<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
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:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
ROUGE INDUSTRIES, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
ROUGE INDUSTRIES, INC.
- -------------------------------------------------------------------------------
(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
ROUGE INDUSTRIES, INC.
3001 MILLER ROAD
P.O. BOX 1699
DEARBORN, MICHIGAN 48121-1699
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1998
------------------
TO THE STOCKHOLDERS OF
ROUGE INDUSTRIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Rouge Industries, Inc. (the "Company") will be held at the
Gate 2 Training Center, Rouge Steel Company, 3001 Miller Road, Dearborn,
Michigan 48121, on Thursday, May 7, 1998 at 10:00 A.M. for the following
purposes:
1. To elect two (2) members of the Board of Directors to serve
until the 2001 annual meeting of stockholders or until their
successors have been duly elected and shall have qualified;
2. To consider and act upon a proposal to adopt the 1998 Stock
Incentive Plan;
3. To ratify the appointment of Price Waterhouse LLP as the
Company's independent public accountants for the fiscal year
ending December 31, 1998; and
4. To consider and act upon such other business as may properly
come before the Annual Meeting.
Only stockholders of record of each of the classes of the Company's common
stock at the close of business on March 11, 1998 will be entitled to vote at the
Annual Meeting.
PLEASE SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY, WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING, IN ORDER THAT YOUR SHARES MAY BE VOTED. A RETURN
ENVELOPE IS PROVIDED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
MARTIN SZYMANSKI
MARTIN SZYMANSKI
Secretary
Dated: March 27, 1998
<PAGE> 3
ROUGE INDUSTRIES, INC.
3001 MILLER ROAD
P.O. BOX 1699
DEARBORN, MICHIGAN 48121-1699
------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1998
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
This Proxy Statement is being mailed to the stockholders of ROUGE
INDUSTRIES, INC. (the "Company") on or about March 27, 1998 in connection with
the solicitation by the Board of Directors of the Company of proxies for use at
the 1998 Annual Meeting of Stockholders of the Company (the "Meeting") to be
held at the Gate 2 Training Center, Rouge Steel Company, 3001 Miller Road,
Dearborn, Michigan 48121, on Thursday, May 7, 1998 at 10:00 A.M. The Meeting has
been called for the following purposes: (i) to elect two (2) Class I directors
to serve as directors until the 2001 annual meeting of stockholders; (ii) to
consider and act upon a proposal to adopt the 1998 Stock Incentive Plan; (iii)
to ratify the appointment of Price Waterhouse LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1998; and (iv) to
consider and act upon such other business as may properly come before the
Meeting.
PROXIES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The voting securities of the Company outstanding on March 11, 1998
consisted of 14,438,136 shares of class A common stock, par value $0.01 per
share (the "Class A Common Stock"), each entitling the holder thereof to one
vote per share, and 7,562,400 shares of class B common stock, par value $0.01
per share (the "Class B Common Stock," and together with the Class A Common
Stock, the "Common Stock"), each entitling the holder thereof to 2.5 votes per
share. Only stockholders of record at the close of business on March 11, 1998
(the "Record Date") are entitled to notice of and to vote at the Meeting. There
was no other class of voting securities of the Company outstanding on the Record
Date. A majority of the voting interest of the outstanding shares of Common
Stock entitled to vote is required to be present in person or by proxy to
constitute a quorum and permit the Meeting to be held.
The enclosed proxy is being solicited by the Board of Directors of the
Company in order to provide every stockholder with an opportunity to vote on all
matters that properly come before the Meeting, whether or not the stockholder
attends in person. Shares cannot be voted at the Meeting unless the owner of
record is present to vote or is represented by a proxy. When the enclosed proxy
is properly signed, dated and returned, the shares represented by such proxy
will be voted by the persons named as proxies in accordance with the
stockholder's directions. Except as otherwise specified in the proxy, shares
will be voted for the election of the nominees for Class I director named
herein, for the adoption of the 1998 Stock Incentive Plan, for the ratification
of Price Waterhouse LLP as independent accountants for the fiscal year ending
December 31, 1998 and for any other matter that may properly be brought before
the Meeting in accordance with the judgment of the person or persons voting the
proxy. Any person who has signed and returned a proxy may revoke it at any time
before it is exercised by submitting a subsequently executed proxy, by giving
notice of revocation to the Secretary of the Company or by voting in person at
the Meeting. All classes of Common Stock will vote together as a single class on
all matters presented for consideration at the Meeting. Directors are elected by
a plurality, and independent accountants by a majority, of the votes of the
shares present in person or represented by proxy and entitled to vote.
<PAGE> 4
Abstentions and broker non-votes will not be counted in determining the number
of shares voted for or against any nominee for director, the approval of the
selection of independent auditors or any other voting matter. They are, however,
counted in determining the presence of a quorum. Under the rules of the New York
Stock Exchange, Inc. ("NYSE"), brokers who hold shares in street name for
customers have the authority to vote on certain items when they have not
received instructions from beneficial owners. Brokers who do not receive
instructions will have authority to vote on all proposals described in this
Proxy Statement.
SECURITY OWNERSHIP
- --------------------------------------------------------------------------------
The following table sets forth, as of December 31, 1997, information
concerning ownership of the Common Stock outstanding by (i) each person known by
the Company to be the beneficial owner of more than five percent of the Common
Stock, (ii) each director and nominee for election as a director, (iii) each of
the five most highly compensated executive officers of the Company and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, (a) each stockholder has sole voting power and sole dispositive power
with respect to the indicated shares and (b) the address of each such person is
c/o Rouge Industries, Inc., 3001 Miller Road, P.O. Box 1699, Dearborn, Michigan
48121-1699.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT OF
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY TOTAL VOTING
AND 5% STOCKHOLDERS OWNED PERCENT(1) STOCK
----------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Carl L. Valdiserri(2)(3)(4)(8).......................... 7,369,739 33.5% 54.2%
Worthington Industries, Inc.(3)(5)...................... 5,999,600 27.3 19.9
1205 Dearborn Drive
Columbus, Ohio 43085
Pioneering Management Corporation(6).................... 2,067,600 9.4 6.2
60 State Street
Boston, Massachusetts 02109
First Pacific Advisors(6)............................... 1,373,900 6.2 4.1
11400 West Olympic, Suite 1200
Los Angeles, California 90064
Donald J. Smith & Company, Inc.(6)...................... 1,094,000 5.0 3.3
15 Essex Road
Paramus, New Jersey 07652
Dimensional Fund Advisors Inc.(7)....................... 774,000 3.5 2.3
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Louis D. Camino(4)(8)................................... 217,994 1.0 *
Gary P. Latendresse(4)(8)............................... 118,828 * *
Ronald J. Nock(4)(8).................................... 29,708 * *
William E. Hornberger(4)(8)............................. 75,347 * *
Dominick C. Fanello(9).................................. 750 * *
John E. Lobbia(9)....................................... 8,458 * *
Peter J. Pestillo(10)................................... 5,000 * *
Clayton P. Shannon(9)................................... 8,458 * *
All Directors and Executive Officers as a Group (13
persons)(4)(8)(9)..................................... 7,974,763 36.1% 55.9%
</TABLE>
- -------------------------
* Less than one percent.
(1) Based on 21,990,619 total outstanding shares of Common Stock on December
31, 1997.
(2) Mr. Valdiserri owns 7,140,400 shares of Class B Common Stock, which
constitute 94.4% of the issued and outstanding shares of Class B Common
Stock, and 229,339 shares of Class A Common Stock. Under the Company's
Restated Certificate of Incorporation (the "Certificate"), the Class A
Common Stock and the Class B Common Stock are entitled to the same rights
and preferences, except with respect to voting
2
<PAGE> 5
power; the Class A Common Stock is entitled to one vote per share and the
Class B Common Stock is entitled to 2.5 votes per share. Accordingly, Mr.
Valdiserri has the power to elect all the nominees for Class I director
described herein as well as the entire Board of Directors of the Company.
Pursuant to the voting arrangement contemplated in the Amended and Restated
Stockholders Agreement (as defined under "Certain Relationships and Related
Transactions -- The Amended and Restated Stockholders Agreement"), Mr.
Valdiserri may be deemed to be the beneficial owner (as that term is
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of all shares of Common Stock owned of record by
Worthington Industries, Inc. ("Worthington"). Mr. Valdiserri disclaims such
beneficial ownership. See "Certain Relationships and Related Transactions
-- The Amended and Restated Stockholders Agreement."
(3) The shares of Class B Common Stock are convertible into shares of Class A
Common Stock (i) at any time in the discretion of the holder of such shares
of Class B Common Stock or (ii) automatically upon the transfer of shares
of Class B Common Stock to other than certain permitted transferees. The
Certificate provides that upon death or permanent disability of Mr.
Valdiserri or voluntary retirement of Mr. Valdiserri as Chairman of the
Board of Directors of the Company, Mr. Valdiserri's shares of Class B
Common Stock will automatically be converted into an equal number of shares
of Class A Common Stock. The conversion rate is one share of Class A Common
Stock for each share of Class B Common Stock and is subject to adjustment
in certain circumstances. Accordingly, as adjusted to reflect the
conversion of such Class B Common Stock, Mr. Valdiserri owns beneficially
(as that term is defined in Rule 13d-3 under the Exchange Act) 7,369,739
shares of Class A Common Stock, representing approximately 34% of the
21,568,619 as adjusted shares of Class A Common Stock outstanding. However,
if Worthington's 422,000 shares of Class B Common Stock are converted to
Class A Common Stock, then, as adjusted to reflect such conversion, Mr.
Valdiserri owns beneficially (as that term is defined in Rule 13d-3 under
the Exchange Act) 7,369,739 shares of Class A Common Stock, representing
approximately 34% of the 21,990,619 as adjusted shares of Class A Common
Stock outstanding.
(4) The figures shown include shares of Class A Common Stock allocated to the
accounts of participants under the Rouge Steel Company Savings Plan for
Salaried Employees, as amended, (the "Savings Plan"). Shares of Class A
Common Stock acquired by the Trustee, Putnam Fiduciary Trust Company, for
purposes of the Savings Plan are allocated to the accounts of participants
as of the end of each month. Participants are entitled to provide
instructions as to the voting of the shares allocated to their accounts.
Shares credited to the accounts of participants who do not provide voting
instructions are voted proportionately in the same manner as the Trustee
votes the aggregate of all shares of Common Stock with respect to which the
Trustee has received voting instructions from participants.
(5) Worthington owns 422,000 shares of Class B Common Stock, which constitute
6% of the issued and outstanding shares of Class B Common Stock, and
5,577,600 shares of Class A Common Stock which constitutes approximately
39% of the 14,428,219 shares of Class A Common Stock outstanding. Pursuant
to the voting arrangement in the Amended and Restated Stockholders
Agreement, Worthington may be deemed to be the beneficial owner (as that
term is defined in Rule 13d-3 of the Exchange Act) of all shares of Class B
Common Stock owned of record by Mr. Valdiserri. Worthington disclaims such
beneficial ownership. See "Certain Relationships and Related Transactions
-- The Amended and Restated Stockholders Agreement."
(6) The information shown is derived from information set forth in the latest
statements filed with the Securities and Exchange Commission with respect
to ownership of Class A Common Stock. The percentage of Class A Common
Stock owned by Pioneering Management Corporation, First Pacific Advisors
and Donald J. Smith & Company, Inc. is 14.6%, 9.5% and 7.6%, respectively.
(7) The information shown is derived from information set forth in the latest
statement filed with the Securities and Exchange Commission with respect to
Class A Common Stock. All shares of Class A Common Stock reported in such
statement, which constitute 5.4% of the outstanding Class A Common Stock,
are owned by advisory clients of Dimensional Fund Advisors Inc. Dimensional
Fund Advisors Inc. disclaims beneficial ownership of such shares.
(8) The shares indicated include 16,500, 12,500, 10,000 and 9,000 shares of
Class A Common Stock that may be acquired by Messrs. Camino, Latendresse,
Nock and Hornberger, respectively, upon exercise of stock options granted
under the Rouge Steel Company Stock Incentive Plan (the "Stock Incentive
Plan"). Mr. Valdiserri did not receive any stock options under the Stock
Incentive Plan in 1995, 1996 or 1997.
(9) The shares indicated include 250, 3,875 and 3,375 shares of Class A Common
Stock that may be acquired by Messrs. Fanello, Lobbia and Shannon,
respectively, upon exercise of stock options granted under the Rouge Steel
Company Outside Director Equity Plan (the "ODEP").
(10) Mr. Pestillo has requested that he be excluded from participation in the
ODEP and as a result he has not received any stock options under the ODEP.
3
<PAGE> 6
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that the directors shall be divided into three classes: Class I, Class
II and Class III, each class to consist, as nearly as may be possible, of
one-third of the whole number of the Board of Directors. At each annual meeting
of stockholders, the directors elected to succeed those whose terms are expiring
shall be identified as being of the same class as the directors whom they
succeed and shall be elected for a term expiring at the time of the third annual
meeting of stockholders after their election, or until their successors are duly
elected and qualified. A director elected to fill a vacancy is elected to the
same class as the director he or she succeeds, and a director elected to fill a
newly created directorship holds office until the next election of the class to
which such director is elected.
Pursuant to the provisions of the Amended and Restated By-Laws of the
Company (the "By-Laws"), the number of directors constituting the board is not
less than six and not more than nine.
The current Class I directors are nominees for election this year for a
three-year term expiring at the 2001 annual meeting of stockholders. Both of the
nominees and all of the continuing Class II and Class III directors have
previously been elected by the stockholders, with the exception of Mr. Dominick
C. Fanello, who was appointed to fill a Class II vacancy in 1996. Of the seven
present directors, three are officers of the Company. The Nominating Committee
may decide to seek a third Class I director and a third Class III director, but
the Company does not anticipate that these directors will be selected prior to
the Meeting. If any nominee shall be unable to serve, proxies may be voted for
another person designated by the Board of Directors. Management has no reason to
believe that any of the nominees will be unable or unwilling to serve as a
director, if elected. Should any nominee not be a candidate at the time of the
Meeting (a situation which is not now anticipated), proxies may be voted in
favor of the remaining nominees and may also be voted for a substitute nominee
selected by the Board of Directors.
To be eligible for election as directors, persons nominated other than by
the Board of Directors must be nominated in accordance with the procedures set
forth in the By-Laws. Those procedures require that written notice of the
nomination be received by the Secretary of the Company 90 days prior to the date
of the annual meeting of stockholders and contain certain information regarding
the person or persons to be nominated and the stockholder giving such notice.
Unless authority is specifically withheld, proxies will be voted for the
election of the nominees named below to serve as directors of the Company until
the 2001 annual meeting of stockholders of the Company or until their successors
shall be duly elected and qualified. Directors shall be elected by a plurality
of the votes cast, in person or by proxy, at the Meeting.
Set forth as follows is information with respect to each nominee and each
continuing director.
4
<PAGE> 7
NOMINEES FOR CLASS I DIRECTORS -- TERMS EXPIRE IN 2001
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR
NAME AND AGE AND CURRENT PUBLIC DIRECTORSHIPS BECAME A DIRECTOR
- ---------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
Louis D. Camino (60).............. Mr. Camino has served as President and Chief 1990
Operating Officer of the Company since 1990.
Mr. Camino was Vice President of Operations
for Acme Steel Company from 1986 to 1990. Mr.
Camino began his career with Jones and
Laughlin Steel Corporation as a supervisor in
1960, and has 37 years of experience in the
steel manufacturing industry.
Peter J. Pestillo (60)............ Mr. Pestillo is Executive Vice President, 1990
Corporate Relations at Ford Motor Company. Mr.
Pestillo joined Ford in 1980, and his
responsibilities since that time have included
employee and labor relations and governmental
affairs. Mr. Pestillo represents Ford as a
director of Park Ridge Corporation, the parent
of Hertz Corporation.
</TABLE>
CONTINUING CLASS II DIRECTORS -- TERMS EXPIRE IN 1999
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR
NAME AND AGE AND CURRENT PUBLIC DIRECTORSHIPS BECAME A DIRECTOR
- ---------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
Gary P. Latendresse (54).......... Mr. Latendresse has been Executive Vice 1992
President and Chief Financial Officer of the
Company since January 1998. He was Vice
President and Chief Financial Officer from
1992 to 1998 and Vice President, Finance and
Controller from 1987 until 1992. Mr.
Latendresse has held various financial
positions with the Company and Ford Motor
Company for the past 29 years. Mr. Latendresse
has 29 years of experience in the steel
manufacturing industry. Mr. Latendresse is
also the Treasurer and Assistant Secretary of
the Company.
Dominick C. Fanello (76).......... Mr. Fanello has been a director of Shiloh 1996
Industries, Inc. ("Shiloh") since 1992 and
currently serves as Vice Chairman. Mr. Fanello
was the founder of Shiloh Corporation in 1954
and has held various executive positions with
Shiloh Corporation and Shiloh for the past 44
years. Mr. Fanello resigned his position as
the Chief Executive Officer and Chairman of
the Board of Shiloh in 1995 and 1996,
respectively. Mr. Fanello also serves as a
director of Park National Bank (Newark, Ohio).
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR
NAME AND AGE AND CURRENT PUBLIC DIRECTORSHIPS BECAME A DIRECTOR
- ---------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
John E. Lobbia (56)............... Mr. Lobbia has been Chairman and Chief 1990
Executive Officer at DTE Energy Company, since
January 1996. Mr. Lobbia served as Chairman
and Chief Executive Officer of Detroit Edison
Company from March 1994 to January 1996, as
Chairman, President and Chief Executive
Officer from 1990 to February 1994, and as
President and Chief Operating Officer from
1988 to 1990. Mr. Lobbia has worked directly
with many of the Detroit area's industrial
concerns and has, during his career, had
extensive experience with steel manufacturing
customers at DTE Energy. Mr. Lobbia has also
been a director of NBD Bank, N.A. since July
1988.
</TABLE>
CONTINUING CLASS III DIRECTORS -- TERMS TO EXPIRE IN 2000
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR
NAME AND AGE AND CURRENT PUBLIC DIRECTORSHIPS BECAME A DIRECTOR
- ---------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
Carl L. Valdiserri (61)........... Mr. Valdiserri has been Chairman and Chief 1989
Executive Officer of the Company since 1989.
From 1987 until 1989 he was an independent
consultant regarding the steel industry,
principally to The Chase Manhattan Bank, N.A.
From 1982 until 1987, Mr. Valdiserri was
Executive Vice President of Weirton Steel
Corporation. Mr. Valdiserri joined the Weirton
Division of National Steel Corporation in
1978. He was Chief Engineer in the Great Lakes
Division of National Steel Corporation from
1973 to 1978 and held various other
engineering positions from 1964 to 1972. He
began his career with Wheeling-Pittsburgh
Steel Corporation in 1958. Mr. Valdiserri has
39 years of experience in the steel
manufacturing industry. Mr. Valdiserri is also
a director of Champion Enterprises, Inc.
Clayton P. Shannon (63)........... Mr. Shannon was Senior Vice President, Finance 1990
and Chief Financial Officer at Calgon Carbon
Corporation until his retirement in 1995.
Prior to joining Calgon Carbon in 1985, Mr.
Shannon served as Treasurer of National
Intergroup, Inc., the former parent company of
National Steel Corporation.
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES.
6
<PAGE> 9
MEETINGS AND COMMITTEES
The Board of Directors met or took action by unanimous written consent on
eight occasions during the fiscal year ended December 31, 1997. There are five
committees of the Board of Directors: the Executive Committee, the Audit
Committee, the Compensation Committee, the Nominating Committee and the Employee
Indemnification Committee. The members of the Executive Committee are Carl L.
Valdiserri (Chairman), John E. Lobbia and Peter J. Pestillo. The Executive
Committee took action by unanimous written consent once during the fiscal year
ended December 31, 1997. The Executive Committee possesses and exercises all the
power and authority of the Board of Directors in the management and direction of
the business and affairs of the Company, except as limited by law. The members
of the Audit Committee are Clayton P. Shannon (Chairman), Dominick C. Fanello
and John E. Lobbia. The Audit Committee met on three occasions during the fiscal
year ended December 31, 1997. The Audit Committee annually recommends to the
Board of Directors independent public accountants to serve as auditors of the
Company's books, records and accounts, reviews the scope of the audits performed
by such auditors and the audit reports prepared by them and reviews related
party transactions and certain other matters. The members of the Compensation
Committee are John E. Lobbia (Chairman), Dominick C. Fanello and Peter J.
Pestillo. The Compensation Committee met or took action by unanimous written
consent on three occasions during the fiscal year ended December 31, 1997. The
Compensation Committee establishes general compensation policies and reviews and
determines salaries and incentive compensation for executive officers of the
Company. The members of the Nominating Committee are Carl L. Valdiserri
(Chairman), Peter J. Pestillo and Clayton P. Shannon. The Nominating Committee
took action by unanimous written consent on one occasion during the fiscal year
ended December 31, 1997. The Nominating Committee recommends nominees to the
Board of Directors of the Company. For information regarding the Nominating
Committee's consideration of nominees recommended to the Company's stockholders,
see "-- Election of Directors" above. The members of the Employee
Indemnification Committee are Carl L. Valdiserri (Chairman), Louis D. Camino and
Gary P. Latendresse. The Employee Indemnification Committee was not required to
take any action during the fiscal year ended December 31, 1997. The Employee
Indemnification Committee determines whether to indemnify employees of the
Company (other than officers and directors of the Company) against liabilities
and claims arising out of employment with the Company.
COMPENSATION OF DIRECTORS
General. Directors of the Company who are employees of the Company do not
receive any compensation for being directors. Each director of the Company who
is not an employee of the Company is entitled to receive (i) an annual
director's fee of $15,000, payable in quarterly installments, (ii) $1,000 for
attendance at each meeting of the Board of Directors, (iii) $500 for attendance
at each meeting of a standing committee of which he is a member, but not the
chairman, that is held in conjunction with any annual, regular or special
meeting of the Board of Directors and $1,000 for attendance at each such
committee meeting that is not held in conjunction with any annual, regular or
special meeting of the Board of Directors, and (iv) $1,000 for chairing each
meeting of a standing committee of which he is the chairman that is held in
conjunction with any annual, regular or special meeting of the Board of
Directors and $1,500 for chairing each such committee meeting that is not held
in conjunction with any annual, regular or special meeting of the Board of
Directors. Mr. Pestillo has elected to waive any of the above described fees and
expense reimbursements in return for his services as director. Each director who
is not an employee of the Company also is entitled to be reimbursed for expenses
incurred in connection with the business and affairs of the Company.
Outside Director Equity Plan. The Company's Outside Director Equity Plan
("ODEP") provides for the granting of stock awards and stock options to Eligible
Directors. An "Eligible Director" is a member of the Board of Directors who is
not an employee of the Company or an affiliate of the Company (an "Outside
Director"), except that an Eligible Director who is an employee of an entity
7
<PAGE> 10
that is an affiliate of the Company other than by virtue of the Company's
control of such entity may participate in the ODEP if such director is otherwise
an Outside Director and participated in no equity-based plan (other than the
ODEP) of the Company or any subsidiary thereof. The ODEP also provides, under
certain circumstances, that Eligible Directors may elect to receive all or a
portion of their retainer in the form of Class A Common Stock.
The ODEP provides for the issuance of up to 100,000 shares of Class A
Common Stock. The shares of Class A Common Stock available under the ODEP are
offered and issued directly by the Company. No fees or commissions are charged
by the Company in connection with stock awards and stock options under the ODEP.
Under the terms of the ODEP, as of the date of each annual meeting of the
Company's stockholders, each Eligible Director is entitled to receive an option
to purchase shares of Class A Common Stock, pursuant to the formula set forth
below, unless such director was elected, appointed or otherwise becomes an
Eligible Director during the 60-day period prior to the Annual Meeting in any
year, in which case such Eligible Director will not receive any options with
respect to that Annual Meeting. In addition, each Eligible Director receiving
options with respect to an Annual Meeting must continue to serve as a director
of the Company after such Annual Meeting. The number of shares of Class A Common
Stock subject to an option is based on income before income taxes (as reported
in the Company's Consolidated Statement of Operations with certain adjustments)
that meets certain targeted percentages of sales for the Company's most recently
completed calendar year ("Annual Return on Sales") as follows:
<TABLE>
<CAPTION>
ANNUAL RETURN ON SALES NUMBER OF SHARES
- ---------------------- ----------------
<S> <C>
0 to 2.3% 0
2.3 to 4.6% 500
4.6 to 6.9% 1,000
6.9% and above 1,500
</TABLE>
At Mr. Pestillo's request, he has been excluded from participation in the
ODEP until further notice. As of March 11, 1998, Mr. Pestillo had not requested
that the Company include him in the ODEP. Under the ODEP, in 1997, Messrs.
Fanello, Lobbia and Shannon were each granted options to purchase 500 shares of
Class A Common Stock. Except for the options described above, no options have
been granted under the ODEP in 1997.
Under the ODEP, 25% of the options granted are exercisable on the date the
options are granted, and assuming the director remains a member of the Board, an
additional 25% of the options become exercisable each succeeding December 31.
The exercise price may be paid, in whole or in part, (i) in cash; (ii) in whole
shares of Class A Common Stock, valued at their then Fair Market Value (as
defined in the ODEP); (iii) pursuant to an irrevocable election (applicable to
all exercises thereafter) six months in advance of such exercise to satisfy the
exercise price through the withholding of shares issuable upon exercise of the
option; or (iv) by a combination of such methods of payment. The Company may
enter into any arrangement permitted under applicable laws (but only to the
extent permitted under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) to facilitate the "cashless" exercise of any
option.
Generally, an option may be exercised by an Eligible Director during the
period that director remains a member of the Board of Directors and for a period
of five years following retirement. However, only those options exercisable at
the date of retirement may be exercised during the period following retirement
and in no event will the options be exercisable more than ten years after the
date of the grant. In the event of the death of an Eligible Director, the
options shall be exercisable only within the 12 months next succeeding the date
of death. However, only those options exercisable at the date of the Eligible
Director's death may be exercised during the period following death and in no
event shall the options be exercisable more than ten years after the date of
grant.
8
<PAGE> 11
Shares of Class A Common Stock received pursuant to the exercise of options
granted under the ODEP are not transferable until six months have elapsed from
the date of the grant of such options. The exercise price of each option is 100%
of the Fair Market Value of the Class A Common Stock subject to an option on the
date the option is granted.
On the last day of the month immediately following each calendar quarter,
each Eligible Director is entitled to receive a stock award under the ODEP. The
number of shares of Class A Common Stock awarded are based on income before
income taxes (as reported in the Company's Consolidated Statement of Operations
with certain adjustments) that meets certain targeted percentages of sales for
the Company's most recently completed calendar quarter ("Quarterly Return on
Sales") as follows:
<TABLE>
<CAPTION>
QUARTERLY RETURN ON SALES NUMBER OF SHARES
- ------------------------- ----------------
<S> <C>
0 to 2.3% 0
2.3 to 4.6% 83
4.6 to 6.9% 167
6.9% and above 250
</TABLE>
Under the ODEP, in 1997, Messrs. Fanello, Lobbia and Shannon were each
awarded 333 shares of Class A Common Stock. The awards were made at 100% of the
Fair Market Value of the Class A Common Stock on the dates the shares were
awarded.
An Eligible Director may irrevocably elect (the "Equity Election"), six
months prior to each April 30, July 31, October 31 and January 31 (each such
date, a "Retainer Payment Date"), to receive all or a portion of the amounts
paid by the Company to such Eligible Director as an annual retainer for services
to be rendered as a member of the Board of Directors during any fiscal year of
the Company, in the form of Class A Common Stock. If the retainer of an Eligible
Director is increased subsequent to the Equity Election, such election shall
apply to the amount of such increase. On the applicable Retainer Payment Date,
the Eligible Director will receive a number of shares of Class A Common Stock
equal to (i) the portion of the retainer specified in the Equity Election
divided by (ii) the Fair Market Value of one share of Class A Common Stock as of
the Retainer Payment Date.
An optionee may make payment of the option price for a nonqualified option
by delivering shares of Class A Common Stock to the Company, or electing to have
shares issuable upon exercise withheld by the Company. In the event that payment
of the option price is made by delivering shares to the Company, the optionee
generally will not recognize any gain with respect to the exchanged shares, and
special rules will apply in determining the basis of the new shares received. In
addition, the fair market value of the additional shares received by the
optionee will be taxable as ordinary income. The optionee's holding period in
the exchanged shares received will include his or her holding period in the
shares delivered in exchange therefor. In the event that shares issuable upon
exercise are withheld by the Company in payment of the option price, the fair
market value of the additional shares received by the optionee will be taxable
as ordinary income.
The Board of Directors may terminate, suspend, modify or amend the ODEP at
any time, provided that such amendment does not impair the rights of an optionee
or recipient with respect to any stock award or stock option previously granted
under the ODEP and that stockholder approval is required to the extent that such
stockholder approval is necessary to comply with applicable provisions of
Section 16 of the Exchange Act (or Rule 16b-3 thereunder) or any other
requirement of applicable law or regulation. Notwithstanding the foregoing, the
provisions of the ODEP with respect to eligibility for participation or the
timing or amounts of grants of stock awards or stock options may not be amended
more than once every six months (other than to comport with changes in the
Internal Revenue Code of 1986, as amended (the "Code"), or the Employee
Retirement Income Security Act of 1974, as amended).
9
<PAGE> 12
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal years ended December 31,
1997, 1996 and 1995, each component of compensation paid or awarded to, or
earned by, the Chief Executive Officer (the "CEO") of the Company and each of
the four most highly compensated executive officers who were serving as
executive officers at the end of the last fiscal year, other than the CEO
(collectively referred to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION(2)
------------------ ---- ------ -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Carl L. Valdiserri.... 1997 $275,000 $ 88,000 -- -- $ 9,853
Chairman and Chief 1996 275,000 116,000 -- -- 11,202
Executive Officer 1995 270,833 260,000 -- -- 18,087
Louis D. Camino....... 1997 235,000 60,000 -- 6,000 8,487
President and Chief 1996 235,000 83,000 -- 6,000 11,317
Operating Officer 1995 233,333 265,000 -- 9,000 17,537
Gary P. Latendresse... 1997 177,500 56,000 -- 6,000 6,541
Vice President and 1996 165,000 62,000 -- 6,000 8,283
Chief Financial 1995 162,500 192,000 -- 5,000 15,886
Officer
Ronald J. Nock........ 1997 145,000 37,000 4,173(3) 4,000 5,214
Vice President,
Sales 1996 120,000 44,000 3,895(3) 4,000 6,024
and Marketing 1995 120,000 130,000 3,586(3) 5,000 13,347
William E.
Hornberger.......... 1997 145,000 33,000 -- 4,000 5,214
Vice President, 1996 130,000 37,000 -- 4,000 6,524
Employee Relations 1995 130,000 118,000 -- 4,000 14,457
and Public Affairs
</TABLE>
- -------------------------
(1) Amounts awarded pursuant to the Rouge Steel Company Incentive Compensation
Plan.
(2) Consists of employer contributions to the Rouge Steel Company Savings Plan
for Salaried Employees and life insurance premiums paid by the Company on
behalf of the Named Executive Officers.
(3) Includes reimbursement by the Company for certain taxes payable.
10
<PAGE> 13
INDIVIDUAL OPTION GRANTS IN 1997
The Company adopted a stock incentive plan (the "Stock Incentive Plan") in
1994 under which key employees can be granted stock options, stock appreciation
rights, restricted stock and performance share awards. The following table sets
forth information with respect to all stock options granted by the Compensation
Committee to the Named Executive Officers during 1997 under the Stock Incentive
Plan.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
NUMBER PERCENT OF
OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION GRANT DATE
EXECUTIVE GRANTED(1) YEAR PER SHARE DATE(2) VALUE(3)
--------- ---------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Carl L. Valdiserri.................. 0 0.0% $ -- -- $ --
Louis D. Camino..................... 6,000 5.8 21.000 01/01/07 57,711
Gary P. Latendresse................. 6,000 5.8 21.000 01/01/07 57,711
Ronald J. Nock...................... 4,000 3.8 21.000 01/01/07 38,474
William E. Hornberger............... 4,000 3.8 21.000 01/01/07 38,474
</TABLE>
- -------------------------
(1)Includes options which qualify as incentive stock options under Section 422
of the Code and options which do not so qualify.
(2)Outstanding options expire ten years after the date of grant, if not earlier
due to death, retirement, disability or termination of employment.
(3)Based on the Black-Scholes option pricing model, using the following
assumptions: (a) 7-year option term; (b) 6.34% risk-free interest rate; (c)
33.2598% volatility; and (d) 0.5714% dividend yield. Actual gain, if any, is
dependent upon the actual performance of the shares of Class A Common Stock
underlying these options, and there is no assurance that the amounts shown in
this column will be achieved.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
No option held by Named Executive Officers was exercised during 1997. The
following table sets forth information with respect to each Named Executive
Officer's holdings of unexercised stock options at December 31, 1997.
OPTION EXERCISES IN 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE ---------------------------- ----------------------------
EXECUTIVE EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl L. Valdiserri..... 0 $0 0 0 $0 $0
Louis D. Camino........ 0 0 16,500 4,500 0 0
Gary P. Latendresse.... 0 0 12,500 4,500 0 0
Ronald J. Nock......... 0 0 10,000 3,000 0 0
William E.
Hornberger........... 0 0 9,000 3,000 0 0
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") has the responsibility to review and determine
compensation and benefits for all officers of the Company. It is also
responsible for the determination of executive compensation programs and the
award of incentive payments and stock options under those programs. In
11
<PAGE> 14
addition, the Compensation Committee reviews compensation and benefit programs
applying to all non-represented salaried employees and represented hourly and
salaried employees. The Compensation Committee consists of three directors, none
of whom is or has been an employee of the Company or is eligible to participate
in the Company's executive compensation programs other than the ODEP.
Philosophy. The Compensation Committee's policies on executive compensation
are designed to attract, retain and motivate executives by providing competitive
levels of compensation that integrate the Company's annual and long-term
performance goals, reward strong corporate performance and recognize individual
initiative and achievements to enhance stockholder value.
The Compensation Committee reviews, among other things, survey data
provided by independent, nationally recognized compensation consulting firms for
both the steel industry and general industry. In particular, the Compensation
Committee considers compensation data with respect to a peer group of steel
producers with annual revenues of up to $1.5 billion and a peer group comprised
of the members of the common stock peer group. See "-- Common Stock
Performance." In determining the common stock peer group for the Common Stock
Performance graph, the Compensation Committee approved management's selection of
companies with comparable products, markets, customers or revenues. The two
compensation peer groups provide the Compensation Committee with competitive
data on companies of comparable size and market.
The Compensation Committee targets total cash compensation at levels
generally comparable to the compensation peer groups. Executive compensation is
weighted heavily toward programs contingent upon the Company's financial
performance. The Compensation Committee also believes that stock ownership by
employees and stock-based compensation programs are beneficial in aligning the
interests of employees and stockholders.
Components of Executive Officer Compensation. Executive officer
compensation includes base salary, quarterly incentive cash compensation,
long-term stock-based compensation and a broad-based benefits program.
The base salaries of executive officers are targeted below the median of
the compensation peer groups of companies, subject to variation by individual
executive based on individual performance and scope of responsibility. Incentive
cash compensation provides a performance-sensitive compensation opportunity for
the Company's executives above the median of the peer groups. It is the
Compensation Committee's intent to set base compensation at levels so that when
the Company performs well, the incentive compensation payments would put Company
officers above the median level of cash compensation being paid to officers of
the compensation peer groups. Conversely, when the Company performs poorly,
total cash compensation would fall below the median compensation level.
Base salary adjustments were granted to certain of the Named Executive
Officers in 1997 based upon the Compensation Committee's consideration of the
competitive compensation data, the interval since the individual executive's
last increase, the individual executive's performance and scope of
responsibility and the Company's performance.
Incentive cash compensation is based upon measured financial results of the
Company. Under the Company's Incentive Compensation Plan (the "Incentive
Compensation Plan"), the amount set aside for awards each quarter is a
percentage of the Company's income before income taxes (as reported in the
Company's Consolidated Statement of Operations with certain adjustments). In the
aggregate, the Named Executive Officers experienced a 19.9% reduction in the
amount of incentive compensation received in 1997 when compared to 1996, and a
71.6% reduction when compared to 1995. In determining the 1997 incentive
compensation awards, the Compensation Committee considered the Company's 1997
financial performance (income), specific business performance measures and the
individual executive's contribution to the same.
12
<PAGE> 15
The Company adopted the Stock Incentive Plan in 1994 to link executive
compensation to the Company's Class A Common Stock share price and to increase
long-term retention of key employees. In 1997, the Compensation Committee
approved the grant of stock options under the Stock Incentive Plan to the Named
Executive Officers and other key managers of the Company. The awards were
targeted at or about the middle of the range of long-term incentive compensation
paid to executive officers in the compensation peer groups as determined by the
Compensation Committee's review of survey data. At Mr. Valdiserri's request, due
to his significant equity holdings in the Company, the Compensation Committee
did not grant any options to Mr. Valdiserri.
The executive officers participate in a broad-based benefits program
including a pension plan, health care coverage, life insurance, disability
benefits and a tax-deferred savings plan.
Performance of the CEO. The Compensation Committee's review of the
compensation of the CEO, Carl L. Valdiserri, considered data presented by the
Company's compensation consultants regarding the base salary, total cash
compensation and total direct compensation of chief executive officers of the
compensation peer groups and in general industry. The data indicate that the
base salary of Mr. Valdiserri is significantly below the median of the chief
executive officers of the compensation peer groups and general industry. In
consideration that Mr. Valdiserri desires that his salary remain modest in
relation to competitive levels due to his significant equity holdings in the
Company, and in recognition that Mr. Valdiserri's base salary has not been
increased since 1995, the Compensation Committee directed the establishment of a
charitable fund in the name of Mr. Valdiserri that would serve as an appropriate
means for public recognition of the Company and would also reflect on Mr.
Valdiserri's personal interests in providing college scholarships for the
dependents of the Company's employees. The Compensation Committee directed an
initial $50,000 contribution to establish this charitable fund. Consistent with
the Company's philosophy that the CEO's total compensation should be heavily
dependent upon the Company's financial performance, a significant portion of Mr.
Valdiserri's total compensation is targeted to incentive compensation. For 1997,
Mr. Valdiserri's incentive compensation dropped 24.1% from his 1996 incentive
compensation level which already was limited by the Compensation Committee at
Mr. Valdiserri's request due to his significant equity holdings in the Company.
Deductibility of Compensation. The Internal Revenue Service, under Section
162(m) of the Code, will generally deny the deduction of compensation paid to
certain executives to the extent such compensation exceeds $1 million, subject
to an exception for compensation that meets certain "performance-based"
requirements. Whether the Section 162(m) limitation with respect to an executive
will be exceeded and whether the Company's deductions for compensation paid in
excess of the $1 million cap will be denied will depend upon the resolution of
various factual and legal issues that cannot be resolved at this time. As to
options granted under the Stock Incentive Plan, the Company intends to comply
with the rules governing the Section 162(m) limitation so that compensation
attributable to such options will not be subject to limitation under such rules.
As to other compensation, it is not expected that compensation to executives of
the Company will exceed the Section 162(m) limitation in the foreseeable future
and no officer of the Company received compensation in 1997 which resulted,
under Section 162(m), in the non-deductibility of such compensation to the
Company. If, however, any compensation does exceed the Section 162(m)
limitation, the Company will take such action as necessary to structure any such
compensation in a manner to cause such compensation to be exempt from the
Section 162(m) limitation.
COMPENSATION COMMITTEE
John E. Lobbia, Chairman
Dominick C. Fanello
Peter J. Pestillo
13
<PAGE> 16
COMMON STOCK PERFORMANCE
The following graph compares the cumulative return from investing $100 at
March 31, 1994, in the Company's Class A Common Stock, the S&P 500 index of
companies, the S&P Steel Index and a peer group of integrated steel companies
selected by management and comprised of Inland Steel Industries, National Steel
Corporation, AK Steel Holding Corporation, Weirton Steel Corporation and WHX
Corporation, with dividends assumed to be reinvested when received. The
Company's Class A Common Stock began trading on the NYSE on March 29, 1994.
PERFORMANCE COMPARISON
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR ROUGE S&P STEEL BASE
COVERED) INDUSTRIES S&P 500 PEER GROUP INDEX (MARCH 31)
<S> <C> <C> <C> <C> <C>
MAR 31 100.00 100.00 100.00 100.00
JUN 30 125.00 100.42 112.88 103.72
DEC 31 134.49 105.30 114.65 97.99
JUN 30 108.47 126.56 102.01 94.14
DEC 31 111.05 144.83 97.03 90.85
JUN 30 100.79 159.44 91.35 81.76
DEC 31 98.74 178.06 91.38 80.97
JUN 30 79.62 214.74 110.79 92.01
DEC 31 57.42 237.45 89.50 82.32
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997
--------------------------- ---------------- ---------------- ----------------
MARCH 31 JUNE 30 DEC 31 JUNE 30 DEC 31 JUNE 30 DEC 31 JUNE 30 DEC 31
-------- ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rouge Industries.................. 100.00 125.00 134.49 108.47 111.05 100.79 98.74 79.62 57.42
S&P 500........................... 100.00 100.42 105.30 126.56 144.83 159.44 178.06 214.74 237.45
Peer Group........................ 100.00 112.88 114.65 102.01 97.03 91.35 91.38 110.79 89.50
S&P Steel Index................... 100.00 103.72 97.99 94.14 90.85 81.76 80.97 92.01 82.32
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, Carl L. Valdiserri, Chairman and
Chief Executive Officer of the Company, attended Compensation Committee meetings
to present management recommendations and answer questions with respect to
executive performance and compensation. No other member of the Board of
Directors who is also an officer or employee of the Company participated in any
such meetings.
EMPLOYEE BENEFIT PLANS
Pension Plan. The table below sets forth the estimated qualified annual
retirement benefits (contributory and noncontributory) under the Salaried
Retirement Plan payable on a straight life annuity basis to the Named Executive
Officers who meet the credited service requirement for retirement at age 65.
Normal retirement benefits are not subject to deduction for Social Security
benefits.
14
<PAGE> 17
The formula used to calculate noncontributory benefits under the qualified
pension plan considers the participant's non-contributory service and a flat
benefit rate associated with that level of service. The formula used to
determine contributory retirement benefits under the qualified pension plan
considers (i) the participant's final average pay, which is defined as the
highest average monthly salary of any five consecutive December 31 dates of the
last ten years that the participant was making contributions and (ii) the
participant's contributory service. Average monthly salary is the base monthly
salary prior to giving effect to any salary reduction pursuant to the Company's
tax-efficient savings plan, and does not include bonuses or any other forms of
supplemental compensation. To be eligible to receive a contributory benefit,
participants must contribute at the rate of 1 1/2% of base salary for each
credited year of service. At December 31, 1997, Messrs. Valdiserri, Camino,
Latendresse and Hornberger had eight credited years of service, and Mr. Nock had
15.4 credited years of service under the qualified pension plan.
Select members of management as determined by the Compensation Committee,
including Messrs. Valdiserri, Camino and Latendresse, participate in the
non-qualified Benefit Restoration Plan, in which salary in excess of the Code
compensation limit is used in a formula similar to that which determines
qualified plan contributory retirement benefits. At December 31, 1997, Messrs.
Valdiserri and Camino had eight credited years of service. Mr. Latendresse had
31.9 credited years of service under the Benefit Restoration Plan, but his
benefit under this plan is offset by Ford Motor Company General Retirement Plan
benefits. The Pension Plan Table below may be utilized to estimate this benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
AVERAGE YEARLY ------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35
-------------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$50,000.............. $ 4,000 $ 7,500 $ 11,500 $ 15,500 $ 19,500 $ 23,000 $ 27,000
100,000.............. 8,500 17,000 25,500 34,500 43,000 51,500 60,000
150,000.............. 13,000 26,500 39,500 53,000 66,500 80,000 93,000
200,000.............. 17,500 35,500 53,500 72,000 90,000 108,000 126,000
250,000.............. 22,000 45,000 68,000 90,500 113,500 136,500 159,500
300,000.............. 26,500 54,000 82,000 109,500 137,000 164,500 192,500
350,000.............. 31,000 63,500 96,000 128,500 160,500 193,000 225,500
400,000.............. 35,500 73,000 110,000 147,000 184,000 221,500 258,500
</TABLE>
Select members of management as determined by the Compensation Committee,
including the Named Executive Officers, participate in the non-qualified
Supplemental Executive Retirement Plan ("SERP"), in which a benefit is based on
a formula similar to that which determines contributory retirement benefits,
except that the benefit is based on the average annual bonuses paid under the
Incentive Compensation Plan for the highest five years of the ten years prior to
retirement. For purposes of the SERP, at December 31, 1997, Messrs. Valdiserri
and Camino had eight credited years of service and Messrs. Latendresse,
Hornberger and Nock had 31.9, 25.0 and 15.4 credited years of service,
respectively. The Pension Plan Table above may be utilized to estimate this
benefit.
Profit Sharing Plans for Hourly and Salaried Employees. Under the Profit
Sharing Plan for Hourly Employees and the Profit Sharing Plan for Salaried
Employees, the Company is obligated to make payments to eligible employees, with
respect to each calendar quarter, of a portion of income before income taxes (as
reported in the Company's Consolidated Statement of Operations with certain
adjustments) that meets certain targeted percentages of sales. The Company paid
$3.0 million under these plans with respect to 1997.
Savings Plan for Salaried Employees. Under the Rouge Steel Company Savings
Plan for Salaried Employees, eligible salaried employees may make voluntary
pre-tax contributions not to exceed 15% of the employee's base salary and
after-tax contributions not to exceed 10% of the
15
<PAGE> 18
employee's base salary. Among the investment alternatives available to employees
since February 1995 is the investment of all or a portion of their accounts in
Class A Common Stock. The Company is obligated to match the employee's
contributions up to 10% of the employee's base salary. The Company matches
employee contributions in an amount ranging from 0% to 100% (depending on the
Company's level of income before income taxes as a percentage of sales (as used
in the profit sharing plans) during an applicable quarter) of the employee's
pre- and after-tax contributions during the applicable month. Since 1995, the
Company's matching contributions have been made in Class A Common Stock.
Incentive Compensation Plan. Under the Incentive Compensation Plan, the
officers and employee-directors and certain other salaried employees of the
Company are eligible to receive quarterly incentive compensation payments for
contributing to the success of the Company. Upon the recommendation of the CEO
of the Company, at the end of each quarter, the Compensation Committee will
determine the maximum total amount of all such awards to be made for the
quarter, will act on the recommendation made by the CEO regarding officer
awards, and will determine the CEO's award. The amount set aside each quarter is
a percentage of the Company's income before income taxes (as reported in the
Company's Consolidated Statement of Operations with certain adjustments).
Stock Incentive Plan. Under the Stock Incentive Plan, a maximum of 400,000
shares of Class A Common Stock has been authorized for the granting of qualified
incentive stock options ("ISOs"), nonqualified stock options ("NQSOs" and
together with ISOs, "Options"), stock appreciation rights ("SARs"), restricted
stock awards ("RSAs") and performance share awards ("PSAs"). The shares of Class
A Common Stock available under the Stock Incentive Plan will be offered and
issued directly by the Company. No fees or commissions will be charged by the
Company in connection with the awards. In no event may any employee receive
Options, SARs, RSAs, PSAs or any combination thereof for more than 50,000 shares
of Class A Common Stock over the life of the Stock Incentive Plan. As of
December 31, 1997, Options totalling 284,500 shares were outstanding pursuant to
the Stock Incentive Plan. The purposes of the Stock Incentive Plan are to align
the interests of certain officers of the Company and employees of Rouge Steel
Company ("Rouge Steel") with those of stockholders by rewarding long-term growth
and profitability of the Company and to attract and retain individuals of
experience and ability. All officers and employee-directors and certain other
employees of the Company or its subsidiaries are eligible to participate under
the Stock Incentive Plan, as deemed appropriate by the Compensation Committee.
EMPLOYMENT CONTRACTS
The Company does not have employment contracts with its executive officers.
Certain salaried employees of Rouge Steel, including the Named Executive
Officers, are eligible to participate in the Rouge Steel's Salaried Income
Security Plan (the "SISP"). Under the SISP, eligible salaried employees are
entitled to receive basic and supplemental benefits in the event of certain
terminations of employment with Rouge Steel. In the event of such a termination,
eligible salaried employees who have at least one full year of service are
entitled to receive up to 12 months of base salary paid over up to 22 months
depending on years of service at termination. Upon exhaustion of basic benefits
under the SISP, eligible employees with more than 15 years of service are
entitled to receive supplemental benefits equal to 50% of base salary plus 1%
for each full year of service over 15 years. These supplemental benefits
continue until reemployment, refusal to accept work, retirement or death. For
purposes of basic and supplemental benefits under the SISP, base salary is the
highest base salary received during the 12 months immediately preceding
termination.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the Securities
16
<PAGE> 19
and Exchange Commission (the "SEC"). Such officers, directors and ten percent
stockholders also are required by SEC rules to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and ten
percent stockholders were complied with except for one director and officer,
Carl L. Valdiserri, who filed a late Form 4 regarding one open market sale which
commenced in July, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
The Company believes that the transactions discussed below, as well as the
terms of any future transactions and agreements (including renewals of any
existing agreements) between the Company and its affiliates, are and will be at
least as favorable to the Company as could be obtained from unaffiliated
parties. The Board of Directors of the Company will be advised in advance of any
such proposed transaction or agreement and will utilize such procedures in
evaluating the terms and provisions of such proposed transaction or agreement as
are appropriate in light of the fiduciary duties of the directors under the
Delaware General Corporation Law. In addition, the Company has established an
Audit Committee, which consists of three independent directors. One of the
responsibilities of the Audit Committee is to review related party transactions.
See "Proposal No. 1 -- Election of Directors -- Meetings and Committees."
THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
On November 14, 1996, the Company, Carl L. Valdiserri and Worthington
entered into an amended and restated stockholders agreement (the "Amended and
Restated Stockholders Agreement"). Under the Amended and Restated Stockholders
Agreement, Worthington, Carl L. Valdiserri and the Company agreed that (i)
without the prior written consent of a majority of Disinterested Directors (as
defined in the Company's Certificate), Worthington will not acquire or agree to
acquire, directly or indirectly, any shares of Common Stock if, immediately
after any such acquisition, the aggregate percentage of the total number of
issued and outstanding shares of Common Stock ("Equity Holdings") held by
Worthington and its affiliates would exceed 35%, except as a result of a
recapitalization of the Company; (ii) during each twelve month period following
November 14, 1996 (each such twelve month period, a "Restricted Period"), Mr.
Valdiserri and his permitted transferees will not, with certain exceptions,
transfer, offer to transfer or agree to transfer more than 18% of the Equity
Holdings of Mr. Valdiserri and such permitted transferees during such Restricted
Period unless Mr. Valdiserri gives Worthington 30 days' prior written notice;
and (iii) (1) if and so long as Worthington owns at least 18% or 9% of the
Company's outstanding Common Stock on a fully diluted basis, Mr. Valdiserri will
vote his Common Stock in favor of two directors or one director, respectively,
designated by Worthington and (2) if and as long as Mr. Valdiserri holds 27%,
18% or 9% of the Company's outstanding Common Stock on a fully diluted basis,
Worthington will vote its shares of Common Stock in favor of three directors,
two directors or one director, respectively, designated by Mr. Valdiserri. In
1996, Worthington's two designees on the Board of Directors resigned their
positions as directors of the Company. Worthington has notified the Company that
it will not appoint designees to fill the resulting vacancies as long as any of
the DECS (as defined herein) remain outstanding. Worthington has retained the
right to appoint two designees as members of the Board of Directors after such
time, which would be subject to the voting arrangements described above, and has
retained a 19.9% voting interest in the Company on all matters.
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Under the Amended and Restated Stockholders Agreement, Mr. Valdiserri,
Worthington and/or their permitted transferees collectively have four demand
registration rights in certain circumstances with respect to their shares of
Class A Common Stock. The demand registration rights described above are
exercisable at any time. In addition, Mr. Valdiserri, Worthington and/or their
permitted transferees have unlimited demand registration rights on Forms S-2 and
S-3. Mr. Valdiserri, Worthington and/or their permitted transferees also have
unlimited piggyback registration rights. The Company has agreed to pay any
expenses (except all applicable underwriting discounts and commissions) incurred
in connection with a registration requested under the Amended and Restated
Stockholders Agreement, except that, with respect to the demand registration
rights, reimbursement is required only where the expected purchase price of the
registrable securities exceeds $5 million and, in the case of registration on
Form S-2 or S-3, only holders of 5% or more of the Company's Common Stock shall
be reimbursed.
The Amended and Restated Stockholders Agreement terminates (a) upon the
consent of each of the parties; (b) upon the sale of all or substantially all of
the assets of the Company and the distribution of the proceeds thereof to the
stockholders at such time; (c) as to any share of Common Stock, when such share
is transferred other than to permitted transferees; (d) as to any party, when
such party ceases to hold any Common Stock (or any legal or beneficial interest
therein); or (e) on February 28, 2004, provided that certain expense and
indemnification provisions survive.
WORTHINGTON INDUSTRIES, INC.
The DECS. Pursuant to the terms of the 7 1/4% Exchangeable Notes due March
1, 2000 (the "Debt Exchangeable for Common Stock" or "DECS") of Worthington,
Worthington may, in exchange for the DECS in certain circumstances, deliver to
the holders of the DECS shares of Class A Common Stock, cash or a combination of
cash and shares of Class A Common Stock. The Company has registered 5,999,600
shares of Class A Common Stock related to the DECS. The Company will not receive
any of the proceeds from the sale of the DECS or delivery thereunder of shares
of Class A Common Stock.
Board Resignations and Class B Common Stock Conversion. Effective August 1,
1996, Worthington's two designees on the Board of Directors resigned their
positions as directors of the Company. Worthington has informed the Company that
it will not designate successors to fill the vacancies created by such
resignations as long as any of the DECS remain outstanding and such seats are
otherwise filled. However, Worthington has, subject to the terms of the Amended
and Restated Stockholders Agreement, reserved the right to designate nominees at
such time as the DECS are no longer outstanding.
Worthington Steel Purchase Agreement. In connection with the acquisition of
the Company from Ford Motor Company in 1989 (the "Acquisition"), the Company
entered into a steel purchase contract (the "Worthington Agreement") with
Worthington. The Worthington Agreement terminates on December 31, 2003. The
purchase price of the products supplied under the Worthington Agreement is set
at a slight discount from the competitive market price for the same products
with comparable quality and terms and the contract is subject to the Company's
ability to deliver products on a timely basis which meet Worthington's
specifications and are of acceptable quality. The Company and Worthington have
agreed to this pricing arrangement to reflect Worthington's volume of purchases,
product mix and certain other accommodations made by Worthington with respect to
the Company's production scheduling requirements. Pursuant to the Worthington
Agreement, the Company had sales to Worthington of approximately $157.3 million
during 1997.
Worthington Joint Ventures. The Company has entered into a joint venture
with Worthington with respect to Spartan Steel Coating, L.L.C. ("Spartan
Steel"), which is constructing a hot dipped galvanizing facility that will coat
light gauge steel products to make them corrosion resistant. The Company expects
to invest approximately $50 million in the Spartan Steel facility which is
expected
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to be placed into service in mid-1998. The Company has also invested $6.5
million for an 11% interest in TWB Company, L.L.C. ("TWB"), an existing facility
that produces laser welded blanks.
DOEPKEN KEEVICAN & WEISS PROFESSIONAL CORPORATION
Michael A. Weiss, a director and a stockholder of the law firm of Doepken
Keevican & Weiss Professional Corporation ("DK&W") resigned as the Company's
General Counsel and Secretary effective December 31, 1997. DK&W has represented
the Company since the Acquisition and is continuing to represent the Company on
certain legal matters. During 1997, the Company paid an aggregate of
approximately $725,000 to DK&W for legal services and related costs and
expenses.
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PROPOSAL NO. 2 -- 1998 STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
The Board of Directors has approved the 1998 Rouge Steel Company Stock
Incentive Plan (the "1998 Stock Incentive Plan") in the form attached as Annex A
to this Proxy Statement for submission to the Company's stockholders for
adoption. The 1998 Stock Incentive Plan will provide a maximum of 500,000 shares
of Class A Common Stock, subject to adjustment, for the granting of qualified
incentive stock options ("ISOs"), nonqualified stock options ("NQSOs" and
together with ISOs, "Options"), stock appreciation rights ("SARs"), restricted
stock awards ("RSAs") and performance share awards ("PSAs"). As of March 11,
1998, no Options, SARs, RSAs or PSAs had been granted pursuant to the 1998 Stock
Incentive Plan. The purposes of the 1998 Stock Incentive Plan are to align the
interests of certain officers and employees of Rouge Steel with those of
stockholders by rewarding long-term growth and profitability of the Company, and
to attract and retain individuals of experience and ability. All officers and
employee-directors and other selected employees of Rouge Steel are eligible to
participate under the 1998 Stock Incentive Plan, as deemed appropriate by the
Compensation Committee. The 1998 Stock Incentive Plan will be administered by
the Compensation Committee, which is comprised of three directors. All directors
serving on the Compensation Committee are required to be "non-employee
directors" as that term is defined under Rule 16b-3 under the Exchange Act and
"outside directors" as that term is used in Section 162(m) of the Code. The
Compensation Committee has exclusive authority to grant awards under the 1998
Stock Incentive Plan, to select the employees to receive such awards, to
determine the type, size and terms of the awards to be made to each employee
selected (which awards need not be uniform), to determine the time when awards
will be granted and to prescribe the form of the agreements embodying awards
made under the 1998 Stock Incentive Plan.
Any Options will have exercise prices at least equal to 100% of the Fair
Market Value (as defined in the 1998 Stock Incentive Plan) of the Class A Common
Stock at the date of grant. An Option holder will be able to exercise options
from time to time as specified in the grantee's individual Option agreement. The
Company may enter into any arrangement permitted under applicable laws to
facilitate the "cashless" exercise of any Option. Options generally (except as
described below) must be exercised during the grantee's employment with Rouge
Steel and no Option may be exercised later than the tenth anniversary from the
date of grant. Upon the disability of a grantee or the grantee's retirement from
Rouge Steel, the grantee has three years to exercise any outstanding Options
unless the Option is an ISO, in which case the permitted exercise period is one
year after termination if the Option holder is disabled, or three months after
termination if the Option holder retires. Upon an Option holder's death, the
Option is exercisable for a period of one year unless the Option is an ISO, in
which case the permitted exercise period is three months following the grantee's
death. Upon termination of employment with Rouge Steel, other than upon death,
retirement or disability, Options shall cease to be exercisable upon the date of
termination. Subject to the above conditions, the exercise price and duration of
the Options will be set by the Compensation Committee.
A SAR would permit a participant to receive cash or shares of Class A
Common Stock (or a combination thereof) with a value equal to the excess of the
fair market value of a specified number of shares of Class A Common Stock on the
date of exercise over the fair market value of such shares on the date of grant.
SARs may be granted in tandem with Options or as freestanding SARs. SARs expire
at the end of the period specified by the Compensation Committee, but in no
event later than 10 years from the date of grant. Tandem SARs will expire no
later than the expiration of the related Option. Each freestanding SAR will be
exercisable only during the period of the grantee's employment with Rouge Steel
and for such post-termination exercise periods as are applicable to Options.
RSAs are shares of Class A Common Stock which are forfeitable and
nontransferable for a specified period of time. The lapsing of such restrictions
with respect to RSAs will be based on either the attainment of specified
performance criteria established by the Compensation Committee
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or the lapsing of a specified period of time. Upon termination of employment
with Rouge Steel due to death or disability prior to the lapsing of
restrictions, such restrictions shall lapse, unless otherwise determined by the
Compensation Committee. Upon termination of employment with Rouge Steel, other
than upon death or disability, prior to the lapsing of restrictions, Class A
Common Stock subject to such restrictions shall be forfeited, unless otherwise
determined by the Compensation Committee.
PSAs are rights, contingent upon the achievement of specified performance
criteria established by the Compensation Committee at the time of the award, to
receive a specified number of shares of Class A Common Stock or the cash value
thereof, as determined by the Compensation Committee. The Compensation Committee
may, in its sole discretion, determine that a holder of PSAs will be entitled to
less than the maximum permitted consideration pursuant to such PSA, provided
that the Compensation Committee reserves the right at the time of grant. An
employee must be employed by Rouge Steel at the end of a performance period to
be entitled to settlement of a PSA for such period; provided, however, that in
the event of termination of employment prior to the end of such period, the
Compensation Committee may limit such forfeiture.
Tax Effects of Plan Participation. In general, neither the grant nor the
exercise of an ISO will result in taxable income to an optionee or a deduction
for the Company. To receive ISO treatment as to the shares acquired upon
exercise of an ISO, an optionee must neither dispose of such shares within two
years after the option is granted nor within one year after the transfer of the
shares to the optionee pursuant to exercise of the option. In addition, the
optionee must be an employee of Rouge Steel or a qualified Company subsidiary at
all times between the date of grant and the date three months (one year in the
case of death or disability) before exercise of the option. ISO treatment (if
the holding period rules described in this paragraph are satisfied) generally
allows the sale of Class A Common Stock received upon the exercise of an ISO to
result in any gain being treated as a capital gain to the optionee, but the
Company will not be entitled to a tax deduction. However, the exercise of an ISO
(if the holding period rules described in this paragraph are satisfied) will
give rise to income includable by the optionee in his or her alternative minimum
taxable income for purposes of the alternative minimum tax in an amount equal to
the excess of the fair market value of the stock acquired on the date of the
exercise of the option over the option price.
If the holding period rules noted above are not satisfied, gain recognized
on the disposition of the shares acquired upon the exercise of an ISO will be
considered as ordinary income. Such gain will be equal to the difference between
the option price and the fair market value of the shares at the time of
exercise. (Special rules may apply to disqualifying dispositions where the
amount realized is less than the value at exercise.) The Company will generally
be entitled to a deduction equal to the amount of such gain included by an
optionee as ordinary income. Any excess of the amount realized upon such
disposition over the fair market value at exercise will generally be long-term
or short-term capital gain depending on the holding period involved.
Unless otherwise provided in the Option agreement, an optionee may make
payment of the option price under an ISO by delivering shares of Class A Common
Stock to the Company or, in the discretion of the Compensation Committee,
electing to have shares issuable upon exercise withheld by the Company. In the
event that payment of the option price is made by delivering shares to the
Company, the optionee generally will not recognize any gain with respect to the
exchanged shares, and special rules will apply in determining the basis of the
new shares received. However, the use in the exercise of an ISO by an optionee
of shares previously acquired pursuant to the exercise of an ISO will be treated
as a taxable disposition as described in the foregoing paragraph if the
transferred shares have not been held by the optionee for the requisite holding
period. The Company's withholding of shares issuable upon exercise in payment of
the option price also will be treated as a taxable disposition of the withheld
shares.
No income will be recognized by an optionee at the time a NQSO is granted.
Generally, ordinary income in an amount equal to the excess of the fair market
value of the underlying Class A Common
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Stock on the exercise date over the option price will be recognized by an
optionee at the time a NQSO is exercised. The Company will generally be entitled
to a deduction for Federal income tax purposes in the same amount as the amount
included in ordinary income by the optionee with respect to his or her NQSO.
Gain or loss on a subsequent sale or other disposition of the shares
acquired upon the exercise of a NQSO will be measured by the difference between
the amount realized on the disposition and the tax basis of such shares, and
will generally be long-term or short-term capital gain depending on the holding
period involved. The tax basis of the shares acquired upon the exercise of any
NQSO will be equal to the sum of the option price of such NQSO and the amount
included in income with respect to such option.
Unless otherwise provided in the Option agreement, an optionee may make
payment of the option price for a NQSO by delivering shares of Class A Common
Stock to the Company or, in the discretion of the Compensation Committee,
electing to have shares issuable upon exercise withheld by the Company. In the
event that payment of the option price is made by delivering shares to the
Company, the optionee generally will not recognize any gain with respect to the
exchanged shares, and special rules will apply in determining the basis of the
new shares received. In addition, the fair market value of the additional shares
received by the optionee will be taxable as ordinary income. The optionee's
holding period in the exchanged shares received will include his or her holding
period in the shares delivered in exchange therefor. In the event that shares
issuable upon exercise are withheld by the Company in payment of the option
price, the fair market value of the additional shares received by the optionee
will be taxable as ordinary income.
Unless a holder of restricted stock makes an election under Section 83(b)
of the Code (an "83(b) Election"), there generally will be no tax consequences
as a result of the award of restricted stock until the restricted stock is no
longer subject to a substantial risk of forfeiture or is transferrable (free of
such risk). Generally, when the restrictions are lifted, the holder will
recognize ordinary income, and the Company will be entitled to a deduction,
equal to the difference between the fair market value of the stock at such time
and the amount, if any, paid by the holder for the restricted stock.
Subsequently realized changes in the value of the stock generally will be
treated as long-term or short-term capital gain or loss, depending on the length
of time the shares are held prior to disposition of such shares. In general
terms, if a holder makes an 83(b) Election upon the award of restricted stock,
the holder will recognize ordinary income on the date of the award of restricted
stock, and the Company will be entitled to a deduction, equal to (i) the fair
market value of the restricted stock as though the stock were (A) not subject to
a substantial risk of forfeiture or (B) transferable, minus (ii) the amount, if
any, paid for the restricted stock. If an 83(b) Election is made, there will
generally be no tax consequences to the holder upon the lifting of restrictions,
and all subsequent appreciation in the restricted stock generally would be
eligible for capital gains treatment.
There generally will be no tax consequences as a result of the award of a
SAR until the SAR is exercised. Generally, when the SAR is exercised, the holder
will recognize ordinary income, and the Company will be entitled to a deduction
equal to the fair market value of the Class A Common Stock and cash, as
applicable, received upon exercise.
There generally will be no tax consequences as a result of the award of a
PSA until payment is made with respect to such PSA. Generally, when payment is
made, the holder will recognize ordinary income and the Company will be entitled
to a deduction equal to the fair market value of the unrestricted Class A Common
Stock and cash, as applicable, received upon payment. The tax consequences of
the payment of restricted Class A Common Stock with respect to a PSA are
discussed above.
Notwithstanding the foregoing general description of the tax effects of
1998 Stock Incentive Plan participation, additional special tax rules may apply
to those participants who are subject to Section 16 of the Exchange Act.
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The Company will, if required by applicable law, withhold Federal, state
and local taxes in connection with the exercise, vesting or settlement of an
award, in a manner consistent with the terms of the 1998 Stock Incentive Plan.
Amendments and Termination. The Board of Directors or the Compensation
Committee may at any time terminate, suspend, modify or amend the 1998 Stock
Incentive Plan in such respects as it shall deem advisable. However, the Board
of Directors or the Compensation Committee may not make any amendment in the
1998 Stock Incentive Plan that would, if such amendment were not approved by the
stockholders, cause the 1998 Stock Incentive Plan to fail to comply with (i)
Section 16 of the Exchange Act (or Rule 16b-3), (ii) any other requirement of
applicable law or regulation, or (iii) the requirements for Section 162(m)
relief to the extent Section 162(m) relief is sought under the Code, unless and
until the approval of the stockholders is obtained. Under no circumstances,
without stockholder approval, may the 1998 Stock Incentive Plan be amended or
modified to permit the exercise of an Option at less than its exercise price.
The termination, modification or amendment of the 1998 Stock Incentive Plan
shall not, without the consent of the employee, adversely affect his or her
rights under an award previously granted, unless required by applicable law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF PROPOSAL NO. 2.
PROPOSAL NO. 3 -- INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The accounting firm of Price Waterhouse LLP has been selected by the Board
of Directors as the independent public accountants for the Company for the
fiscal year ending December 31, 1998. Although the selection of accountants does
not require ratification, the Board of Directors has directed that the
appointment of Price Waterhouse LLP be submitted to stockholders for
ratification due to the significance of its appointment by the Company. If
stockholders do not ratify the appointment of Price Waterhouse LLP, the Board of
Directors will consider the appointment of other certified public accountants. A
representative of Price Waterhouse LLP, which served as the Company's
independent public accountants for the fiscal year ended December 31, 1997, is
expected to be present at the Meeting and, if he or she so desires, will have
the opportunity to make a statement, and in any event will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF PROPOSAL NO. 3.
HOLDING COMPANY REORGANIZATION
- --------------------------------------------------------------------------------
Rouge Steel and its subsidiaries were reorganized into a holding company
structure effective July 30, 1997. Pursuant to the reorganization, Rouge Steel
became a wholly-owned subsidiary of the new holding company, Rouge Industries,
which is the issuer of all shares of Class A Common Stock and Class B Common
Stock outstanding. On the reorganization date, Rouge Industries and its
subsidiaries had the same consolidated net worth as Rouge Steel and its
subsidiaries prior to the reorganization.
SOLICITATION STATEMENT
- --------------------------------------------------------------------------------
All expenses in connection with the solicitation of proxies will be borne
by the Company. In addition to the use of the mails, solicitations may be made
by regular employees of the Company or its affiliates, by telephone or personal
contact, without additional compensation. The Company will, upon request,
reimburse brokerage houses and persons holding shares of Common Stock in the
names of their nominees for their reasonable expenses in sending solicitation
materials to their principals.
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STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next annual meeting of stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than November 19, 1998.
OTHER MATTERS
- --------------------------------------------------------------------------------
So far as now known, there is no business other than that described above
to be presented for action by the stockholders at the Meeting, but it is
intended that the proxies will be voted upon any other matters and proposals
that may legally come before the Meeting or any adjournment thereof, in
accordance with the discretion of the persons named therein.
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ANNUAL REPORT
- --------------------------------------------------------------------------------
All stockholders of record as of March 11, 1998 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1997. Such report contains
certified consolidated financial statements of the Company and its subsidiaries
for the fiscal year ended December 31, 1997. THE COMPANY WILL FURNISH, WITHOUT
CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997 (WITHOUT EXHIBITS) (AS FILED WITH THE SEC) TO STOCKHOLDERS OF
RECORD ON THE RECORD DATE WHO MAKE WRITTEN REQUEST THEREFOR TO INVESTOR
RELATIONS, ROUGE INDUSTRIES, INC., 3001 MILLER ROAD, P.O. BOX 1699, DEARBORN,
MICHIGAN 48121-1699.
By Order of the Company,
MARTIN SZYMANSKI
MARTIN SZYMANSKI
Secretary
Dated: March 27, 1998
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ANNEX A
ROUGE STEEL COMPANY
1998 STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
SECTION 1. PURPOSE.
The purpose of this Stock Incentive Plan is to align the interests of
certain officers and employees of Rouge Steel Company with those of shareholders
of the Company by rewarding long-term growth and profitability of the Company.
Ownership of stock assists in the attraction and retention of qualified
employees and provides them with additional incentive to devote their best
efforts to pursue and sustain the Company's financial success through the
achievement of corporate goals. Accordingly, certain officers and employees may
be granted Stock Options, Stock Appreciation Rights, Restricted Stock and
Performance Share Awards.
SECTION 2. DEFINITIONS.
A. "Agreement" shall mean a written agreement, in a form approved by the
Committee, which sets forth the terms and conditions of an Award. Agreements
shall be subject to the express terms and conditions set forth herein, and to
such other terms and conditions not inconsistent with the Plan as the Committee
shall deem appropriate.
B. "Award" shall mean an Option (which may be designed as a Nonqualified
Stock Option or an Incentive Stock Option), a Stock Appreciation Right (which
may be designated as a Freestanding SAR or Tandem SAR), a Restricted Stock Award
or a Performance Share Award, in each case granted under this Plan. Each Award
shall be evidenced by an Agreement.
C. "Beneficiary" shall mean (i) any transferee of an Employee's right,
interests, Options or SARs, subject to Section 13B of the Plan or (ii) the
person, persons, trust or trusts designated by an Employee, or if no designation
has been made, the person, persons, trust or trusts entitled by will, any trust
agreement or the laws of descent and distribution, to receive the benefits
specified under this Plan in the event of an Employee's death, and, if
necessary, for purposes of exercise of any Option or SAR, the term shall include
the Employee's executor, administrator or personal representative.
D. "Board" shall mean the Board of Directors of the Company.
E. "Code" shall mean the Internal Revenue Code of 1986, as amended.
F. "Committee" shall mean the Compensation Committee of the Board. All
Directors serving on the Committee at any given time shall be (i) "Non-Employee
Directors" as that term is used in Rule 16b-3 of the Securities and Exchange
Commission, and (ii) "outside directors" as that term is used in Section 162(m)
of the Code (except to the extent not necessary for Section 162(m) Relief or
Section 162(m) Relief is not sought). The number of Directors serving on the
Committee at any given time shall be no less than the number then required by
Rule 16b-3 and by Section 162(m) (except to such extent not necessary for
Section 162(m) Relief or Section 162(m) Relief is not sought).
G. "Common Stock" shall mean shares of $0.01 par value Class A Common Stock
of the Company, subject to adjustment pursuant to Section 11.
H. "Company" shall mean Rouge Industries, Inc., a Delaware corporation.
I. "Disabled" or "Disability" shall mean eligible to receive a benefit
under the Long-Term Disability Plan of Rouge Steel Company.
J. "Employee" shall mean an Employee of Rouge Steel Company, whether or not
an officer thereof, and shall include any such Employee who is also a director
of Rouge Steel Company.
A-1
<PAGE> 29
K. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
L. "Exercise Price" shall mean, with respect to each share of Common Stock
subject to an option, the price fixed by the Committee at which such share may
be purchased from the Company pursuant to the exercise of such Option, which
price may not be less than 100% of the Fair Market Value of such share on the
date the Option is granted.
M. "Fair Market Value" shall mean the closing price of the Common Stock on
the New York Stock Exchange as reported on the Composite Tape, or if it is not
listed on the New York Stock Exchange, the closing price on the exchange on
which the Common Stock is then listed, or if not listed on any exchange, the
closing price reported on the NASDAQ National Market System over-the-counter
market; if, however, there is no trading of the Common Stock on the date in
question, then the closing price of the Common Stock, as so reported, on the
last preceding date on which there was trading shall instead be used to
determine Fair Market Value. If Fair Market Value for any date in question
cannot be determined as hereinabove provided, Fair Market Value shall be
determined by the Committee by whatever method or means the members, in the good
faith exercise of their discretion, at that time shall deem appropriate.
N. "Freestanding SAR" shall mean a right, granted pursuant to this Plan
without reference or relationship to any Option, of a holder to receive cash,
shares of Common Stock, or a combination thereof, as the case may be, having an
aggregate value equal to the excess of the Fair Market Value of one share of
Common Stock on the date of exercise of such SAR over the Fair Market Value of
one such share on the date of grant of such SAR.
O. "Incentive Stock Option" or "ISO" shall mean an Option that meets the
requirements of Section 422 of the Code, or any successor provision, and that is
intended by the Committee to constitute an ISO. Any ISO granted hereunder must
be granted within ten years from the date the Plan becomes effective and the
aggregate Fair Market Value (determined at the time of grant of any ISO) of the
Common Stock for which ISOs are granted under the Plan which are exercisable by
an Employee for the first time during any calendar year may not exceed $100,000.
If for any reason an Option (or any portion thereof) intended by the Committee
to be an ISO nevertheless does not so qualify as an ISO under the Code, either
at the time of grant or subsequently, such failure to qualify shall not
invalidate the Option (or any portion thereof) and instead the nonqualified
portion (or, if necessary, the entire Option) shall be deemed to have been
granted as a Nonqualified Stock Option irrespective of the manner in which it is
designated in the Option Agreement.
P. "Legal Representative" shall mean the guardian or legal representative
of the Employee who, upon the Disability or incapacity of an Employee, shall
have acquired on behalf of the Employee, by legal proceeding or otherwise, the
right to exercise the Employee's rights and receive his or her benefits under
the Plan.
Q. "Nonqualified Stock Option" or "NQSO" shall mean an Option that is not
an ISO.
R. "Option" shall mean the right, granted pursuant to this Plan, of a
holder to purchase shares of Common Stock at a price and upon terms to be
specified by the Committee. The term shall include a Nonqualified Stock Option
or an Incentive Stock Option.
S. "Performance Measures" shall mean, with respect to each Performance
Share Award or any Restricted Stock Award, the criteria and objectives,
determined by the Committee, which must be met during the applicable Performance
Period or Restriction Period, as the case may be: (i) for any Performance Share
Award, the conditions established upon the holder's receipt of the Award; or
(ii) for any Restricted Stock Award, the lapse of restrictions with respect to
the Award. Such criteria and objectives may include, but shall not be limited
to, earnings per share, total return on Common Stock, and Company return on
equity compared to a peer group's return on equity. To the extent Section 162(m)
Relief is sought, the Committee shall take into account the provisions of
Section 162(m) of the Code with respect to the timing of the establishment of
the Performance Measures. The Performance Measures pertinent to any Performance
Share Award or Restricted
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Stock Award shall be established at the time of such Award and set forth in the
applicable Agreement, but may be revised by the Committee thereafter if and
whenever its members determine that, in light of events occurring or
circumstances arising after the date of such Award, such revision is necessary
or appropriate to afford the recipient benefits substantially similar to those
originally intended with respect to such Award; provided that, to the extent
Section 162(m) Relief is sought, the Committee shall take in to account the
requirements of Section 162(m) of the Code in making any such revision. Anything
herein to the contrary notwithstanding, to the extent Section 162(m) Relief is
sought, (i) the Committee shall provide that no compensation shall be payable
under the Plan in connection with a Performance Measure (or the satisfaction or
attainment thereof) unless the applicable Performance Measure has been disclosed
to and approved by the shareholders to the extent required to qualify for
Section 162(m) Relief; and (ii) no such compensation shall be payable in the
absence of such disclosure and approval.
T. "Performance Period" shall mean the period designated by the Committee
during which the Performance Measures applicable to a Performance Share Award
shall be measured. The Performance Period shall be established at the time of
such Performance Share Award, and shall not be less than three (3) nor more than
five (5) years in duration. The duration of Performance Periods may vary.
U. "Performance Share Award" shall mean an award of the right, contingent
upon attainment of Performance Measures within a Performance Period, to receive
a specified number of Performance Shares or, in lieu of all or any portion of
such Performance Shares, their Fair Market Value in cash, as more specifically
provided in Section 9.
V. "Performance Shares" shall mean those shares of Common Stock issuable
pursuant to a Performance Share Award.
W. "Plan" shall mean the Rouge Steel Company Stock Incentive Plan.
X. "Restriction Period" shall mean the period designated by the Committee
during which Restricted Stock may not be sold, exchanged, assigned, transferred,
pledged, hypothecated or otherwise encumbered or disposed of except as otherwise
provided in the Plan, which period shall not be less than three (3) years nor
more than five (5) years from the date of grant.
Y. "Restricted Stock" shall mean any shares of Common Stock issued pursuant
to the Plan subject to the restriction that they may not be sold, exchanged,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of except as otherwise provided in the Plan, prior to termination of a
Restriction Period. Restricted Stock shall constitute issued and outstanding
shares of Common Stock for all corporate purposes.
Z. "Restricted Stock Award" shall mean an award of Restricted Stock
pursuant to the Plan.
AA. "Retirement" shall mean retirement of an Employee from the employ of
Rouge Steel Company as described in the Rouge Steel Company Salaried Employee
Retirement Plan.
BB. "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
(or any successor regulation) as in effect with respect to the Company at a
given time.
CC. "Section 162(m) Relief" shall mean such exception as may be available
pursuant to Section 162(m) of the Code from the limitation on tax deductibility
provided for thereunder.
DD. "Stock Appreciation Right" or "SAR" shall mean any Freestanding SAR or
Tandem SAR.
EE. "Tandem SAR" shall mean a right, granted under this Plan, pursuant to
which a holder may elect to surrender an Option, or any portion thereof, which
is then exercisable, and receive in exchange therefor shares of Common Stock,
cash, or a combination thereof, as the case may be with an aggregate value equal
to the excess of the Fair Market Value of one share of Common Stock at the time
of exercise over the per share Exercise Price specified in such Option,
multiplied by the
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number of shares of Common Stock covered by such Option, or portion thereof,
which is so surrendered.
FF. "Tax Withholding Date" shall mean the date the withholding tax
obligation first arises with respect to an Award.
SECTION 3. STOCK SUBJECT TO THE PLAN.
Shares of Common Stock issuable as or pursuant to Awards granted under the
Plan must be authorized and issued shares of Common Stock. Subject to adjustment
as provided in Section 11, at any given time, the maximum number of shares of
Common Stock which may be issued as Restricted Stock and made subject to future
issuance in settlement of Performance Awards or pursuant to the exercise of
Options or SARs hereunder shall be 500,000 shares, except that the following
shall also be available hereunder: (i) shares as to which Options granted during
the Granting Period have since expired, terminated, or been canceled for any
reason other than exercise of such Options (or of related Tandem SARs); (ii) the
excess (if any) of the number of shares subject to Tandem SARs both granted and
exercised during the Granting Period over the number of shares issued or to be
issued (or withheld or to be withheld for purposes of tax withholding) in
connection with the exercise of such SARs; (iii) the excess (if any) of the
number of Freestanding SARs both granted and exercises during the Granting
Period over the number of shares issued or to be issued (or withheld or to be
withheld for tax withholding purposes) in connection with the exercise of such
SARs; (iv) the number of shares subject to Performance Share Awards both granted
and forfeited during the Granting Period; (v) with respect to Performance Share
Awards granted during the Granting Period which have been determined to have
been earned, the excess (if any) of the number of shares so determined to have
been earned over the number of shares issued or to be issued (or withheld or to
be withheld for tax withholding purposes) in settlement of such Performance
Share Awards; and (vi) to the extent permitted by Rule 16b-3, shares of
Restricted Stock that are forfeited.
In addition to the foregoing, in no event may the total number of shares
covered by outstanding ISOs plus the number of shares issued in settlement of
exercised ISOs, whenever granted, exceed 500,000 shares, and in no event may
Freestanding SARs exercisable only for cash be granted at any time at which this
Section would not permit the grant of Freestanding SARs which could be settled
in shares. In no event may any Employee receive Options, SARs, Restricted Stock
Awards, Performance Share Awards or any combination of each for more than 50,000
shares of Common Stock over the life of the Plan.
SECTION 4. ADMINISTRATION.
The Plan shall be administered by the Committee. In addition to any implied
powers and duties that may be needed to carry out the provisions of the Plan,
the Committee shall have all the powers vested in it by the terms of the Plan,
including exclusive authority to grant Awards under the Plan, to select the
employees to receive such Awards, to determine the type, size and terms of the
Awards to be made to each Employee selected (which Awards need not be uniform),
to determine the time when Awards will be granted (to the extent Section 162(m)
Relief is sought, taking into account the provisions of Section 162(m) of the
Code), and to prescribe the form of the Agreements embodying Awards made under
the Plan. The Committee shall be authorized to interpret the Plan and the Awards
granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, to make any other determinations which it
believes necessary or advisable for the administration of the Plan, and to
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent the Committee deems
desirable to carry it into effect.
All Committee determinations shall, unless otherwise determined by the
Board, be final, conclusive and binding on the Company, any Employee,
Beneficiary, Legal Representative, and any
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other interested parties. The Committee may authorize any one or more of their
number, or any officer of the Company, to execute and deliver documents on
behalf of the Committee.
SECTION 5. ELIGIBILITY.
All Employees are eligible for selection by the Committee to receive an
Award, except Employees covered by a Collective Bargaining Agreement with the
Company which does not provide for coverage under this Plan.
SECTION 6. STOCK OPTIONS.
A. Terms and Conditions.
1. Type of Option. Each Option Agreement shall specify whether the
pertinent Option is intended as a Nonqualified Stock Option or an Incentive
Stock Option.
2. Number of Shares Covered. Each Option Agreement shall specify the
number of shares of Common Stock subject to the pertinent Option.
3. Exercise Period.
a. In General. Each Option Agreement shall specify the period (or
periods) during which the pertinent Option (or portions thereof) may be
exercised, and shall provide that the Option (or such portion) shall
expire at the end of such period (or periods). Except as otherwise
provided herein, any Option must be exercised during the period of the
Employee's employment with Rouge Steel Company. No Option may be
exercised later than ten (10) years from the date it is granted.
b. Retirement. In the event of the Retirement of the Optionee,
his/her Option shall be exercisable for a period of three (3) years
after the date of Retirement (or, in the case of any ISO held by an
Optionee who is not Disabled, three (3) months after such date), or
during the remainder of the original term of the Option, whichever is
shorter.
c. Disability. In the event of the cessation of the Employee's
employment by reason of Disability, the Option shall be exercisable for
a period of three (3) years after the date of cessation of such
employment (or, in the case of any ISO held by an Optionee who is
Disabled, one (1) year after such date), or during the remainder of the
original term of the Option, whichever period is shorter.
d. Termination of Employment. In the event of the cessation of the
Optionee's employment for any reason other than Retirement, Disability
or death, the Option shall expire on the date of termination of
employment from Rouge Steel Company, if not earlier expired in
accordance with its terms.
e. Death. In the event of the Optionee's death (whether during his
or her employment with Rouge Steel Company or during any applicable
post-termination exercise period), the Option shall be exercisable by
the Beneficiary(ies) of the decedent for a period of one (1) year after
the date of the Employee's death (or, in the case of ISOs, for a period
of three (3) months after the Employee's death), or, if the decedent's
death occurs subsequent to his or her Retirement, Disability or
termination of employment for any other reason, during the period the
decedent would have been permitted to exercise the Option (had he or she
survived), if that period is shorter. Notwithstanding the foregoing,
however, in no event may any Option be exercised after its original
term.
f. Extension or Reduction of Exercise Period. In the circumstances
set forth in subsections "b" through "e" of this Section, the Committee
may extend or reduce the length of the exercise period, but may not
extend any such period beyond the original term of the Option (or,
insofar as this paragraphs related to Freestanding SARs pursuant to
Section 7, the SAR). Further, with respect to ISOs, as a condition of
any such extension, the holder
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shall be required to deliver to the Company a release which provides
that such holder holds the Company and Rouge Steel Company harmless with
respect to any adverse tax consequences the holder may suffer by reason
of any such extension.
4. Exercise Price. The Exercise Price shall be determined by the
Committee at the time any Option is granted and shall be set forth in the
Option Agreement.
5. Manner of Exercise. The specified number of shares with respect to
which an Option is exercised will, subject to applicable tax withholding,
be issued following receipt by the Company of (i) written notice of such
exercise from the optionee (in such form as the Committee shall have
specified in the Option Agreement or otherwise) of an Option delivered to
the Corporate Secretary or Vice President, Employee Relations and Public
Affairs of the Company, and (ii) payment to the Company, as provided
herein, of the Exercise Price.
6. Payment for Shares. The Exercise Price for the number of shares of
Common Stock with respect to which an Option is exercised shall be paid in
full when the Option is exercised. Unless otherwise provided in the Option
Agreement, the Exercise Price may be paid, in whole or in part, in (i)
cash, (ii) whole shares of Common Stock, valued at their then Fair Market
Value, (iii) if permitted in the sole discretion of the Committee (taking
into account, without limitation, Section 16 of the Exchange Act), through
the withholding of shares issuable upon exercise of the Option valued at
their then Fair Market Value, or (iv) by a combination of such methods of
payment. The Company may enter into any arrangement permitted under
applicable laws to facilitate the "cashless" exercise of any Option.
B. Effect of Exercise of Option on Tandem SAR.
Upon the exercise of an Option with respect to which a Tandem SAR has been
granted, the number of shares of Common Stock with respect to which the SAR
shall be exercisable shall be reduced by the number of shares with respect to
which the Option has been exercised.
SECTION 7. STOCK APPRECIATION RIGHTS.
A. Terms and Conditions.
1. Type of SAR. Each SAR Agreement shall specify whether it relates to
a Tandem SAR or to Freestanding SARs.
2. Number of Optioned Shares or Freestanding SARs. In the case of any
Tandem SAR, the SAR Agreement shall specify the Option and the number of
shares of Common Stock subject thereto to which the SAR relates. Any SAR
Agreement relating to Freestanding SARs shall specify the number of such
SARs to which it relates.
3. Exercise Period. Each SAR Agreement shall specify the period during
which the pertinent SAR(s) may be exercised and shall provide that the
SAR(s) shall expire at the end of each period (or periods). For a
Freestanding SAR, such expiration date shall be no later than ten (10)
years from the date of grant thereof. For Tandem SARs, such expiration
date(s) shall be no later than the date(s) of expiration of the related
Option and a Tandem SAR shall be exercisable during its term only when and
to the extent the related Option is exercisable. A Freestanding SAR shall
be exercisable only during the period of the grantee's employment with
Rouge Steel Company and for such post-termination exercise period as would
apply under the provisions of Section 6(A)(3)(b)-(f) had the Freestanding
SAR Award to the grantee instead been an Award of NQSOs.
4. Manner of Exercise. A SAR granted under the Plan shall be exercised
by the holder by delivery to the Corporate Secretary or Vice President,
Employee Relations and Public Affairs of the Company of written notice of
exercise in such form as the Company shall have specified in the SAR
Agreement or otherwise.
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5. Payment to Holder. If the form of consideration to be received upon
exercise of the SAR is not specified in the Agreement governing the SAR,
upon the exercise thereof, the holder may request the form of consideration
he or she wishes to receive in satisfaction of such SAR, which may be in
shares of Common Stock (valued at Fair Market Value on the date of exercise
of the SAR), or in cash, or partly in cash and partly in shares of Common
Stock, as the holder shall request; provided, however, that the Committee,
in its sole discretion (taking into account, without limitation, Section 16
of the Exchange Act), may consent to or disapprove any request of the
Employee to receive cash in full or partial settlement of such SAR. Payment
shall be subject to applicable tax withholding.
B. Effect of Exercise of Tandem SAR on Related Option.
Upon the exercise of a Tandem SAR, the number of shares covered by the
related Option shall be reduced by the number of shares of Common Stock with
respect to which such SAR is exercised.
SECTION 8. RESTRICTED STOCK AWARDS.
A. Terms and Conditions.
The general terms and conditions of any Restricted Stock Award shall be set
forth in the applicable Agreement. Such Agreement shall specify the number of
shares of Common Stock subject to the Award, and the applicable Restriction
Period or Periods. Any such Agreement may (or, to the extent Section 162(m)
Relief is sought, shall) provide for forfeiture of shares covered thereby if
specified Performance Measures are not attained during a Restriction Period
and/or for termination of any Restriction Period upon attainment of Performance
Measures, but in no event may any such Agreement permit termination of any
Restriction Period earlier than three (3) years after the date of grant of the
pertinent Award.
B. Certificates Evidencing Ownership of Restricted Stock.
During the Restriction Period, a certificate representing the Restricted
Stock shall be registered in the recipient's name and bear a restrictive legend
to the effect that ownership of such Restricted Stock, and the enjoyment of all
rights appurtenant thereto, are subject to the restrictions, terms, and
conditions provided in the Plan and the applicable Agreement.
Such certificate, the Restricted Stock certificate, shall be deposited by
the recipient with the Company, together with stock powers or other instruments
of assignment, each endorsed in blank, which will permit transfer to the Company
of all or any portion of the Restricted Stock evidenced by the Restricted Stock
certificate in the event it is forfeited. Upon the termination of an applicable
Restriction Period, and subject to remittance of applicable withholding tax, a
certificate or certificates evidencing ownership of the number of shares of
Common Stock theretofore evidenced by the Restricted Stock certificate, free of
restrictive legend (other than any relating to a right of first refusal of the
Company or required by any applicable securities laws), shall be issued to the
Employee, his or her Beneficiary(ies), or Legal Representative, promptly after
the expiration of the Restriction period.
C. Rights With Respect to Shares During Restriction Period.
Subject to the terms and conditions of the Agreement governing a particular
Restricted Stock Award, the Employee, as the owner of the Common Stock issued as
Restricted Stock, shall have all rights of a shareholder, including, but not
limited to, voting rights, the right to receive cash or stock dividends thereon,
and the right to participate in any capital adjustment of the Company. The
Committee may, at the time of grant and otherwise in its sole discretion,
provide for the deferral of the payment of cash dividends otherwise payable
until the expiration of the applicable Restriction Period. Any distributions
with respect to shares of Restricted Stock other than in the form of cash shall
be held by the Company, and shall be subject to the same restrictions as the
shares with respect to which such distributions were made.
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D. Reduction of Length of Restriction Period.
The Committee may, at any time, reduce the length of the Restriction Period
with respect to any shares comprising a Restricted Stock Award; provided,
however, that subject to the provisions of Section 13(J) hereof, in no event
shall such Restriction Period be less than three (3) years from the date of
grant of the Restricted Stock Award.
E. Effect of Termination of Employment by Recipient During Restriction
Period.
In the event the employment with Rouge Steel Company of a recipient of a
Restricted Stock Award shall terminate during the Restriction Period by reason
of death or Disability, the restrictions with respect to the shares comprising
such Award shall lapse, unless otherwise determined by the Committee.
In the event the employment with Rouge Steel Company of a recipient of a
Restricted Stock Award shall terminate during the Restriction Period by reason
of the recipient's Retirement, or for any other reason other than death or
Disability, the shares comprising the Award shall be forfeited by such Employee,
unless otherwise determined by the Committee.
SECTION 9. PERFORMANCE SHARE AWARDS.
A. Terms and Conditions.
The general terms and conditions of any Performance Share Award shall be
set forth in the applicable Agreement. Such Agreement shall specify the number
of Performance Shares subject to the Award, the Performance Period(s) and the
Performance Measures applicable to the Award.
B. Following the end of a Performance Period applicable to a granted Award,
the Committee will determine the extent (if any) to which Performance Measures
established for the Award were attained and, accordingly, the consideration (if
any) to which the holder of the Award becomes entitled. The Committee may, in
its sole discretion, determine that such holder will be entitled to less than
the maximum permitted consideration pursuant to such Award; provided, that the
Committee has reserved unto itself this flexibility at the time of grant. The
Committee shall, where required for Section 162(m) Relief and Section 162(m)
Relief is sought, certify in writing, prior to payment of the consideration,
that the Performance Measures were in fact satisfied.
C. Payment.
The Committee shall determine, in its sole discretion (taking into account,
without limitation, Section 16 of the Exchange Act), the manner of payment upon
attainment of Performance Measures during a Performance Period, which may
include (i) cash equal to the Fair Market Value (as of the end of the
Performance Period) of the Performance Shares, (ii) delivery of the Performance
Shares subject to the Performance Share Award, without restrictions, or subject
to any restrictions the Committee may impose, or (iii) a combination of cash and
Performance Shares. Payment to the recipient shall be subject to any applicable
withholding tax.
If, following the completion of a Performance Period, it is the
determination of the Committee that Performance Shares be delivered to the
Employee in the form of shares of Restricted Stock, the recipient must execute a
Restricted Stock Agreement as a condition of the issuance of such shares in his
or her name.
D. Effect of Termination of Employment During Performance Period.
An Employee must be employed by Rouge Steel Company at the end of a
Performance Period to be entitled to settlement of the Performance Share Award
for such Period; provided, however, that in the event of an Employee's
termination of employment before the end of such Period, the Committee may, in
its sole discretion, limit any forfeiture in any manner it deems appropriate, to
the extent that, in its sole discretion, it determines doing so would be
equitable or in the best interests of the Company.
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SECTION 10. WITHHOLDING TAXES.
The Company will, if required by applicable law, cause to be withheld
Federal, state and/or local taxes in connection with the exercise, vesting or
settlement of an Award. Unless otherwise provided in the applicable Agreement,
each Employee may satisfy any such tax withholding obligation by any of the
following means, or by a combination of such means: (i) a cash payment; (ii) by
delivery to the Company or Rouge Steel Company a number of shares of Common
Stock having a Fair Market Value, as of the Tax Withholding Date, sufficient to
satisfy the amount of the withholding tax obligation arising from an exercise,
vesting or settlement of an Award; (iii) if permitted in the sole discretion of
the Committee (taking into account, without limitation, Section 16 of the
Exchange Act), by authorizing the withholding from the shares of Common Stock
otherwise issuable to the Employee pursuant to the exercise or vesting of an
Award, a number of shares having a Fair Market Value, as of the Tax Withholding
Date, which will satisfy the amount of the withholding tax obligation; or (iv)
by a combination of such methods of payment. If the amount requested is not
paid, the Company may refuse to satisfy the Award.
SECTION 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of any change in the outstanding Common Stock by reason of any
stock split, stock dividend, recapitalization, merger, consolidation,
reorganization, combination, or exchange of shares, split-up, split-off,
spin-off, spin-away, liquidation or other similar change in capitalization, or
any distribution to common stockholders other than cash dividends, the number or
kind of shares that may be issued under the Plan pursuant to Section 3, and the
number or kind of shares subject to any outstanding Award, shall be
automatically adjusted, and the Committee shall be authorized to make such other
equitable adjustment of any Award or shares issuable pursuant thereto, or in any
Performance Measures related to any Award, so that the proportionate interest of
the Employee shall be maintained as before the occurrence of such event. Any
such adjustment shall be conclusive and binding for all purposes of the Plan.
SECTION 12. AMENDMENT AND TERMINATION.
Subject to the following sentences of this Section 12, the Board or the
Compensation Committee may at any time terminate, modify or amend the Plan in
such respects as it shall deem advisable; provided, that the Board or the
Compensation Committee may not make any amendment in the Plan that would, if
such amendment were not approved by the shareholders, cause the Plan to fail to
comply with (A) Section 16 of the Exchange Act (or Rule 16b-3), (B) any other
requirement of applicable law or regulation, or (C) the requirements for Section
162(m) Relief to the extent Section 162(m) Relief is sought, unless and until
the approval of the shareholders is obtained. Under no circumstances, without
shareholder approval, may the Plan be amended or modified to permit the exercise
of an Option at less than the Exercise Price. The termination or any
modification or amendment of the Plan shall not, without the consent of the
Employee, adversely affect his or her rights under an Award previously granted,
unless required by applicable law.
SECTION 13. MISCELLANEOUS PROVISIONS.
A. No Employee or other person shall have any claim or right to be granted
an Award under the Plan.
B. Except for ISOs and related Tandem SARs which shall not be transferrable
other than by will or the laws of descent and distribution, (i) an Employee's
Options or SARs may be transferred, in whole or in part, either directly or by
operation of law or otherwise only to immediate family members of the Employee
sharing the same household, a trust established for the benefit of the Employee
or immediate family members of the Employee sharing the same household, or
partnership in which the Employee and immediate family members sharing the same
household are the only partners, and in any event only to the extent such
transfer effects only a change in the form of beneficial ownership without
changing an Employee's pecuniary interest in such Options or SARs under the Plan
and is not the exercise (except in accordance with the terms of the Plan) or
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conversion of a derivative security, or deposit or withdrawal from a voting
trust to the extent exempt pursuant to Rule 16a-13 of the Securities and
Exchange Commission, as then in effect, or (ii) an Employee's rights and
interests under the Plan or with respect to any Option, SAR or Performance Share
Award may be transferred pursuant to a domestic relations order to the extent
exempt pursuant to Rule 16a-12 of the Securities and Exchange Commission, as
then in effect; provided further, however, an Employee's rights and interests
under the Plan or with respect to Options, SARs, or Performance Share Awards
shall not otherwise be assigned or transferred in whole or in part, either
directly or by operation of law, or otherwise except in the event of Employee's
death, by will or the laws of descent and distribution (including, without
limitation, by way of execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner). An Option or SAR (and any right to satisfy
tax withholding obligations, or to pay any portion of an Exercise Price, through
withholding of shares otherwise issuable pursuant to the exercise or vesting of
an Award) shall be exercisable, during an Employee's lifetime, only by such
Employee, his or her Beneficiary or his or her Legal Representative. Grant of
any Option, SAR or Performance Share Award shall not confer upon the grantee any
rights of a shareholder with respect to any shares subject to such Award.
C. The Plan, the grant, exercise, vesting and/or settlement of Awards
thereunder, and the obligations of the Company to satisfy Awards shall be
subject to all applicable Federal and state laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required, and
the Committee may impose any additional restrictions with respect to Awards in
order to comply with any legal requirements applicable to Awards or to qualify
for any exemption it may deem appropriate.
D. The expenses of the Plan shall be borne by the Company.
E. By accepting an Award under the Plan, each Employee and each Legal
Representative or Beneficiary shall be conclusively deemed to have indicated his
or her acceptance and ratification of, and consent to, any action taken under
the Plan by the Company or the Board.
F. Nothing in the Plan, or in any Agreement entered into pursuant to the
Plan, shall confer on an Employee any right to continue in the employ of the
Company or Rouge Steel Company, or in any way affect the Company's or Rouge
Steel Company's right to terminate the Employee's employment without prior
notice at any time for any reason or for no reason.
G. Participation in the Plan shall not affect an Employee's eligibility to
participate in any other benefit or incentive plan of the Company or Rouge Steel
Company. Awards under the Plan are not considered earnings for purposes of the
Rouge Steel Company Savings Plan for Salaried Employees, the Rouge Steel Company
Salaried Employee Retirement Plan, Rouge Steel Company insurance or other
employee benefit programs.
H. With respect to shares acquired upon the exercise of Options or Stock
Appreciation Rights and with respect to shares acquired by an individual under a
Restricted Stock Award, Performance Share Award, or otherwise under the Plan,
the Company may reserve a "right of first refusal" to purchase any such shares
at Fair Market Value from the holder thereof. If such right is reserved, the
holder, prior to any disposition of such shares of Common Stock, shall be
required to first notify the Corporate Secretary or Vice President, Employee
Relations and Public Affairs of the Company or such other officer as may be
designated by the Committee, in writing in such form as the Committee may
prescribe, of his or her intention to dispose of any such shares, and the
Company will advise the holder within five (5) days whether it intends to
purchase such shares, for this purpose. Fair Market Value shall be determined as
of the date next preceding the date that the Company notifies the holder of its
intention to purchase such shares. The Committee will designate an officer to
decide whether to accept or reject such right of first refusal. If the Company
does not exercise its right to purchase the shares within such period, the
holder may freely dispose of the shares following expiration of such period.
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I. A breach by the Employee, his or her Beneficiary(ies), or Legal
Representative, of any restrictions, terms or conditions provided in the Plan,
the Agreement, or otherwise established by the Committee with respect to any
Award will, unless waived in whole or in part by the Committee, cause a
forfeiture of such Award.
J. Except to the extent preempted by Federal law, the provisions of this
Plan shall be interpreted and construed in accordance with the internal laws of
the State of Michigan.
K. It is the intention that the Plan at all times fully satisfy the
provisions and conditions of Rule 16b-3 applicable to a Plan of this type.
Accordingly, anything herein to the contrary notwithstanding, to the extent that
Rule 16b-3 at any given time would require that decisions concerning the
selection of Employees who are or become subject to reporting requirements of
Section 16 of the Exchange Act ("Section 16 Reporting Persons") to be granted
Awards hereunder, the timing, amounts, and other terms of such Awards, and the
form of settlement of any such Awards be made only by the Committee, all such
decisions by the Committee shall be final and conclusive and not subject to
reversal or modification by the Board. Moreover, irrespective of any rights or
discretionary power which a Section 16 Reporting Person holding a pertinent
Award otherwise would possess hereunder or under the Agreement evidencing such
Award concerning the timing of exercise of a SAR, the manner of paying the
Exercise Price for an exercised Option, a request or election concerning the
form of settlement of a SAR, or the manner of satisfying tax withholding
objections arising with respect to any Award, the Section 16 Reporting Person
shall be entitled to exercise such rights and discretion only at such times and
manner and under such other conditions as at the time are contemplated by the
applicable provisions of Rule 16b-3 and any attempt otherwise to exercise such
rights or discretion shall be void and of no effect.
Date: , 1997 ROUGE INDUSTRIES, INC.
------------------------
By:
------------------------------------
William E. Hornberger
Its:Vice President - Employee
Relations
and Public Affairs
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PROXY ROUGE INDUSTRIES, INC.
3001 MILLER ROAD
P.O. BOX 1699
DEARBORN, MICHIGAN 48121-1699
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ROUGE INDUSTRIES,
INC.
Phyllis J. Holmes and Michael C. Tuomey and each of them, with full power of
substitution, are hereby appointed the proxies of, and authorized to represent,
the undersigned and to vote all of the shares of common stock of Rouge
Industries, Inc. entitled to be voted by the undersigned as of March 11, 1998 as
directed below and, in their discretion, on all other matters which may properly
come before the Annual Meeting of Stockholders (the "Meeting") to be held at the
Gate 2 Training Center, Rouge Steel Company, Dearborn, Michigan 48121, on
Thursday, May 7, 1998 at 10:00 a.m. and at any adjournment thereof as if the
undersigned were present and voting at the Meeting.
Whether or not you expect to attend the Meeting, you are urged to execute and
return this proxy, which you may revoke at any time prior to its use.
IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS RETURNED, SUCH
SHARES WILL BE VOTED FOR ALL ITEMS.
Item 1 -- Election of the following nominees for Class I Directors: Louis D.
Camino and Peter J. Pestillo.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
with exceptions listed FOR ALL NOMINEES
Withhold for the following nominee(s) only (To withhold authority to vote for
any nominee, write that nominee's name in the space below.)
Item 2 -- Approval of the Rouge Steel Company 1998 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 3 -- Ratification of appointment of Price Waterhouse LLP as independent
public accountants for the year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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Please date and sign this proxy exactly as your name appears on the reverse side
of this proxy and return it promptly in the postage-paid return envelope. When
shares are held by joint tenants, both should sign. If a corporation, please
sign the full corporate name by an authorized officer. If a partnership, please
sign the partnership name by an authorized person.
The undersigned hereby acknowledge(s) receipt of Rouge Industries, Inc.'s Annual
Report to Shareholders and of the notice of the Annual Meeting of Stockholders
and Proxy Statement relating to the Meeting.
Date: , 1998
------------------- -------------------- -----------------
Signature Signature
PLEASE MARK, SIGN AND DATE THIS PROXY PROMPTLY AND MAIL IT IN THE ENCLOSED
ENVELOPE. TO BE VALID, THIS PROXY MUST BE SIGNED AND DATED.
