTOR AND BENEFICIAL ----------------- ----------------- PERCENT OF
CHIEF EXECUTIVE OFFICER J.S. BRINZO) OWNERSHIP(2) SOLE SHARED SOLE SHARED CLASS(3)
- ------------------------------------------------ ------------ ---- ------ ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald C. Cambre................................ 2,689 2,689 -0- 2,689 -0- --
Robert S. Colman................................ 3,225 3,225 -0- 3,225 -0- --
James D. Ireland III............................ 272,416 5,774 266,642(4) 5,774 266,642(4) 2.38%
G. Frank Joklik................................. 2,570 2,570 -0- 2,570 -0- --
Leslie L. Kanuk................................. 3,225 3,225 -0- 3,225 -0- --
Francis R. McAllister........................... 3,659 3,659 -0- 3,659 -0- --
M. Thomas Moore................................. 35,000 35,000 -0- 35,000 -0- --
John C. Morley.................................. 8,415 8,415 -0- 8,415 -0- --
Stephen B. Oresman.............................. 3,225 3,225 -0- 3,225 -0- --
Alan Schwartz................................... 1,725 1,725 -0- 1,725 -0- --
Alton W. Whitehouse............................. 3,470 3,470 -0- 3,470 -0- --
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF "BENEFICIAL OWNERSHIP"(1)
-------------------------------------------------------------------
INVESTMENT
POWER VOTING POWER
BENEFICIAL ----------------- ----------------- PERCENT OF
NAMED EXECUTIVE OFFICERS OWNERSHIP(2) SOLE SHARED SOLE SHARED CLASS(3)
------------------------ ------------ ---- ------ ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
John S. Brinzo.................................. 43,983 43,983 -0- 43,983 -0- --
William R. Calfee............................... 24,805 24,805 -0- 24,805 -0- --
Thomas J. O'Neil................................ 20,081 20,081 -0- 20,081 -0- --
John W. Sanders................................. 10,703 10,703 -0- 10,703 -0- --
A. Stanley West................................. 19,603 19,603 -0- 19,603 -0- --
All Directors and Executive
Officers as a Group
(18 Persons).................................. 468,047 201,405 266,642 201,405 266,642 4.18%
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF "BENEFICIAL OWNERSHIP"(1)
-----------------------------------------------------------------
INVESTMENT POWER VOTING POWER
BENEFICIAL ----------------- ----------------- PERCENT OF
OTHER PERSONS OWNERSHIP(2) SOLE SHARED SOLE SHARED CLASS(3)
------------- ------------ ---- ------ ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Schafer Capital Management, Inc. (5)
101 Carnegie Center
Princeton, NJ 08540.................. 703,470 634,200 69,270 634,200 69,270 6.28%
The State Teachers Retirement
Board of Ohio (6)
275 East Broad Street
Columbus, OH 43215................... 594,700 594,700 -0- 594,700 -0- 5.31%
</TABLE>
- ---------------
(1) Under the rules of the SEC, "beneficial ownership" includes having or
sharing with others the power to vote or direct the investment of
securities. Accordingly, a person having or sharing the power to vote or
direct the investment of securities is deemed to "beneficially own" the
securities even if he or she has no right to receive any part of the
dividends on or the proceeds from the sale of the securities. Also, because
"beneficial ownership" extends to persons, such as co-trustees under a
trust, who share power to vote or control the disposition of the securities,
the very same securities may be deemed "beneficially owned" by two or more
persons shown in the table. Information with respect to "beneficial
ownership" shown in the table above is based upon information supplied by
the Directors, nominees and executive officers of the Company and filings
made with the SEC or furnished to the Company by any shareholder.
(2) Included in the shares shown are Common Shares subject to options granted by
the Company which entitle the holder to acquire said shares within 60 days
from March 8, 1999. Each of the Directors (excluding Mr. Brinzo) has such
options as follows: Mr. Cambre, 500; Mr. Colman, 2,500; Mr. Ireland, 2,500;
Mr. Joklik, 2,000; Dr. Kanuk, 2,500; Mr. McAllister, 500; Mr. Moore, 10,000;
Mr. Morley, -0-; Mr. Oresman, 2,500; Mr. Schwartz, 1,000 and Mr. Whitehouse,
2,500; each of the named executive officers in the table has such options as
follows: Mr. Brinzo, 7,000; Mr. Calfee, 4,375; Mr. O'Neil, - 0-; Mr.
Sanders, -0- and Mr. West, 2,000; and the Directors and executive officers
as a group have 39,875 options. Performance shares earned for the
performance period 1996 - 1998 by Messrs. Brinzo, 6,348, Calfee, 6,348,
O'Neil, 6,348, Sanders, 3,703, and West, 3,703 (the value of which is shown
in the LTIP Payouts column of the "Summary Compensation Table" on page 7),
less shares relinquished to fulfill withholding tax requirements, are
included in the shares shown in the table.
(3) Less than 1%, except as otherwise indicated.
(4) Of the 272,416 shares deemed under the rules of the SEC to be beneficially
owned by Mr. Ireland, he is a beneficial holder of 5,774 shares. The
remaining 266,642 shares are held in trusts, substantially for the benefit
of a charitable foundation, as to which Mr. Ireland is a co-trustee with
shared voting and investment powers. Of such shares in trusts, Mr. Ireland
has an interest in the income or corpus with respect to 18,474 shares.
(5) Except for Percent of Class, the information shown above was taken from the
Schedule 13G, dated February 15, 1999, as filed by Strong Schafer Capital
Management, LLC., Schafer Capital Management, Inc., David K. Schafer and
Schafer Cullen Capital Management, Inc. with the SEC.
(6) Except for Percent of Class, the information shown above was taken from the
Schedule 13F, as of December 31, 1998, as filed by The State Teachers
Retirement Board of Ohio with the SEC.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by the Company's
five most highly compensated executive officers ("named executive officers"),
with respect to the years shown for services rendered to the Company and its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------------------
------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS PAYOUTS(3) COMPENSATION(4)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- -------- -------- --------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John S. Brinzo 1998 400,000 291,000 -- -0- -0- 220,593 16,400
President and 1997 280,729 112,000 -- -0- -0- 309,816 11,509
Chief Executive Officer 1996 237,500 145,000 -- -0- -0- 182,784 9,738
William R. Calfee 1998 262,500 140,000 -- -0- -0- 220,593 10,761
Executive Vice 1997 256,250 100,000 -- 45,250(5) -0- 282,256 10,505
President-Commercial 1996 250,000 145,000 -- -0- -0- 182,784 10,250
Thomas J. O'Neil 1998 250,000 155,000 -- -0- -0- 220,593 10,249
Executive Vice 1997 231,000 100,000 -- -0- -0- 206,544 9,466
President-Operations 1996 200,000 130,000 -- -0- -0- 114,240 8,200
John W. Sanders 1998 192,000 90,000 -- -0- -0- 128,679 7,870
Senior Vice President- 1997 188,000 64,000 -- 204,688(6) -0- -0- 7,704
International Development 1996 175,000 85,000 -- 81,250(6) -0- -0- 7,175
A. Stanley West 1998 189,792 108,000 -- -0- -0- 128,679 7,779
Senior Vice 1997 183,750 66,500 -- 25,275(7) -0- 185,900 7,531
President-Sales and 1996 175,000 87,500 -- -0- -0- 114,240 7,174
Commercial Planning
</TABLE>
- ---------------
(1) The executive officers are reimbursed for business club membership expenses
and other business perquisites, in amounts that are less than the reporting
thresholds established by the Securities and Exchange Commission.
(2) The aggregate number of shares of Restricted Stock held by Messrs. Brinzo,
Calfee, O'Neil, Sanders and West, as of December 31, 1998 was 330, 872,
6,000, 6,200 and 494, respectively. The aggregate value of such shares as of
December 31, 1998 was $13,303, $35,153, $241,875, $249,938 and $19,914,
respectively. Dividends are payable on the shares of Restricted Stock
reported in this column at the same rate as dividends on the Company's other
Common Shares.
(3) The payout indicated for 1998 was determined in early 1999 for the 1996-1998
performance period under the Company's performance share program. The
Company's closing stock price on March 8, 1999 of $34.75 per share was used
to determine the value of the payout, which payout is to be made in shares
of Common Stock.
(4) Amounts indicated for 1998 include cash contributed by the Company under the
Cliffs Salaried Employees Supplemental Retirement Savings Plan as follows:
$7,000, $6,574, $6,499, $6,152 and $6,139 on behalf of Messrs. Brinzo,
Calfee, O'Neil, Sanders and West, respectively; and cash contributed by the
Company under the Voluntary Non-Qualified Deferred Compensation Plan as
follows: $9,400, $4,187, $3,750, $1,718 and $1,640 on behalf of Messrs.
Brinzo, Calfee, O'Neil, Sanders and West, respectively.
(5) On January 1, 1997, the Company awarded 1,000 shares of Restricted Stock to
Mr. Calfee. One-third of such award vested on the first and second
anniversaries of the date of the award, and one-third of such award will
vest on the third anniversary of the date of the award.
(6) On July 1, 1997, the Company awarded 5,000 shares of Restricted Stock to Mr.
Sanders, of which one-fifth will vest on January 28, 2001 and an additional
one-fifth will vest on each of the first, second, third and fourth
anniversaries of the initial vesting date of the award. On January 1, 1996,
the Company awarded 2,000 shares of Restricted Stock to Mr. Sanders.
One-fifth of such award vested on each of the first, second and third
anniversaries of the date of the award and one-fifth of such award will vest
on each of the fourth and fifth anniversaries of the date of the award.
(7) On April 1, 1997, the Company awarded 600 shares of Restricted Stock to Mr.
West. One-third of such award vested on the first anniversary of the date of
the award, and one-third will vest on each of the second and third
anniversaries of the date of the award.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information about stock options exercised
during the last fiscal year by the named executive officers, and the number of
Common Shares covered by unexercised options and the aggregate value of options
held at the end of such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED "IN-THE-MONEY" OPTIONS
ACQUIRED VALUE OPTIONS AT FY-END (#) AT FY-END ($)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John S. Brinzo -0- -0- 7,000 -0- $141,365 -0-
William R. Calfee -0- -0- 4,375 -0- 88,353 -0-
Thomas J. O'Neil -0- -0- -0- -0- -0- -0-
John W. Sanders -0- -0- -0- -0- -0- -0-
A. Stanley West -0- -0- 2,000 -0- 40,390 -0-
</TABLE>
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table sets forth information relating to the long-term
incentive awards that were made on January 12, 1998 under the 1992 Incentive
Equity Plan for the named executive officers.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE UNDER NON-STOCK PRICE-BASED PLANS(1)
SHARES, UNITS OR OTHER (NUMBER OF SHARES)
OR OTHER PERIOD UNTIL -------------------------------------
NAME RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- -------------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
John S. Brinzo 15,000 1/1/98-12/31/00 3,750 15,000 26,250
William R. Calfee 7,500 1/1/98-12/31/00 1,875 7,500 13,125
Thomas J. O'Neil 7,500 1/1/98-12/31/00 1,875 7,500 13,125
John W. Sanders 3,750 1/1/98-12/31/00 938 3,750 6,563
A. Stanley West 3,750 1/1/98-12/31/00 938 3,750 6,563
</TABLE>
- ---------------
(1) Estimated payout if certain performance levels are achieved. No payout
occurs unless threshold performance is achieved.
The above table presents information about performance shares granted
during the year pursuant to the 1992 Incentive Equity Plan. Each performance
share, if earned, entitles the holder to receive Common Shares in accordance
with the above table, depending on the degree of achievement of specified
Company objectives. The objectives, weighted equally at the target level, are
relative total shareholder return (share price plus reinvested dividends) and
value added (earnings performance in excess of the cost of capital employed)
over a three-year performance period. Relative total shareholder return is
determined against a predetermined group of mining and metal companies. Actual
value added performance is determined based on the Company's capital employed,
earnings and cost of capital. The performance shares granted represent the
number of Common Shares that would be earned if the average target level of the
objectives is achieved by the Company; maximum payout is 175% of the performance
shares granted and represents the number of Common Shares that would be earned
if a superior level of the objectives is achieved by the Company; and threshold
payout is 25% of the performance shares granted and represents the number of
Common Shares that would be earned if a minimum level of the objectives is
achieved by the Company. Attainment of objectives is measured on a combined
basis. If achievement of one objective is below threshold, achievement of the
other objective must be at least at threshold for any payout to occur. The
number of Common Shares earned would be reduced to the extent necessary to
prevent the value of the Common Shares paid to any participant from exceeding
twice the market value of the Common Shares covered by the participant's grant
on the date it was granted. The Committee has the discretion to make
distributions in cash in lieu of stock. The Compensation and Organization
Committee ("Committee") confirmed that for the three-year performance period
ending December 31, 1998, the Company achieved an average performance of 105.8
percent in respect to the Company's objectives for value added and total
shareholder return. As a result, the Committee approved a payout of 59,672
shares, the value of which for the named executive officers is shown in the LTIP
Payouts column of the "Summary Compensation Table" on page 7. The Company's
calculated value added was $1.5 million as compared to the established target
under the Performance Share Program of $6.4 million for the three-year
performance period. The established target was based on a weighted average cost
of capital of 12.1 percent. The Company's average total shareholder return
ranked in the 64th percentile of its peer group of 36 mining and metal
companies, versus the established Performance Share Program target of the 55th
percentile. Each performance measure at target level is weighted 50 percent.
8
<PAGE> 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES
The Company's continuing objective is to provide superior sustainable value
to its shareholders and other stakeholders. The Company's compensation structure
is designed to serve this objective by providing sufficient total compensation
to attract and retain high-performing employees. The compensation structure
places a portion of compensation at risk with the performance of the Company,
the organizational unit, and the individual. The portion at risk increases with
responsibility level of the employee.
Executive compensation consists of salary, annual incentive bonus
opportunity, long-term equity incentive opportunity, general employee benefits,
and other minor benefits. In determining executive compensation structure, the
Committee considers current Company objectives, market survey data, and
recommendations of consultants and the Chief Executive Officer. A broad group of
industrial companies of comparable operations scope is used for competitive
surveys.
The Company has selected the S&P Iron and Steel Group Index and the S&P
Metals Mining Group Index for the comparative stock price performance graph on
page 13 because no meaningful iron ore peer group index is available. The survey
group for executive compensation comparison is larger than the relevant industry
groups for stock price performance comparison.
Federal income tax legislation enacted in 1993 limits the deductibility of
certain executive compensation in excess of $1 million. The Company has not had
such non-deductible payments and does not expect such payments for 1999. If
non-deductible payments would become likely in a future year, the Committee
would determine appropriate action in light of the Company's circumstances at
that time. Deferral of any non-deductible compensation until retirement is a
potential action in such event.
SALARIES
The Company strives to maintain salary range midpoints at the 50th
percentile of market survey data. Actual salaries reflect responsibility,
performance, and experience. Salary increases are awarded periodically based on
individual performance, when allowed by economic conditions.
The named executive officers, excluding the Chief Executive Officer,
received no salary merit increases in 1998. In 1997, the named executive
officers, excluding the Chief Executive Officer, received an aggregate salary
merit increase of 3.3 percent. Also in 1997, the same executive officers
received increases aggregating 8 percent, which reflected a broad expansion of
certain individual responsibilities. In 1998, one executive officer received an
increase in salary to reflect a broadening of responsibility. Salaries as of the
end of 1998 represent 98.6 percent of aggregate salary range midpoints of the
same executive officers.
ANNUAL INCENTIVE OPPORTUNITY
The Company maintains a Management Performance Incentive Plan ("MPI Plan")
which provides an incentive opportunity for management employees of the Company
and certain subsidiaries to earn an annual cash bonus. In 1994, a separate
incentive plan was installed for salaried personnel at operating units and
related service units in order to align incentives and responsibilities.
Under the MPI Plan, each participant has a designated target bonus
reflecting the participant's responsibility level. The target for the named
executive officers ranges from 40 to 55 percent of the officer's salary range
midpoint, depending on responsibility level. Target bonuses for other elected
officers range from 20 to 35 percent of the respective salary range midpoint.
Awards can range from zero to 200 percent of the target amount for a
participant.
Objectives for the Company and executive officers are reviewed by the Board
of Directors at the beginning of each year, and related performance reports are
reviewed at regular Board meetings throughout the year. At the end of each year,
the Committee reviews Company, unit, and individual performance for the year in
relation to past results, the current year objectives, and the competitive and
economic environment. The Committee also considers the recommendations of the
Chief Executive Officer in regard to all participants except himself. The
Committee then determines the total bonus pool for the participants and the
award to each elected officer and gives the Chief Executive Officer authority to
determine final awards to non-officer participants within the total pool
allowance.
9
<PAGE> 13
A composite judgment is made by the Committee in determining awards under
the MPI Plan. The Company's earnings are a key determinant, but other
accomplishments or disappointments with implications for future Company
performance may also receive substantial consideration in any year. MPI Plan
awards reflect the Committee's judgment of individual and unit performance in
such areas as sales, new business development, operations, business technology,
product and process quality, safety and environmental management, expenditure
control, human resource programs, financial management, information technology,
legal activities, and public affairs. The continuing benefit to the Company of
the cumulative performance and experience of the participant may also be
considered. All such matters are evaluated collectively without assignment of
weights.
Bonuses for the named executive officers, excluding the Chief Executive
Officer, totaled $493,000 for 1998 (127 percent of their total target bonus)
versus $330,500 for 1997 (91 percent of their total target bonus) and $447,500
for 1996 (135 percent of their total target bonus). In determining the 1998
bonuses for these officers, the general factors described above were considered,
including the increase in 1998 earnings compared to 1997.
LONG-TERM INCENTIVE OPPORTUNITY
The 1992 Incentive Equity Plan ("Plan"), as approved by the shareholders,
is intended to align the interests of key management and the shareholders. In
1997, the Plan was amended, as approved by shareholders, to increase the number
of the Company's shares available for issuance by 555,000 shares, limit the
number of the Company's shares which can be issued as Restricted Shares and
Deferred Shares under the Plan to 150,000 shares (excluding awards conditioned
on the attainment of management objectives), provide that stock options may be
transferable, prohibit the re-pricing of "underwater options", provide the
Committee with additional flexibility to modify management objectives relating
to performance-based awards if business circumstances warrant, and eliminate
automatic granting of formula awards of stock options to Directors.
Under the Plan, a long-term performance share program ("Performance Share
Program") was installed in 1994 to further align the interests of designated
executives and the shareholders in increasing return on invested capital and
long-term shareholder value. The Performance Share Program provides the
participants the opportunity to receive shares of Company stock or, at the
Committee's discretion, equivalent cash value, based on Company performance
against specific financial objectives.
Starting in 1994, grants of performance shares are made annually to certain
key employees based on responsibility level. Performance for the 1996 grants was
determined for the period, 1996-1998, as described below. Performance against
specific financial objectives for the 1997 and 1998 grants will be determined in
early 2000 and 2001 for the three-year periods, 1997-1999 and 1998-2000,
respectively. The percentage of performance shares earned can range from zero to
175 percent. For 1998, 1997 and 1996, the named executive officers, excluding
the Chief Executive Officer, were granted 22,500, 20,500 and 19,000 performance
shares, respectively. For a detailed description of the 1998 grants, objectives
and estimated future payout opportunities, see "Long-Term Incentive
Plans--Awards in Last Fiscal Year" on page 8.
The Committee confirmed that for the three-year performance period ending
December 31, 1998, the Company achieved an average performance of 105.8 percent
in respect to the Company's objectives for value added and total shareholder
return. As a result, the Committee approved a payout of 59,672 shares, the value
of which for the named executive officers is shown in the LTIP Payouts column of
the "Summary Compensation Table" on page 7. The Company's calculated value added
was $1.5 million as compared to the established target under the Performance
Share Program of $6.4 million for the three-year performance period. The
established target was based on a weighted average cost of capital of 12.1
percent. The Company's average total shareholder return ranked in the 64th
percentile of its peer group of 36 mining and metal companies, versus the
established Performance Share Program target of the 55th percentile. Each
performance measure at target level is weighted 50 percent.
No general program of restricted stock awards to executive officers has
existed since 1988; however, the Committee periodically uses such incentives on
a selective basis, primarily for retention and recruiting purposes.
The Committee has authorized awards of incentive stock options to certain
key management employees, excluding participants in the Performance Share
Program, generally with an annual limit of 130,000 shares. The
10
<PAGE> 14
exercise price of all stock options awarded under the 1992 Incentive Equity Plan
has been the market price when awarded, adjusted for business spin-offs and
special distributions to shareholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Brinzo was elected President and Chief Executive Officer of the
Company, effective November 10, 1997. He has 29 years with the Company and has
served as a senior officer of the Company since 1987.
On January 1, 1997, Mr. Brinzo received a salary merit increase of 5.3
percent. On July 1, 1997, his salary was increased by 10 percent reflecting an
expansion of responsibility, his salary range midpoint was increased by $42,500,
and his target bonus remained at 45 percent of salary range midpoint. As a
result of Mr. Brinzo's election as President and Chief Executive Officer, he
received a salary increase of 45.5 percent or $125,000 to $400,000, effective
November 10, 1997, which brought his salary to 95 percent of his new position
salary range midpoint of $423,000 with a target bonus of 55 percent of midpoint.
Mr. Brinzo received no salary adjustment in 1998.
The MPI Plan award to Mr. Brinzo for 1998 was $291,000 (125 percent of his
target bonus) compared to $112,000 (91 percent of his target bonus) for 1997 and
$145,000 (145 percent of his target bonus) for 1996. The Committee determined
the 1998 award to Mr. Brinzo based on all matters collectively in accordance
with its policy, including the increase in earnings compared to 1997. Mr.
Brinzo's bonus increased 160 percent from 1997, principally reflecting his full
year's service as Chief Executive Officer and increase in Company net income.
Mr. Brinzo was granted 15,000, 6,500 and 6,000 performance shares for 1998,
1997 and 1996, respectively, under the Performance Share Program. Mr. Brinzo's
1998 Performance Share Program payout was calculated in the same way as the
payout to all other participants, as discussed under Long-Term Incentive
Opportunity, and the value of the payout earned by Mr. Brinzo is disclosed under
the LTIP Payouts column of the "Summary Compensation Table" on page 7.
The Chief Executive Officer is not present when the Committee reviews his
performance and determines his compensation.
COMPENSATION CHANGES FOR 1999
In 1998, the Committee retained an executive compensation consultant and
designed, in conjunction with the Chief Executive Officer, certain improvements
in the Company's executive compensation program. The Committee recommended and
the Board of Directors approved the following improvements in executive
compensation, which are effective in 1999:
- In January, 1999, the Committee made a special one-time grant (subject to
the shareholders approving in 1999 an increase in the number of Company
shares available for issuance under the Plan of 550,000 shares) of
non-qualified, strategic and premium priced stock options ("Strategic
Options") to each elected officer to further incentivize senior
management to provide value to the Company's shareholders. The Strategic
Options grant was divided into three equal tranches, at the following
exercise price for each tranche: (i) tranche A was priced at 25% above
the Company's current market value on the date of the grant; (ii) tranche
B was priced at 50% above current market value; and (iii) tranche C was
priced at 75% above current market value. The current market value per
share on the date of grant of the Strategic Options was $43.3125. All
three tranches will be exercisable over a ten-year period; however, the
Strategic Options normally do not vest until the beginning of the fifth
year and may not be exercised until the beginning of the fifth year. The
Committee in 1999 granted a total of 326,000 Strategic Options, of which
the named executive officers, excluding the Chief Executive Officer, were
granted 120,000 Strategic Options, and of which the Chief Executive
Officer was granted 80,000 Strategic Options.
- Under the Company's Voluntary Non-Qualified Deferred Compensation Plan
("VNQDC Plan"), officers and other senior management employees are
permitted to defer, on a pre-tax basis, all or a portion of their base
salary, their bonus under the MPI Plan, or their common stock award or
cash award which may be payable under the Performance Share Program. The
changes to the VNQDC Plan would permit a participant to exchange up to
100% of a participant's cash bonus award under the MPI Plan for Company
11
<PAGE> 15
stock ("Exchanged Shares") based upon the market price of the Company
stock on the deferral date of the bonus payment into the VNQDC Plan. In
the event of such exchange, the Company would match for the participant
the Exchanged Shares with "restricted shares" of Company common stock
equal to 25 percent of the market value of the Exchanged Shares, so that
the Participant would have both Exchanged Shares and restricted shares.
Exchanged Shares must be deferred for at least five years. Restricted
shares will have a five-year vesting period. If a participant leaves the
Company during the restriction period for reasons other than retirement,
disability or death, the restricted shares and related dividends are
forfeited.
- Under the MPI Plan, the total cash bonus pool will be determined based on
a percentage of the Company's pre-tax return on net assets for the year
("Rona"). Individual participant bonuses will be based on Rona and
individual accomplishments as determined by the Chief Executive Officer
and the Committee. The Chief Executive Officer, with approval of the
Committee, may distribute a pool of funds equal to 10% of the target
bonus to participants on a purely discretionary basis.
- Stock ownership guidelines were adopted for elected officers, which
guidelines include Company shares owned outright; shares owned in a
401(k) or other savings plan, including Company matching shares in those
plans; shares of restricted stock, and shares held in an executive
officer's VNQDC Plan account. The ownership guidelines, based on salary
grade mid-points are: (i) for the Chief Executive Officer, a value of
shares equal to 4 times 1998 base salary; (ii) for the Executive and
Senior Vice Presidents, a value of shares equal to 2.5 times 1998 base
salary; and (iii) for other elected officers, a value of shares equal to
1.5 times 1998 base salary. Presently, the Committee has not established
a timetable for reaching the guideline ownership levels.
COMPANY PERFORMANCE COMPARISONS
For the five-year period, 1994-1998, the total return on the Company's
Common Shares was 26.4 percent which exceeded the total returns of the S&P Iron
and Steel Group and the S&P Metals Mining Group, but trailed the strong return
of the S&P 500 Stock Index. For the year 1998, the total return was a negative 9
percent, which was better than the peer group returns, but below the strong
return for the broader market.
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER
RETURN
-------------------
YEAR FIVE YEARS
1998 1994-1998
----- ----------
<S> <C> <C>
Cleveland-Cliffs Inc...................................... (9.0)% 26.4%
S&P Iron and Steel Group Index............................ (13.3) (29.5)
S&P Metals Mining Group Index............................. (28.0) (36.2)
S&P 500 Stock Index....................................... 28.6 193.8
</TABLE>
The Committee believes that the long-term and cyclical nature of the
Company's business can make shorter-term comparison of executive compensation
and stock prices misleading. The Committee also believes that the Company's
compensation structure provides appropriate alignment of the long-term interest
of key management, the Company, and its shareholders.
The foregoing report has been furnished by the members of the Compensation
and Organization Committee as set forth below:
J. C. Morley, Chairman
R. C. Cambre
J. D. Ireland III
G. F. Joklik
S. B. Oresman
12
<PAGE> 16
SHAREHOLDER RETURN PERFORMANCE
The following graph shows changes over the past five-year period in the
value of $100 invested in: (1) Cliffs' Common Shares; (2) S&P 500 Stock Index;
(3) S&P Iron and Steel Group Index; and (4) S&P Metals Mining Group Index. The
values of each investment are based on price change plus reinvestment of all
dividends.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
S&P IRON AND STEEL S&P METALS MINING
CLIFFS' COMMON S&P 500 GROUP GROUP
-------------- ------- ------------------ -----------------
<S> <C> <C> <C> <C>
1993 100 100 100 100
1994 102 101 97 117
1995 117 139 90 129
1996 134 171 81 132
1997 139 229 81 89
1998 126 294 70 64
</TABLE>
VALUE AT DECEMBER 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Cliffs' Common 100 102 117 134 139 126
S&P 500 100 101 139 171 229 294
S&P Iron and Steel Group 100 97 90 81 81 70
S&P Metals Mining Group 100 117 129 132 89 64
</TABLE>
13
<PAGE> 17
PENSION BENEFITS
The following table shows the approximate maximum annual pension benefit
under the Company's qualified pension plans, together with the Supplemental Plan
described below, which would be payable to employees in various compensation
classifications at age 65 with representative years of service. The amounts
listed in the table are computed on an automatic joint and survivorship annuity
basis and are subject to an offset of 50% of Social Security benefits through
December 31, 1999 and the equivalent offset thereafter.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
COMPENSATION FOR 60 ANNUAL BENEFITS FOR
HIGHEST CONSECUTIVE YEARS OF SERVICE INDICATED
MONTHS IN LAST 120 ---------------------------------------------------------------------------------------
MONTHS PRECEDING RETIREMENT 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS. 40 YRS.
- --------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 28,425 $ 36,300 $ 44,175 $ 52,050 $ 59,925 $ 67,800
150,000 40,238 52,050 63,863 75,675 87,488 99,300
200,000 52,050 67,800 83,550 99,300 115,050 130,800
250,000 63,863 83,550 103,238 122,925 142,613 162,300
300,000 75,675 99,300 122,925 146,550 170,175 193,800
350,000 87,488 115,050 142,613 170,175 197,738 225,300
400,000 99,300 130,800 162,300 193,800 225,300 256,800
450,000 111,113 146,550 181,988 217,425 252,863 288,300
500,000 122,925 162,300 201,675 241,050 280,425 319,800
550,000 134,738 178,050 221,363 264,675 307,988 351,300
</TABLE>
The table is based on a 1 1/2% pension formula, includes the impact of a 5%
add-on for employees who retire at age 65 under the normal retirement provision,
with at least fifteen years of service, between January 1, 1994 and June 30,
2000, and includes a $400 monthly pension supplement payable for 12 months after
retirement for employees who retire at age 65 with at least ten years of
service, after December 31, 1996 and prior to June 30, 2000. The Internal
Revenue Code of 1986 ("Code") places limitations on the benefits which may be
paid from a qualified pension plan. The Company has a nonqualified Supplemental
Retirement Benefit Plan ("Supplemental Plan") providing for the payment from
general funds of the benefits which would be lost by Supplemental Plan
participants as a result of present or future Code or other government
limitations.
The compensation used to determine benefits under the Company's pension
plans is the sum of salary and bonus paid to a participant during a calendar
year. Pensionable earnings for each of the Company's named executive officers
during 1998 include the amount shown for 1998 in the Salary column of the
"Summary Compensation Table" on page 7, plus the amount of bonus earned in 1997
and paid in 1998, as shown in the Bonus column of the Summary Compensation Table
for 1997. Pensionable earnings in 1998 for Messrs. Brinzo, Calfee, O'Neil,
Sanders and West were $512,000, $362,500, $350,000, $256,000 and $256,292,
respectively. Messrs. Brinzo, Calfee, O'Neil, Sanders and West have 29, 26, 7,
3, and 31 years, respectively, of credited service under the Company's qualified
pension plan.
14
<PAGE> 18
AGREEMENTS AND TRANSACTIONS
The Company has agreements with John S. Brinzo, Director, President and
Chief Executive Officer, William R. Calfee, Executive Vice President-Commercial
and Thomas J. O'Neil, Executive Vice President-Operations, dated June 30, 1997
("Agreements"), which specify certain financial arrangements that the Company
will provide upon the termination of such individuals' employment with the
Company under certain circumstances. The Agreements are intended to ensure
continuity and stability of executive management of the Company. The Agreements
provide that, in the event of a "change of control" of the Company (as defined
in the Agreements), such individuals would continue their employment with the
Company in their then current positions for a period of 3 years following such
"change of control". The Agreements also provide for vesting of all performance
share grants at target objective levels.
Under the Agreements, during the 3-year period following a "change of
control", each officer would be entitled to receive base pay and opportunities
for incentive compensation equivalent to that received prior to the "change of
control", and to continue participation in employee benefit plans. The
Agreements also provide that the officer would receive age and service pension
credit through the 3-year term for pension benefit purposes and provide 1 year
of prior actual "industry service" credit for every 2 years of service with the
Company for the sole purpose of determining when the officer would be eligible
for commencement of a 30-year pension benefit. If during the 3-year period, the
officer is terminated by the Company without "cause", becomes disabled, or
resigns after (i) not being maintained in his prior position, (ii) being reduced
in duties, compensation or benefits, (iii) determining he is unable to carry out
his duties and responsibilities, or (iv) being relocated or required to travel
excessively without his consent, such officer would be entitled (a) to lump sum
payments of the then present value of the base pay and incentive compensation
that he would be entitled to receive under the Agreement for the greater of 1
year or the remainder of the 3-year period, (b) to a lump sum payment of the
then present value of the pension benefits that he would be entitled to receive
under the Agreement for the remainder of the 3-year term, and (c) to continue
participation in medical and other welfare benefit plans for the greater of 1
year or the remainder of the 3-year period. The Agreements also entitle the
officers to medical and life insurance benefit continuation for life upon
retirement or following termination, unless the termination was for "cause". In
addition, the Agreements provide that the officers are eligible for
reimbursement of reasonable outplacement expenses. The Company will protect the
officers against any imposition of excise tax on "excess parachute" payments
under the Code by providing "gross up" payments to the officers. Such Agreements
expire January 31, 2000.
None of these arrangements create employment obligations for the Company
unless a "change of control" has occurred, prior to which time the Company and
such officers each reserve the right to terminate their employment relationship.
Both before and after the occurrence of a "change of control", the Company may
terminate the employment of any of such officers for "cause", without an
obligation to pay severance compensation or benefits.
During 1997, the Board of Directors of the Company approved the renewal to
January 1, 2000 of the Severance Pay Plan for Key Employees ("Severance Plan")
which presently covers 19 key employees. The Severance Plan is designed to
assure continuity, stability, and fair treatment of employees in key positions
in the event of a "change of control" of the Company (as defined in the
Severance Plan). Under the Severance Plan, if during the 3-year period following
a "change of control" a participant is terminated by the Company without "cause"
or resigns after (i) not being maintained in his or her prior position, (ii)
being reduced in compensation or benefits, (iii) determining he or she is unable
to carry out his or her duties and responsibilities, or (iv) being relocated or
required to travel excessively without consent, he or she is entitled to receive
(a) a lump sum payment in the amount of 1 or 2 years of base pay and incentive
compensation (depending upon position), (b) age and service credit for the full
3-year term for pension benefit purposes, and (c) 1 year of prior actual
"industry service" credit for every 2 years of service with the Company for the
purpose of determining eligibility for commencement of 30-year pension and other
benefits. Participants are entitled to vesting of all performance share grants
at target objective levels, and to continue participation in health and life
insurance plans for 1 or 2 years or (if earlier) until covered by similar plans
sponsored by a subsequent employer, and are entitled to medical and life
insurance benefit continuation for life following termination, beginning upon
the date that the participant would have had 30 years of service with the
Company without such termination (including credit for the 3-year term and
"industry service" as described above). Also, participants are eligible for
reimbursement of reasonable
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<PAGE> 19
outplacement expenses. Individuals who would be covered by the Severance Plan,
but who receive severance pay and benefits pursuant to a "change of control"
employment agreement or another plan or agreement signed on behalf of the
Company, are not entitled to benefits under the Severance Plan. All benefits
payable under the Severance Plan are to be derived from the Company's then
current operating funds. None of the obligations of the Company described above
exist unless a "change of control" has occurred. The Company will protect the
participant against imposition of any excise tax on "excess parachute" payments
under the Code by providing "gross up" payments to the participant. Such
Severance Plan, as modified, expires December 31, 1999.
The Company has two trust agreements with Key Trust Company of Ohio, N.A.
which relate to the Agreements and the Severance Plan. The first such trust
agreement provides for the payment of the benefits arising under the Agreements,
and the second trust agreement provides for reimbursement of legal fees and
expenses incurred by the officers in enforcing their rights under the Agreements
and by the key employees under the Severance Plan.
The Company has indemnification agreements ("Indemnification Agreements")
with each current member of the Board of Directors. The form and execution of
the Indemnification Agreements were approved by the Company's shareholders at
the Annual Meeting convened on April 29, 1987. Such agreements essentially
provide that to the extent permitted by Ohio law, the Company will indemnify the
indemnitee against all expenses, costs, liabilities and losses (including
attorneys' fees, judgments, fines or settlements) incurred or suffered by the
indemnitee in connection with any suit in which the indemnitee is a party or
otherwise involved as a result of his service as a member of the Board or as an
officer. In connection with the foregoing Indemnification Agreements, the
Company has entered into a trust agreement with Key Trust Company of Ohio, N.A.
pursuant to which the parties to the Indemnification Agreements may be
reimbursed with respect to enforcing their respective rights under the
agreements.
In order to promote mutual appreciation of management and union interests,
the Company and the United Steel Workers of America ("USWA") reached agreement
in 1996 on a process to jointly designate a member of the Board of Directors of
the Company, pursuant to a general understanding between the USWA and certain
Company subsidiaries reached in 1993. Such designee would be subject to annual
nomination by the Company, election by vote of the shareholders, and all laws
and Company policies applicable to the Board of Directors. In the event a member
is jointly designated in the future, the total number of Directors will be
increased to include such designee. The agreement expires on August 1, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's Directors and officers and persons who own 10% or more of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Directors,
officers and 10% or greater shareholders are required by SEC regulations to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, and written representations by such persons, the Company believes that
all of its Directors and officers complied with all filing requirements
applicable to them with respect to transactions in the Company's equity
securities during the fiscal year ended December 31, 1998.
APPROVAL OF AMENDMENT TO THE CLEVELAND-CLIFFS INC 1992
INCENTIVE EQUITY PLAN
(AS AMENDED AND RESTATED AS OF MAY 13, 1997)
(PROPOSAL NO. 2)
GENERAL
The Cleveland-Cliffs Inc 1992 Incentive Equity Plan (As Amended and
Restated as of May 13, 1997) ("Plan"), which was originally approved by
shareholders at the Company's 1992 Annual Meeting of Sharehold-
16
<PAGE> 20
ers and was approved as amended and restated at the 1997 Annual Meeting of
Shareholders, affords the Compensation and Organization Committee of the Board
of Directors ("Compensation Committee") the ability to provide incentive
compensation awards designed to attract and retain high-performing employees. On
March 9, 1999, the Board of Directors adopted an amendment to the Plan
("Amendment"), subject to the approval by the Company's Shareholders at the 1999
Annual Meeting of Shareholders, to increase the number of shares available under
the Plan by 550,000 shares. The reason for amending the Plan at this time is to
provide for the special one-time grant of non-qualified, strategic and premium
priced Option Shares ("Strategic Options") approved by the Compensation
Committee in January 1999, subject to the approval of the Amendment by the
Shareholders at the 1999 Annual Meeting. After giving effect to the Strategic
Options and all other outstanding awards, 376,483 shares will remain available
under the Plan as amended by the Amendment ("Amended Plan") for future awards.
The Amendment does not make any other changes in the Plan as approved by
shareholders in 1997.
None of the executive officers has received any awards of stock options
since 1990, because the Company has relied primarily on awards of Performance
Shares during recent years to provide the long-term component of executive
officer compensation. In order to drive superior sustained performance over an
extended period, the Compensation Committee granted 326,000 Strategic Options to
elected officers effective January 12, 1999 subject to approval of the
Amendment. This one-time grant of Strategic Options furthers the Company's
compensation objectives by providing additional incentive to elected officers to
create shareholder value. The Strategic Options will not vest until the
beginning of the fifth year from the date of grant. All of the Strategic Options
have a ten-year term and are priced above the current market value of the Common
Shares at the date of grant. The current market value per share on the date of
grant of the Strategic Options was $43.3125. One-third of the Strategic Options
are priced 25% above current market value on the date of grant; one-third are
priced 50% above current market value on the date of grant; and one-third are
priced 75% above current market value on the date of grant. Additional
information about the Strategic Options is contained in the table below under
"Plan Benefits."
A summary description of the Amended Plan is set forth below. The full text
of the Amendment is annexed to this Proxy Statement as Appendix A.
SUMMARY OF AMENDED PLAN
General. Under the Amended Plan, the Compensation Committee is authorized
to make awards of options to purchase Common Shares ("Option Rights"), awards of
restricted shares ("Restricted Shares") or deferred shares ("Deferred Shares")
and awards of performance shares ("Performance Shares") and performance units
("Performance Units"). The terms applicable to awards of the various types,
including those terms that may be established by the Compensation Committee when
making or administering particular awards, are set forth in detail in the
Amended Plan.
Shares Available Under the Amended Plan. Subject to adjustment as provided
in the Amended Plan, the number of Common Shares that may be issued or
transferred (a) upon the exercise of Option Rights, (b) as Restricted Shares,
(c) in payment of Performance Shares or Performance Units that have been earned,
(d) as Deferred Shares, or (e) in payment of dividend equivalents paid with
respect to awards made under the Amended Plan, may not exceed 1,700,000 in the
aggregate (595,000 of which were approved by shareholders in 1992, 555,000 of
which were approved in 1997, and 550,000 of which are being added by the
Amendment). The Plan currently authorizes the issuance of 1,150,000 Common
Shares, of which as of March 15, 1999, 192,533 Common Shares had been issued or
transferred to participants under the Plan (excluding 46,829 Restricted Shares
subject to forfeiture), 804,984 Common Shares were subject to outstanding awards
(which includes 432,917 shares subject to outstanding stock options, but
excludes the Strategic Options referred to above, which are subject to
shareholder approval of the Amendment, and assumes maximum payout of all
outstanding Performance Shares granted) and 152,483 Common Shares were available
for future awards. If the Amendment adding 550,000 shares to the Plan is
approved, 326,000 shares under the Plan will be used to provide for the one-time
grant of Strategic Options and, after giving effect to the 326,000 Strategic
Options, 376,483 Common Shares will remain available for future awards.
The number of Restricted Shares that are not conditioned on attainment of
Management Objectives, plus the number of Deferred Shares cannot (after taking
forfeitures into account) exceed 150,000. Such Common Shares
17
<PAGE> 21
may be shares of original issuance or treasury shares or a combination of both.
Upon the payment of any option price by the transfer to the Company of Common
Shares or upon satisfaction of any withholding amount by means of transfer or
relinquishment of Common Shares, there will be deemed to have been issued or
transferred under the Plan only the net number of Common Shares actually issued
or transferred by the Company.
Eligibility. Officers, including officers who are members of the Board of
Directors, and key employees of the Company and its subsidiaries may be selected
by the Compensation Committee to receive benefits under the Amended Plan.
Option Rights. Option Rights may be granted which entitle the optionee to
purchase Common Shares at a price equal to or greater than market value at the
date of grant. The option price is payable in cash at the time of exercise; by
the transfer to the Company of nonforfeitable unrestricted Common Shares owned
by the optionee having a value at the time of exercise equal to the option
price; any other legal consideration the Compensation Committee may deem
appropriate; or a combination of such payment methods. Any grant may provide for
deferred payment of the option price from the proceeds of sale through a bank or
broker on the date of exercise of some or all of the Common Shares to which the
exercise relates. The Compensation Committee has the authority to specify at the
time Option Rights are granted that Common Shares will not be accepted in
payment of the option price until they have been owned by the optionee for a
specified period. However, the Amended Plan does not require any such holding
period and would permit immediate sequential exchanges of Common Shares at the
time of exercise of Option Rights.
The Compensation Committee may, at or after the date of grant of any Option
Rights (other than the grant of Incentive Stock Options), provide for the
payment of dividend equivalents to the optionee on a current, deferred or
contingent basis or may provide that such equivalents be credited against the
option price.
No Option Right may be exercisable more than ten years from the date of
grant. Each grant must specify the period of continuous employment with the
Company or any subsidiary that is necessary before the Option Rights will become
exercisable and may provide for the earlier exercise of such Option Rights in
the event of a "change of control" of the Company or other similar transaction
or event. Successive grants may be made to the same optionee whether or not
Option Rights previously granted remain unexercised.
Restricted Shares. An award of Restricted Shares involves the immediate
transfer by the Company to a participant of ownership of a specific number of
Common Shares in consideration of the performance of services. The participant
is entitled immediately to voting, dividend and other ownership rights in such
shares. The transfer may be made without additional consideration or in
consideration of a payment by the participant that is less than current market
value, as the Compensation Committee may determine. The Compensation Committee
may condition the award on the achievement of Management Objectives.
Restricted Shares must 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 Compensation Committee. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as an
officer or key employee during a specified period of years. In order to enforce
these forfeiture provisions, the transferability of Restricted Shares will be
prohibited or restricted in a manner and to the extent prescribed by the
Compensation Committee for the period during which the forfeiture provisions are
to continue. The Compensation Committee may provide for a shorter period during
which the forfeiture provisions are to apply in the event of a "change of
control" of the Company or other similar transaction or event.
Deferred Shares. An award of Deferred Shares constitutes an agreement by
the Company to deliver Common Shares to the participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions during the Deferral Period as the Compensation Committee may
specify. During the Deferral Period, the participant has no right to transfer
any rights under his or her award and no right to vote them, but the
Compensation Committee may, at or after the date of award, authorize the payment
of dividend equivalents on such Shares on either a current or deferred or
contingent basis, either in cash or additional Common Shares. Awards of Deferred
Shares may be made without additional consideration or in consideration of a
payment by such participant that is less than the market value per share at the
date of award.
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<PAGE> 22
Deferred Shares must be subject to a Deferral Period, as determined by the
Compensation Committee at the date of the award, except that the Compensation
Committee may provide for a shorter Deferral Period in the event of a "change of
control" of the Company or other similar transaction or event.
Performance Shares and Performance Units. A Performance Share is the
equivalent of one Common Share, and a Performance Unit is the equivalent of
$1.00. A participant may be granted any number of Performance Shares or
Performance Units. Such participant will be given one or more Management
Objectives to meet within a specified performance period. Such performance
period may be subject to earlier termination in the event of a "change of
control" of the Company or other similar transaction or event. A minimum level
of acceptable achievement may also be established by the Compensation Committee.
If by the end of the performance period the participant has achieved the
specified Management Objectives, he or she will be deemed to have fully earned
the Performance Shares or Performance Units. If the participant has not achieved
the Management Objectives, but has attained or exceeded the predetermined
minimum, he or she will be deemed to have partly earned the Performance Shares
and/or Performance Units (such part to be determined in accordance with a
formula). To the extent earned, the Performance Shares and/or Performance Units
will be paid to the participant at the time and in the manner determined by the
Compensation Committee in cash, Common Shares or in any combination thereof.
Management Objectives. Management Objectives may be described either in
terms of Company-wide objectives or objectives that are related to performance
of the division, subsidiary, department or function within the Company or a
subsidiary in which the participant is employed. If the Compensation Committee
determines that a change in the business, operations, corporate structure or
capital structure of the Company, or the manner in which it conducts its
business, or other events or circumstances render the Management Objectives
unsuitable, the Compensation Committee may modify such Management Objectives or
the related minimum acceptable level of achievement, in whole or in part, as the
Compensation Committee deems appropriate and equitable.
Transferability. Except as otherwise determined by the Compensation
Committee, no Option Right or other award under the Amended Plan is transferable
by a participant other than by will or the laws of descent and distribution.
Except as otherwise determined by the Compensation Committee, Option Rights are
exercisable during the optionee's lifetime only by him or her.
The Compensation Committee may specify at the date of grant that part or
all of the Common Shares that are (i) to be issued or transferred by the Company
upon exercise of Option Rights, upon termination of the Deferral Period
applicable to Deferred Shares or upon payment under any grant of Performance
Shares or Performance Units or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to above under "Restricted
Shares", shall be subject to further restrictions on transfer.
Adjustments. The maximum number of shares that may be issued and delivered
under the Amended Plan, the number of shares covered by outstanding Option
Rights and the prices per share applicable thereto, are subject to adjustment in
the event of stock dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar events. In the event
of any such transaction or event, the Compensation Committee, in its discretion,
may provide in substitution for any or all outstanding awards under the Amended
Plan such alternative consideration as it, in good faith, may determine to be
equitable in the circumstances and may require the surrender of all awards so
replaced. The Compensation Committee may also make or provide for such
adjustments in the numbers of shares described above under "Shares Available
under the Amended Plan" as the Compensation Committee may determine appropriate
to reflect any transaction or event described above in this paragraph.
Administration and Amendments. The Amended Plan is to be administered by a
committee of the Board (or subcommittee thereof) consisting of not less than
three "Nonemployee Directors" within the meaning of Rule 16b-3 under the
Exchange Act.
The Compensation Committee, which has been appointed by the Board of
Directors to act as the administering committee under the Amended Plan, is
authorized to interpret the Amended Plan and related agreements and other
documents. The Compensation Committee may make awards to employees under any or
a combination of all of the various categories of awards that are authorized
under the Amended Plan, or in its discretion, make no awards. The Amended Plan
may be amended from time to time by the Compensation
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<PAGE> 23
Committee. However, any amendment which must be approved by the shareholders of
the Company in order to comply with applicable law or the rules of the principal
national securities exchange upon which the Common Shares are traded or quoted
will not be effective unless and until such approval has been obtained in
compliance with such applicable law or rules. Presentation of the Amended Plan
or any amendment thereof for shareholder approval is not to be construed to
limit the Company's authority to offer similar or dissimilar benefits through
plans that are not subject to shareholder approval.
The Compensation Committee may provide for special terms for awards to
participants who are foreign nationals or who are employed by the Company or any
of its subsidiaries outside of the United States of America as the Compensation
Committee may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom.
The Compensation Committee may not, without the further approval of the
shareholders of the Company, authorize the amendment of any outstanding Option
Right to reduce the option price. Furthermore, no Option Right may be cancelled
and replaced with awards having a lower option price without further approval of
the shareholders of the Company.
If the Amendment is not approved, the Plan remains in effect.
General. The closing price of the common stock of the Company on March 8,
1999, as reported in the Wall Street Journal, was $34.75 per share.
PLAN BENEFITS
It is not possible to determine future awards that will be received by
participants in the Amended Plan. Grants or awards under the Plan during the
fiscal year 1998 and through January 12, 1999 were made to the named executive
officers, other officers, key employees and Directors, as indicated in the table
below. The stock options listed below as granted during 1999 (except for 128,150
stock options granted to the Non-Executive Officer Employee Group) are the
Strategic Options described above. The current market value per share on the
date of grant of the Strategic Options was $43.3125. One-third of the Strategic
Options were priced 25% above current market value on the date of grant;
one-third were priced 50% above current market value on the date of grant; and
one-third were priced 75% above current market value on the date of grant.
<TABLE>
<CAPTION>
STOCK
OPTIONS RESTRICTED SHARES PERFORMANCE SHARES
GRANT/ GRANTED AWARDED GRANTED (2)
AWARD ------- ---------------------- --------------------
NAME AND POSITION YEAR NUMBER NUMBER VALUE ($)(1) NUMBER VALUE ($)
----------------- ------ ------- ------ ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
John S. Brinzo 1998 -0- -0- -0- 15,000(3) 660,938
President and Chief Executive Officer 1999 80,000(5) -0- -0- 16,000(4) 692,500
William R. Calfee 1998 -0- -0- -0- 7,500(3) 330,469
Executive Vice President -- Commercial 1999 40,000(5) -0- -0- 8,000(4) 346,250
Thomas J. O'Neil 1998 -0- -0- -0- 7,500(3) 330,469
Executive Vice President -- Operations 1999 40,000(5) -0- -0- 8,000(4) 346,250
John W. Sanders 1998 -0- -0- -0- 3,750(3) 165,234
Senior Vice President -- 1999 20,000(5) -0- -0- 4,000(4) 173,125
International Development
A. Stanley West 1998 -0- -0- -0- 3,750(3) 165,234
Senior Vice President -- 1999 20,000(5) -0- -0- 4,000(4) 173,125
Sales & Commercial Planning
Executive Group (including above 1998 -0- 5,000 271,250 44,250(3) 1,949,766
named executive officers) 1999 250,000(5) -0- -0- 48,000(4) 2,077,500
Non-Executive Director Group 1998 -0- -0- -0- -0- -0-
1999 -0- -0- -0- -0- -0-
Non-Executive Officer Employee Group 1998 128,450(6) 16,250(3) 716,016
1999 204,150(7) -0- -0- 18,200(4) 787,719
</TABLE>
- ---------------
(1) Reflects value on date of award.
(2) Assumes achievement at target level of performance and reflects value as of
date of grant.
(3) Reflects awards granted on January 12, 1998 for performance period
1998-2000, but not yet earned.
(4) Reflects awards granted on January 11, 1999 for performance period
1999-2001, but not yet earned.
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<PAGE> 24
(5) Reflects grants of Strategic Options on January 12, 1999, priced as
described above.
(6) Reflects grants of stock options on January 13, 1998, priced at $44.5625.
(7) Reflects grants of 128,150 stock options on January 12, 1999, priced at
$43.375, and grants of 76,000 Strategic Options on January 12, 1999, priced
as described above.
In addition, from the inception of the Plan through 1997, 206,450 stock
options were granted to the Non-Executive Officer Employee Group and 26,500
stock options were granted to the Non-Executive Director Group.
FEDERAL INCOME TAX ASPECTS
Following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Amended Plan based on Federal
income tax laws in effect on January 1, 1998. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.
TAX CONSEQUENCES TO PARTICIPANTS
Non-Qualified Stock Options. In general, (i) no income will be recognized
by an optionee at the time a Non-Qualified Stock Option is granted; (ii) at
exercise, ordinary income will be recognized by the optionee in an amount equal
to the difference between the option price paid for the shares and the fair
market value of the shares, if unrestricted, on the date of exercise; and (iii)
at sale, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. If Common
Shares are issued to the optionee pursuant to the exercise of an Incentive Stock
Option, and if no disqualifying disposition of such shares is made by such
optionee within 2 years after the date of grant or within 1 year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If Common Shares acquired upon the exercise of an Incentive Stock Option
are disposed of prior to the expiration of either holding period described
above, the optionee generally will recognize ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of such shares at the time of exercise (or, if less, the amount realized on the
disposition of such shares if a sale or exchange) over the option price paid for
such shares. Any further gain (or loss) realized by the participant generally
will be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.
Restricted Shares. The recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the participant at such time as
the shares are no longer subject to forfeiture or restrictions on transfer for
purposes of Section 83 of the Code ("restrictions"). However, a recipient who so
elects under Section 83(b) of the Code within 30 days of the date of transfer of
the shares will have taxable ordinary income on the date of transfer of the
shares equal to the excess of the fair market value of such shares (determined
without regard to the restrictions) over the purchase price if any, of such
Restricted Shares. If a Section 83(b) election has not been made, any dividends
received with respect to Restricted Shares subject to restrictions generally
will be treated as compensation that is taxable as ordinary income to the
participant.
Deferred Shares. No income generally will be recognized upon the award of
Deferred Shares. The recipient of a Deferred Share award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
Common Shares on the date that such shares are transferred to the participant
under the award, reduced by any amount paid by the participant, and the capital
gains/loss holding period for such shares will also commence on such date.
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment with respect to Performance Shares or Performance Units earned, the
recipient generally will be required to include as taxable ordinary income in
the year of receipt
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<PAGE> 25
an amount equal to the amount of cash received and the fair market value of any
unrestricted Common Shares received.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or director to suit under Section 16(b) of the Exchange
Act, the tax consequences to the officer or director may differ from the tax
consequences described above. In these circumstances, unless a special election
has been made, the principal difference usually will be to postpone valuation
and taxation of the stock received so long as the sale of the stock received
could subject the officer or director to suit under Section 16(b) of the
Exchange Act, but no longer than six months.
TAX CONSEQUENCES TO PARTICIPANTS' EMPLOYERS
To the extent that a participant recognizes ordinary income in the
circumstances described above, the participant's employer will generally be
entitled to a corresponding deduction, provided, among other things, that such
income meets the test of reasonableness, does not along with other income of the
participant exceed the limitation on deductible compensation under Section
162(m) of the Code, is an ordinary and necessary business expense, and is not an
"excess parachute payment," and that any applicable withholding obligations are
satisfied.
ACCOUNTING TREATMENT
Performance Shares and Performance Units will require a charge against
income of the Company periodically representing increases in the value of the
anticipated benefits. In the case of Performance Shares and Performance Units,
such charge is based on the value expected to be paid out in shares or cash at
the end of the Performance Period. Restricted Shares and Deferred Shares will
require a charge against income equal to the fair market value of the awarded
shares at the time of award less the amount, if any, paid or payable by the
awardee. Such charge is spread over the earn-out period for the Restricted or
Deferred Shares. Given the variety of awards that may be made separately or in
combination under the Amended Plan, actual awards may result in periodic charges
against income in certain other circumstances.
REQUIRED VOTE
Approval of the Amendment requires the affirmative vote of the holders of a
majority of Common Shares present, or represented, and entitled to vote on the
matter at the Annual Meeting.
THE DIRECTORS RECOMMEND A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
CLEVELAND-CLIFFS INC 1992 INCENTIVE EQUITY PLAN (AS AMENDED AND RESTATED AS OF
MAY 13, 1997).
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 3)
A proposal will be presented at the Meeting to ratify the appointment of
the firm of Ernst & Young LLP as independent public accountants to examine the
books of account and other records of the Company and its consolidated
subsidiaries for the fiscal year ending December 31, 1999. Representatives of
Ernst & Young LLP are expected to be present at the Meeting. Such
representatives will have an opportunity to make a statement if they so desire
and are expected to be available to respond to appropriate questions. Although
such ratification is not required by law, the Board of Directors believes that
shareholders should be given this opportunity to express their views on the
subject. While not binding on the Board of Directors, the failure of the
shareholders to ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants would be considered by the Board in determining
whether or not to continue the engagement of Ernst & Young LLP.
THE DIRECTORS RECOMMEND A VOTE FOR THIS PROPOSAL TO RATIFY THE APPOINTMENT
OF ERNST & YOUNG LLP AS YOUR COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
22
<PAGE> 26
ANNUAL REPORT
The Company's 1998 Annual Report to Shareholders, including financial
statements, is being distributed to all shareholders of the Company together
with this Proxy Statement, in satisfaction of the requirements of the SEC.
Additional copies of such report are available upon request. To obtain
additional copies of such Annual Report please contact the Company's Investor
Relations Department at (216) 694-5459.
GENERAL INFORMATION
The cost of soliciting proxies will be paid by the Company. In addition to
solicitation by mail, solicitations may also be made by personal interview,
telegram and telephone. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy material to
their principals, and the Company will reimburse them for their expenses in so
doing. Officers and other regular employees of the Company, as yet undesignated,
may also request the return of proxies by telephone, telegram, or in person.
Finally, the Company has retained Georgeson & Company Inc., New York, New York,
to assist in the solicitation of proxies using the means referred to above, at
an anticipated cost of $10,000, plus reasonable expenses.
Pursuant to regulations of the SEC, the material appearing under the
captions "Compensation Committee Report on Executive Compensation" and
"Shareholder Return Performance" are not deemed to be soliciting material or to
be filed with the SEC or subject to Regulation 14A promulgated by the SEC or
Section 18 of the Securities Exchange Act of 1934.
The Common Shares represented by properly executed proxy cards will be
voted as specified. It is intended that the Common Shares represented by proxies
on which no specification has been made will be voted FOR the election of the
nominees for Director named herein or such substitute nominees as the Board of
Directors may designate, FOR approval of the Amendment to the Cleveland Cliffs
Inc 1992 Incentive Equity Plan (As Amended and Restated as of May 13, 1997), FOR
ratification of Ernst & Young LLP as the firm of independent public accountants
to examine the books of account and other records of the Company and its
consolidated affiliates for the fiscal year 1999 and at the discretion of the
persons named as proxies on all other matters which may properly come before the
Meeting.
At the Meeting, the results of shareholder voting will be tabulated by the
inspector of elections appointed for the Meeting. The Company intends to treat
properly executed proxies that are marked "abstain" or that are held in "street
name" by brokers and are not voted on one or more particular proposals (if
otherwise voted on at least one proposal) as "present" for purposes of
determining whether a quorum has been achieved at the Meeting. The candidates
for Directors receiving a plurality of the votes will be elected. Votes withheld
in respect of the election of Directors will not be counted in determining the
outcome of that vote. In respect of the proposal to approve the Amendment to the
Cleveland-Cliffs Inc 1992 Incentive Equity Plan (As Amended and Restated as of
May 13, 1997) and the proposal to ratify the appointment of the independent
public accountants, abstentions will be treated as votes against the proposal,
and broker non-votes will be treated as having no effect on the outcome of the
vote.
If notice in writing shall be given by any shareholder to the President, a
Vice President or the Secretary, not less than 48 hours before the time fixed
for the holding of the Meeting, that such shareholder desires that the voting
for the election of Directors shall be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the Meeting by the Chairman
or Secretary or by or on behalf of the shareholder giving such notice, each
shareholder shall have the right to cumulate such voting power as he or she
possesses at such election. Under cumulative voting a shareholder may cast for
any one nominee as many votes as shall equal the number of Directors to be
elected, multiplied by the number of his or her Common Shares. All of such votes
may be cast for a single nominee or may be distributed among any two or more
nominees as he or she may desire. If cumulative voting is invoked, and unless
contrary instructions are given by a shareholder who signs a proxy, all votes
represented by such proxy will be cast in such manner and in accordance with the
discretion of the person acting as proxy as will result in the election of as
many of the Board of Directors' nominees as is possible.
23
<PAGE> 27
OTHER BUSINESS
It is not anticipated that any other matters will be brought before the
Meeting for action; however, if any such other matters shall properly come
before the Meeting, it is intended that the persons authorized under proxies
may, in the absence of instructions to the contrary, vote or act thereon in
accordance with their best judgment.
SHAREHOLDER PROPOSALS
DEADLINE FOR INCLUSION IN PROXY MATERIALS
Any proposal by a shareholder of the Company intended to be presented at
the year 2000 Annual Meeting of Shareholders must be received by the Company on
or before November 22, 1999 to be included in the proxy materials of the Company
relating to such meeting.
DISCRETIONARY VOTING OF PROXIES
In accordance with recent amendments to Rule 14a-4 under the Securities
Exchange Act of 1934, if notice of a proposal by a shareholder of the Company
intended to be presented at the year 2000 Annual Meeting of Shareholders is
received by the Company after February 5, 2000, the persons authorized under the
Company's management proxies may exercise discretionary authority to vote or act
on such proposal if the proposal is raised at the Company's Annual Meeting of
Shareholders to be held in year 2000.
IMPORTANT
TO ASSURE YOUR REPRESENTATION AND A QUORUM FOR THE TRANSACTION OF BUSINESS AT
THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY.
24
<PAGE> 28
APPENDIX A
AMENDMENT TO THE
CLEVELAND-CLIFFS INC 1992 INCENTIVE EQUITY PLAN
(AS AMENDED AND RESTATED AS OF MAY 13, 1997)
RECITALS
WHEREAS, the Cleveland-Cliffs Inc 1992 Incentive Equity Plan (As Amended
and Restated as of May 13, 1997) ("Plan") was approved by the shareholders of
Cleveland-Cliffs Inc ("Company") on May 13, 1997;
WHEREAS, the Board of Directors of the Company ("Board") finds that it is
in the best interest of the Company and its shareholders to amend the Plan to
increase the number of shares available by 550,000 ("Amendment"); and
WHEREAS, the Board has approved the Amendment in accordance with the
provisions of Section 17 of the Plan, subject to approval by the shareholders of
the Company at the 1999 Annual Meeting of Shareholders.
NOW, THEREFORE, the Plan is hereby amended, effective as of May 11, 1999
upon approval of the shareholders of the Company, as follows:
1. Section 3 of the Plan is amended to read as follows:
"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 forfeiture 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 1,700,000 (595,000 of which were approved in
1992, 555,000 of which were approved in 1997, and 550,000 of which are
being added as of May 11, 1999); provided, however, that the number of
Restricted Shares that are not conditioned on the attainment of
Management Objectives, plus the number of Deferred Shares shall not
(after taking any forfeitures into account) exceed 150,000, subject to
adjustment pursuant to Section 10 of the Plan. Such shares may be Common
Shares of original issuance or Common Shares held in treasury or a
combination thereof. Upon the payment of any Option Price by the
transfer to the Company of Common Shares or upon satisfaction of any
withholding amount by means of transfer or relinquishment of Common
Shares, there shall be deemed to have been issued or transferred under
this Plan only the net number of Common Shares actually issued or
transferred by the Company."
2. Except as amended by the Amendment, the Plan shall remain in full
force and effect.
Executed in Cleveland, Ohio, as of , 1999.
CLEVELAND-CLIFFS INC
By:
--------------------------------------
President and Chief Executive
Officer
And:
--------------------------------------
Secretary
A-1
<PAGE> 29
CLEVELAND-CLIFFS INC
NOTICE OF
ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON
MAY 11, 1999
AND
PROXY STATEMENT
<PAGE> 30
COMMON CLEVELAND-CLIFFS INC
SHARES 18TH FLOOR DIAMOND BUILDING - CLEVELAND, OHIO 44114-2589
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R
O The undersigned hereby appoints J. D. Ireland III, J.C. Morley,
X A. Schwartz and A. W. Whitehouse, as Proxies, each with the power to
Y appoint his substitute, and hereby authorizes them to represent
and to vote all of Cleveland-Cliffs Inc Common Shares held of record
by the undersigned on March 15, 1999, at the Annual Meeting of
Shareholders to be held on May 11, 1999, or at any adjournment
or adjournments thereof, as follows:
Election of Directors, Nominees:
J. S. Brinzo, R. C. Cambre, R. S. Colman, J. D. Ireland III, G. F.
Joklik, L. L. Kanuk, F. R. McAllister, J. C. Morley, S. B. Oresman,
A. Schwartz.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. WHEN
PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER; IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3 INCLUSIVE. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
-----------
(TO BE SIGNED AND DATED ON OTHER SIDE) SEE REVERSE
SIDE
-----------
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 31
<TABLE>
<S> <C> <C>
| 0696
--------
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Approval of the [ ] [ ] [ ] 3. Ratification of the [ ] [ ] [ ]
Directors Amendment to the appointment of Ernst &
(see reverse) Cleveland-Cliffs Inc Young LLP as
1992 Incentive Equity independent public
For, except vote withheld Plan (as Amended accountants
from the following nominee(s): and Restated as of
May 13, 1997)
--------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING.
Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
--------------------------------------------------
--------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOLD AND DETACH HERE
IMPORTANT
PLEASE COMPLETE AND RETURN YOUR PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
