UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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o Preliminary
Proxy Statement |
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy
Statement |
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o Definitive
Additional Materials |
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o Soliciting
Material Pursuant to Section 240.14a-12 |
CLEVELAND-CLIFFS INC
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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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): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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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. |
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Form, Schedule or Registration Statement No.: |
March 30, 2006
To the Shareholders of
Cleveland-Cliffs
Inc
The Annual Meeting of Shareholders of Cleveland-Cliffs Inc (the
“Company”) will be held at The Forum Conference
Center, located in One Cleveland Center, 1375 East Ninth Street,
Cleveland, Ohio 44114 on Tuesday, May 9, 2006 at
11:30 A.M. (Cleveland time).
At the Annual Meeting, shareholders will act upon the election
of Directors and a proposal to ratify the appointment of
Deloitte & Touche LLP as independent auditors. An
explanation of each of these matters is contained in the
attached Proxy Statement and accompanying proxy card, first
being mailed or otherwise distributed to shareholders on or
about March 30, 2006.
The Board of Directors and management believe that the proposed
actions are in the best interests of your Company. Whether or
not you expect to be present at the Annual Meeting, we urge you
to exercise your voting rights by signing and dating the
enclosed proxy card and returning it in the accompanying
envelope to ensure that your shares will be represented. In
addition, record shareholders have the opportunity to appoint
proxies to vote their shares through the Internet or via
toll-free telephone if they wish. Instructions for appointing
proxies through the Internet or by telephone are contained on
your proxy card. Whichever of these methods you choose, the
named proxies will vote your shares in accordance with your
instructions. Please note that failure to vote surrenders voting
power to those who exercise their voting right. If you attend
the meeting, you will be entitled to vote in person.
We look forward to meeting with you at the Annual Meeting.
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Sincerely, |
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John S. Brinzo |
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Chairman and Chief Executive Officer |
It is important that your
shares be represented at the meeting. Whether or not you intend
to be present, please sign and date the enclosed proxy card and
return it in the enclosed postage-prepaid envelope, which
requires no postage if mailed in the United States, or appoint
your proxies through the Internet or by telephone as directed on
your proxy card.
TABLE OF CONTENTS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 30, 2006
Dear Shareholder:
The Annual Meeting of Shareholders of Cleveland-Cliffs Inc, an
Ohio corporation (the “Company”), will be held at The
Forum Conference Center, located in One Cleveland Center, 1375
East Ninth Street, Cleveland, Ohio 44114 on Tuesday, May 9,
2006 at 11:30 A.M. (Cleveland time) for the purpose of
considering and acting upon the following:
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A proposal to elect twelve Directors to hold office until the
next Annual Meeting of Shareholders or until their successors
are elected; |
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A proposal to ratify the appointment of Deloitte &
Touche LLP as independent auditors to examine the financial
statements of the Company and its consolidated subsidiaries for
the year 2006; and |
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Such other matters as may properly come before the Annual
Meeting and any adjournments or postponements thereof. |
Shareholders of record at the close of business on
March 15, 2006, are entitled to notice of and to vote at
such meeting and any adjournment or postponements thereof.
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Very truly yours, |
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George W. Hawk, Jr. |
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General Counsel and Secretary |
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It is important that your
shares be represented at the meeting. Whether or not you intend
to be present, please sign and date the enclosed proxy card and
return it in the enclosed postage-prepaid envelope, which
requires no postage if mailed in the United States, or appoint
your proxies through the Internet or by telephone as directed on
your proxy card. |
PROXY STATEMENT
March 30, 2006
SOLICITATION, USE AND REVOCATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of
Cleveland-Cliffs Inc, an Ohio corporation (the
“Company”), for use at the Annual Meeting of
Shareholders to be held on May 9, 2006, and any
adjournments or postponements thereof (the “Meeting”).
Any proxy may be revoked by a later proxy, by notice to the
Company in writing or in open meeting, without affecting any
vote previously taken.
OUTSTANDING SHARES AND VOTING RIGHTS
As of March 15, 2006, the record date for the determination
of persons entitled to vote at the Meeting, there were
21,991,179 of the Company’s Common Shares, par value
$.50 per share (“Common Shares”), and
172,500 shares of the Company’s 3.25% Redeemable
Cumulative Convertible Perpetual Preferred Stock with no par
value (“Preferred Shares”) outstanding. Each Common
Share and each Preferred Share is entitled to one vote. In
connection with the election of Directors and ratification of
the appointment of Deloitte & Touche LLP as independent
auditors, holders of Common Shares and Preferred Shares vote
together as one class. This Proxy Statement and accompanying
proxy card are being first mailed or otherwise distributed to
shareholders on or about March 30, 2006.
ELECTION OF DIRECTORS
(Proposal No. 1)
It is intended that proxies received will be voted, unless
contrary instructions are given, to elect the twelve nominees
named in the following table to serve until the next Annual
Meeting of Shareholders and until their successors shall be
elected.
Should any nominee decline or be unable to accept such
nomination to serve as Director, an event which the Company does
not currently anticipate, the persons named as proxies reserve
the right, in their discretion, to vote for a lesser number or
for substitute nominees designated by the Directors, to the
extent consistent with the Company’s Regulations.
The Company does not have a formal policy regarding director
attendance at Annual Meetings of Shareholders, however, it is
expected that all Directors and nominees will attend the Annual
Meeting of Shareholders unless there are extenuating
circumstances for nonattendance. Ten Directors (including
retired Director Mr. Morley) and nine nominees attended the
Annual Meeting of Shareholders in 2005.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Based upon information received from the respective Directors
and nominees as of March 15, 2006, the following
information is furnished with respect to each person nominated
for election as a Director.
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| Name, Age and Principal Occupation and |
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First Became Director |
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JOHN S. BRINZO, 64, Chairman and Chief Executive Officer
of the Company since May, 2005. Mr. Brinzo served as
Chairman, President and Chief Executive Officer of the Company
from July, 2003 to May, 2005 and Chairman and Chief Executive
Officer from January, 2000 through June, 2003. Mr. Brinzo
is a Director of The Brink’s Company.
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1997 |
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RONALD C. CAMBRE, 67, Former Chairman of the Board from
January, 1995 through December, 2001 of Newmont Mining
Corporation, an international mining company. Mr. Cambre
served as Chief Executive Officer from November, 1993 to
December, 2000 of Newmont Mining Corporation. Mr. Cambre
was previously with Freeport-McMoRan, a natural resources
company, serving as Vice President and Senior Technical Advisor
to the Office of the Chairman. Mr. Cambre is a Director of
Inco Limited, W. R. Grace & Co. and McDermott
International, Inc.
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1996 |
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JOSEPH A. CARRABBA, 53, President and Chief Operating
Officer of the Company since May, 2005. Mr. Carrabba
previously served as President and Chief Operating Officer of
Diavik Diamond Mines, Inc. from April, 2003 to May, 2005 and
General Manager of Weipa Bauxite Operation of Comalco Aluminum
from March, 2000 to April, 2003.
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RANKO CUCUZ, 62, Former Chairman of the Board from July,
1996 through October, 2001 and Chief Executive Officer from
October, 1992 through August, 2001 of Hayes Lemmerz
International, Inc., an international supplier of wheels to the
auto industry. Hayes Lemmerz International filed for bankruptcy
in December, 2001, and emerged from bankruptcy in 2003.
Mr. Cucuz is a Director of Lincoln Electric Holdings,
Inc.
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1999 |
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SUSAN M. CUNNINGHAM, 50, Senior Vice President of
Exploration and Corporate Reserves since October, 2005 of Noble
Energy Inc., an international oil and gas exploration and
production company. Ms. Cunningham served as Senior Vice
President of Exploration since 2001 of Noble Energy Inc., and
Vice President — Worldwide Exploration from 2000-2001
of Texaco, an international petroleum products and services
company.
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2005 |
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BARRY J. ELDRIDGE, 60, Former Managing Director and Chief
Executive Officer from October, 2002 through April, 2005 of
Portman Limited, an international iron ore mining company in
Australia. Mr. Eldridge served as Managing Director and
Chief Executive Officer from January, 2001 through September,
2002 of Griffin Coal, a mining operation and division of Griffin
Energy Pty Ltd, in Western Australia. Mr. Eldridge was
previously with North Limited, a major metal mining and natural
resources operation in Western Australia, serving as
Director — Major Projects from 1998 through 2002.
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2005 |
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DAVID H. GUNNING, 63, Vice Chairman of the Company since
April, 2001. Mr. Gunning engaged in consulting and private
investing from December, 1997 until joining the Company.
Mr. Gunning is a Director of Development Alternatives,
Inc., Lincoln Electric Holdings, Inc., and MFS Funds.
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2001 |
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JAMES D. IRELAND III, 56, Managing Director since
January, 1993 of Capital One Partners, Inc., a private equity
investment firm, which through an affiliate, serves as the
General Partner of Early Stage Partners LLC, a venture capital
investment partnership. Mr. Ireland is a Director of
OurPets Co.
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1986 |
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FRANCIS R. McALLISTER, 63, Chairman and Chief Executive
Officer since February 12, 2001 of Stillwater Mining
Company, a palladium and platinum producer. From January, 2000
through January, 2001, Mr. McAllister privately pursued
ventures in the mining and metals industry. Mr. McAllister
is a Director of Stillwater Mining Company.
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1996 |
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ROGER PHILLIPS, 66, Former President and Chief Executive
Officer from February, 1982 through January, 2002 of IPSCO Inc.,
a North American steel producing company. Mr. Phillips is a
Director of Canadian Pacific Railway Limited, Imperial Oil
Limited, Inco Limited and Toronto Dominion Bank.
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2002 |
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RICHARD K. RIEDERER, 62, Former Chief Executive Officer
from January, 1996 and President from January, 1995 through
February, 2001 of Weirton Steel Corporation, a steel producing
company. Mr. Riederer also served as Chairman of the
American Iron and Steel Institute from January, 2000 through
December, 2000. Mr. Riederer is a Director of First
American Funds, Chairman and Director of Idea Foundry, and
serves on the Board of Trustees of Franciscan University of
Steubenville.
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2002 |
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ALAN SCHWARTZ, 66, Professor of Law at the Yale Law
School and Professor at the Yale School of Management since 1987.
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The Board of Directors recommends a vote FOR each of the
nominees listed above.
DIRECTOR INDEPENDENCE
The Board of Directors has determined that each of the current
non-management Directors standing for reelection, including each
of the current members of the Audit Committee, the Board Affairs
Committee and the Compensation and Organization Committee, has
no material relationship with the Company (either directly or as
a partner, shareholder or officer of an organization that has a
relationship with the Company) and is independent within the
Company’s director independence standards, which reflect
exactly the New York Stock Exchange (“NYSE”) director
independence standards (listed in Annex A) as currently in
effect and as they may be changed from time to time. John S.
Brinzo and David H. Gunning do not meet, and Joseph A.
Carrabba if elected would not meet, the aforementioned
independence standards because they are Chairman and Chief
Executive Officer, Vice Chairman, and President and Chief
Operating Officer, respectively, and employees of the Company.
BOARD OF DIRECTORS AND BOARD COMMITTEES
The members of the Board of Directors have diversified
professional experience in general management, steel
manufacturing, mining, finance, law, education, natural resource
reserve exploration, and other fields. There is no family
relationship among any of the nominees and executive officers of
the Company. Nine of the twelve nominees have no present or
former employment relationship with the Company. The average age
of the nominees is 61, ranging from 50 to 67. The average
service of the nominees currently serving on the Board is seven
years, ranging from less than one year to 20 years.
The Company’s governance process is based on its Corporate
Governance Guidelines, which are available on the Company’s
website at http://www.cleveland-cliffs.com. During 2005, nine
meetings of the Board of
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Directors were held and 28 meetings of all Board Committees were
held. The Company’s independent Directors held six meetings
in executive session without the presence of Messrs. Brinzo
and Gunning in the year 2005. Mr. McAllister has served as
Lead Director since May, 2004. He chaired all of the executive
session meetings in 2005. Directors also discharge their
responsibilities by review of Company reports to Directors,
visits to Company facilities, correspondence with the Chairman
and Chief Executive Officer, and telephone conferences with the
Chairman and Chief Executive Officer and Directors regarding
matters of interest and concern to the Company. The Directors
have Audit, Board Affairs, Compensation and Organization,
Finance, Strategic Advisory Committees as well as Ad Hoc
committees when needed. All committees regularly report their
activities, actions, and recommendations to the Board. All
Directors attended at least 89 percent of the meetings,
while two Directors attended 95 percent of the meetings,
and six Directors attended 100 percent of the aggregate
total of meetings of the Board of Directors. No Director
attended less than 75 percent the Board Committees of which
they were members during 2005.
The Audit Committee, consisting of Messrs. Riederer
(chairman), Ireland, Schwartz and Ms. Cunningham, reviews
with the Company’s management, the internal auditors and
the independent auditors, the adequacy and effectiveness of the
Company’s system of internal control over financial
reporting; reviews significant accounting matters; reviews
quarterly unaudited financial information prior to public
release; approves the audited financial statements prior to
public distribution; approves the Company’s assertions
related to internal controls prior to public distribution;
reviews any significant changes in the Company’s accounting
principles or financial reporting practices; reviews, approves
and retains the services performed by the Company’s
independent auditors; has the authority and responsibility to
evaluate independent auditors; discusses with the auditors their
independence and considers the compatibility of non-audit
services with such independence; annually selects and retains
the Company’s independent auditors to examine the
Company’s financial statements; approves management’s
appointment, termination, or replacement of the Chief Internal
Auditor; and conducts a legal compliance review. Pursuant to the
rules of the Securities and Exchange Commission
(“SEC”), the members of the Company’s Audit
Committee are independent, as that term is defined in the NYSE
listing standards attached as Annex A. The Board of
Directors named Messrs. Riederer and Ireland as Audit
Committee’s financial experts. No member of the Audit
Committee serves on the audit committees of more than three
public companies. The Audit Committee held six meetings during
2005. The Charter of the Audit Committee is available at
http://www.cleveland-cliffs.com and is also available upon
request at (800) 214-0739 or (216) 694-5459.
The Board Affairs Committee, consisting of Messrs. Cucuz
(chairman), Cambre, McAllister, and Phillips, administers the
Company’s compensation plans for Directors; monitors the
Board governance process and provides counsel to the Chairman
and Chief Executive Officer on Board governance and other
matters; recommends changes in membership and responsibility of
Board committees; and acts as the Board’s Nominating
Committee and Proxy Committee in the election of Directors. The
Board Affairs Committee held seven meetings during 2005. The
Charter of the Board Affairs Committee is available at
http://www.cleveland-cliffs.com and is also available upon
request at (800) 214-0739 or (216) 694-5459.
The Compensation and Organization Committee (“Compensation
Committee”), consisting of Messrs. McAllister
(chairman), Ireland, Phillips, and Riederer, recommends to the
Board of Directors the election and compensation of officers;
administers the Company’s compensation plans for officers;
reviews organization and management development; evaluates the
performance of the Chief Executive Officer; and obtains the
advice of outside experts with regard to compensation matters.
The Compensation Committee held five meetings during 2005. The
Charter of the Compensation and Organization Committee is
available at http://www.cleveland-cliffs.com and is also
available upon request at (800) 214-0739 or (216) 694-5459.
The Finance Committee, consisting of Messrs. Schwartz
(chairman), Cambre, Cucuz, Eldridge, and Ms. Cunningham,
reviews the Company’s financial condition, financial
policies, investment plans and benefit funds management. The
Finance Committee recommends dividend and other actions to the
Board of Directors. The Finance Committee held four meetings
during 2005.
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The Strategic Advisory Committee, consisting of
Messrs. Ireland (chairman), Brinzo, Cambre, Gunning, and
McAllister, reviews corporate strategy and related issues. The
Strategic Advisory Committee held two meetings in 2005.
Two Ad Hoc Committees were created in 2005, an Ad Hoc Search
Committee (“Search Committee”) to monitor the
executive search for a President and Chief Operating Officer
during 2005 and an Ad Hoc Advisory Committee (“Advisory
Committee”) to review a potential strategic transaction.
The Search Committee consisted of Messrs. Ireland,
McAllister and Riederer, and retired Directors
Messrs. Morley and Oresman. The Advisory Committee
consisted of Messrs. McAllister, Phillips and Riederer. The
Search Committee and the Advisory Committee each held two
meetings during 2005.
CONSIDERATION OF DIRECTOR NOMINEES
Shareholder Nominees
The policy of the Board Affairs Committee is to consider
properly submitted shareholder nominations for candidates for
membership on the Board as described below under
“Identifying and Evaluating Nominees for Director.” In
evaluating such nominations, the Board Affairs Committee seeks
to achieve a balance of knowledge, experience and capability on
the Board of Directors and to address the membership criteria
set forth below under “Director Qualifications.” Any
shareholder nominations proposed for consideration by the Board
Affairs Committee should include (i) complete information
as to the identity and qualifications of the proposed nominee,
including name, address, present and prior business and/or
professional affiliations, education and experience, and
particular fields of expertise, (ii) an indication of the
nominee’s consent to serve as a director of the Company if
elected, and (iii) the reasons why, in the opinion of the
recommending shareholder, the proposed nominee is qualified and
suited to be a director of the Company. Shareholder nominations
should be addressed to Cleveland-Cliffs Inc, 1100 Superior
Avenue, 15th Floor, Cleveland, Ohio 44114, Attention:
Secretary. The Company’s Regulations provide that at any
meeting of shareholders at which directors are to be elected,
only persons nominated as candidates will be eligible for
election.
Director Qualifications
In evaluating director nominees, the Board Affairs Committee
considers such factors as it deems appropriate, consistent with
the Company’s Corporate Governance Guidelines, the Board
Affairs Committee Charter and other criteria established by the
Board of Directors. The Board Affairs Committee’s goal in
selecting directors for nomination to the Board of Directors is
generally to seek to create a well-balanced team that combines
diverse experience, skill and intellect of seasoned directors in
order to enable the Company to pursue its strategic objectives.
The Board Affairs Committee has not reduced the qualifications
for service on the Company’s Board of Directors to a
checklist of specific standards or specific, minimum
qualifications, skills or qualities. Rather, the Company seeks,
consistent with the vacancies existing on the Company’s
Board of Directors at any particular time and the interplay of a
particular candidate’s experience with the experience of
other directors, to select individuals whose business
experience, knowledge, skills, diversity and integrity would be
considered a desirable addition to the Board of Directors and
any committees thereof. In addition, the Board Affairs Committee
annually conducts a review of incumbent directors in order to
determine whether a director should be nominated for re-election
to the Board of Directors.
The Board Affairs Committee makes determinations as to director
selection based upon the facts and circumstances at the time of
the receipt of the director candidate recommendation. Applicable
considerations include (i) whether the Board Affairs
Committee is currently looking to fill a new position created by
an expansion of the number of directors, or a vacancy that may
exist on the Board of Directors, (ii) whether the current
composition of the Board of Directors is consistent with the
criteria described in the Company’s Corporate Governance
Guidelines, (iii) whether the candidate submitted possesses
the qualifications that are generally the basis for selection of
candidates to the Board of Directors, and (iv) whether the
candidate would be considered independent under the rules of the
NYSE as set forth in Annex A and the Company’s
standards
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with respect to director independence. Final approval of any
candidate will be determined by the full Board of Directors.
Identifying and Evaluating Nominees for Directors
The Board Affairs Committee utilizes a variety of methods for
identifying and evaluating nominees for director. The Board
Affairs Committee regularly reviews the appropriate size of the
Board and whether any vacancies on the Board are expected due to
retirement or otherwise. In the event that vacancies are
anticipated, or otherwise arise, the Board Affairs Committee
considers various potential candidates for director. Candidates
may come to the attention of the Board Affairs Committee through
current Board members, professional search firms, shareholders
or other persons. In 2005, the Board Affairs Committee used a
professional search firm to identify Susan M. Cunningham as a
potential candidate. As described above, the Board Affairs
Committee considers properly submitted nominations for
candidates for the Board. Following verification of the
recommending shareholder’s status, recommendations are
considered by the Board Affairs Committee at its next regularly
scheduled meeting.
MEETINGS OF NON-MANAGEMENT DIRECTORS; COMMUNICATIONS WITH
DIRECTORS
In accordance with the NYSE’s corporate governance listing
standards, the Company’s non-management directors meet at
regularly scheduled executive sessions without management
present. The chair of the Company’s Compensation Committee
has been designated as the Company’s lead independent
director. Shareholders and interested parties may communicate
with the chair of the Compensation Committee, or with the
Company’s non-management directors as a group or with the
Board of Directors, by writing to the Lead Director at
Cleveland-Cliffs Inc, 1100 Superior Avenue, 15th Floor,
Cleveland, Ohio 44114, Attn: Lead Director. The Board of
Directors’ independent directors have approved the process
for determining which communications are forwarded to various
members of the Board of Directors.
BUSINESS ETHICS POLICY
The Company has adopted a Code of Business Conduct and Ethics
that applies to all Directors, officers and employees of the
Company and its subsidiaries. The Code of Business Conduct and
Ethics is available on the Company’s website at
http://www.cleveland-cliffs.com and is also available upon
request at (800) 214-0739 or (216) 694-5459. The
Company intends to post amendments to or waivers from its Code
of Business Conduct (to the extent applicable to the
Company’s chief executive officer, principal financial
officer or principal accounting officer) on its website.
DIRECTORS’ COMPENSATION
Directors who are not employees of the Company
(“Nonemployee Directors”) receive an annual retainer
fee of $32,500 and an annual equity award of $32,500. Board
meeting fees and Committee meeting fees are $1,500 and $1,000,
respectively. The Lead Director annual retainer fee is $10,000
(increased from $6,000 effective July 1, 2005). Annual
committee chair retainers are as follows: Audit Committee,
$10,000, and Board Affairs, Finance, and Compensation Committees
$5,000 (all of which were increased from $3,000 effective
July 1, 2005). Employee Directors receive no compensation
for their service as Directors.
The Nonemployee Directors’ Compensation Plan (as Amended
and Restated as of January 1, 2005) (“Directors’
Plan”) implements the annual equity grant program
referenced above. Directors who are under age 69 on the
date of the annual meeting receive an automatic annual grant of
$32,500 worth of restricted shares with a
3-year vesting
requirement. Nonemployee Directors who are 69 years of age
or older on the date of the annual meeting receive an automatic
annual grant of $32,500 worth of Common Shares (with no
restrictions).
In order to transition to the current rate of compensation, each
Nonemployee Director elected to the Board of Directors on
May 10, 2005, received an amount based on the current
annual equity award rate,
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prorated from July 1, 2005. Mr. Eldridge’s and
Ms. Cunningham’s equity grants were prorated based on
the dates they were elected to the Board on July 12, 2005
and September 13, 2005, respectively. All 2005 grants were
for restricted shares with a
3-year vesting
regardless of the age of the Nonemployee Director.
The Directors’ Plan also provides that a Director should
own by the end of a four-year period either (i) 4,000 or
more Common Shares or (ii) Common Shares having a market
value of at least $100,000, in accordance with the current
Director Share Ownership Guidelines (“Guidelines”). If
a Nonemployee Director meets the Guidelines in December of each
year, the Director may elect to receive all or a portion of his
or her annual retainer of $32,500 for the following year in
cash. If the Director does not meet these Guidelines, the
Director is required to receive an equivalent value of $15,000
in Common Shares until he or she meets one of the two
Guidelines. Nonemployee Directors may elect to receive up to
100% of their retainer and other fees in Common Shares. In
addition, the Directors’ Plan gives Nonemployee Directors
the opportunity to defer all or a portion of their annual
retainer and other fees, whether payable in cash or Common
Shares. Beginning with the 2006 annual equity award, Nonemployee
Directors may elect to receive deferred shares in lieu of their
annual equity award of restricted shares or Common Shares.
Nonemployee Directors who joined the Board before
January 1, 1999 were able to participate in either the
Retirement Plan for Non-Employee Directors adopted in 1984
(“1984 Plan”) or the Nonemployee Directors
Supplemental Compensation Plan established in 1995 (“1995
Plan”) (collectively “Plans”). The 1984 Plan
provides that a Nonemployee Director elected before July 1,
1995, with at least five years of service, receives during his
or her lifetime after retirement an amount equal to the annual
retainer currently paid to Nonemployee Directors. Under the 1995
Plan, a Nonemployee Director elected on or after July 1,
1995, with at least five years of service, receives after
retirement a quarterly amount equal to fifty percent of the
stated quarterly retainer in effect at the time of retirement
for the period equal to the Director’s service. Under
either Plan, in the event of a “change in control”
causing the Director’s retirement, he or she receives the
retirement payment prorated for any service less than five
years. Directors who join the Board on or after January 1,
1999 are not eligible to participate in the Plans.
On January 14, 2003, the Board of Directors adopted
respective amendments to the Plans to provide for a voluntary
immediate lump sum cash-out election of the present value of the
accrued pension and deferred benefits to all Nonemployee
Directors participating under the Plans
(“Participants”). Under the terms of the Plans, as
amended, the lump-sum benefit was payable to the Participants on
June 30, 2003. Of the 14 Participants, three elected not to
participate in the lump sum benefit. The aggregate value for
Participants electing a payout was approximately
$2.3 million. The payout election by the 11 Participants
means those Participants have no further opportunity for a
pension adjustment under the Plans for future changes in the
Company’s annual retainer.
The Company has trust agreements with KeyBank National
Association relating to the Directors’ Plan, the 1984 Plan
and the 1995 Plan, in order to establish arrangements for the
funding and payment of the Company’s obligations under such
Plans.
7
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER
PERSONS
The following table sets forth the amount and percent of Common
Shares which, as of March 15, 2006 (except as otherwise
indicated), are deemed under the rules of the SEC to be
“beneficially owned” by each Director (excluding the
Chairman and Chief Executive Officer and the Vice Chairman), by
each nominee for Director, by the Company’s Chief Executive
Officer, the other four most highly compensated executive
officers as named in the Summary Compensation Table (“named
executive officers”), by such persons and the other
executive officers as a group, and by any person or
“group” (as the term is used in the Securities
Exchange Act of 1934) known to the Company as of that date to be
a “beneficial owner” of more than five percent or more
of the outstanding Common Shares. No Directors, executive
officers, or officers hold any Preferred Shares or outstanding
stock options as of March 15, 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amount and Nature of “Beneficial Ownership”(1) |
| |
|
|
| Directors and Nominees |
|
|
|
Investment Power |
|
Voting Power |
|
|
| (excluding those who are also |
|
Beneficial |
|
|
|
|
|
Percent of |
| Named Executive Officers) |
|
Ownership |
|
Sole |
|
Shared |
|
Sole |
|
Shared |
|
Class(2) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald C. Cambre
|
|
|
6,707 |
|
|
|
6,707 |
|
|
|
-0- |
|
|
|
6,707 |
|
|
|
-0- |
|
|
|
— |
|
|
Ranko Cucuz
|
|
|
2,473 |
|
|
|
2,473 |
|
|
|
-0- |
|
|
|
2,473 |
|
|
|
-0- |
|
|
|
— |
|
|
Susan M. Cunningham
|
|
|
337 |
|
|
|
337 |
|
|
|
-0- |
|
|
|
337 |
|
|
|
-0- |
|
|
|
— |
|
|
Barry J. Eldridge
|
|
|
518 |
|
|
|
518 |
|
|
|
-0- |
|
|
|
518 |
|
|
|
-0- |
|
|
|
— |
|
|
James D. Ireland III
|
|
|
320,710 |
|
|
|
13,096 |
|
|
|
307,614 |
(3) |
|
|
13,096 |
|
|
|
307,614 |
(3) |
|
|
1.46 |
% |
|
Francis R. McAllister
|
|
|
3,293 |
|
|
|
3,293 |
|
|
|
-0- |
|
|
|
3,.293 |
|
|
|
-0- |
|
|
|
— |
|
|
Roger Phillips
|
|
|
7,942 |
|
|
|
7,942 |
|
|
|
-0- |
|
|
|
7,942 |
|
|
|
-0- |
|
|
|
— |
|
|
Richard K. Riederer
|
|
|
6,623 |
|
|
|
6,623 |
|
|
|
-0- |
|
|
|
6,623 |
|
|
|
-0- |
|
|
|
— |
|
|
Alan Schwartz
|
|
|
3,813 |
|
|
|
3,813 |
|
|
|
-0- |
|
|
|
3,813 |
|
|
|
-0- |
|
|
|
— |
|
| |
|
Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John S. Brinzo
|
|
|
174,727 |
|
|
|
174,727 |
|
|
|
-0- |
|
|
|
174,727 |
|
|
|
-0- |
|
|
|
— |
|
|
David H. Gunning
|
|
|
48,802 |
|
|
|
48,802 |
|
|
|
-0- |
|
|
|
48,802 |
|
|
|
-0- |
|
|
|
— |
|
|
Joseph A. Carrabba
|
|
|
17,753 |
|
|
|
17,753 |
|
|
|
-0- |
|
|
|
17,753 |
|
|
|
-0- |
|
|
|
— |
|
|
William R. Calfee
|
|
|
52,672 |
|
|
|
52,672 |
|
|
|
-0- |
|
|
|
52,672 |
|
|
|
-0- |
|
|
|
— |
|
|
Donald J. Gallagher
|
|
|
37,925 |
|
|
|
37,925 |
|
|
|
-0- |
|
|
|
37,925 |
|
|
|
-0- |
|
|
|
— |
|
|
All Directors, Nominees, and Executive Officers as a group,
including the named executive officers (16 Persons)
|
|
|
738,687 |
|
|
|
431,073 |
|
|
|
307,614 |
|
|
|
431,073 |
|
|
|
307,614 |
|
|
|
3.36 |
% |
| |
|
Other Persons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMM LLC (4)
100 Light Street
Baltimore, MD 21202
|
|
|
2,000,000 |
|
|
|
-0- |
|
|
|
2,000,000 |
|
|
|
-0- |
|
|
|
2,000,000 |
|
|
|
9.12 |
% |
|
FMR Corp. (5)
82 Devonshire Street
Boston, MA 02109
|
|
|
1,544,800 |
|
|
|
1,544,800 |
|
|
|
-0- |
|
|
|
114,600 |
|
|
|
-0- |
|
|
|
7.044 |
% |
|
Jeffrey L. Gendell (6)
55 Railroad Avenue,
3rd Floor
Greenwich, CT 06830
|
|
|
1,490,825 |
|
|
|
-0- |
|
|
|
1,490,825 |
|
|
|
-0- |
|
|
|
1,490,825 |
|
|
|
6.80 |
% |
|
Spears Grisanti & Brown LLC (7)
45 Rockefeller Plaza
New York, NY 10111
|
|
|
1,384,331 |
|
|
|
-0- |
|
|
|
1,384,331 |
|
|
|
-0- |
|
|
|
1,384,331 |
|
|
|
6.30 |
% |
|
Citigroup Inc. (8)
399 Park Avenue
New York, NY 10043
|
|
|
1,261,170 |
|
|
|
-0- |
|
|
|
1,261,170 |
|
|
|
-0- |
|
|
|
1,261,170 |
|
|
|
5.5 |
% |
|
|
| (1) |
Under the rules of the SEC, “beneficial ownership”
includes having or sharing with others the power to vote or
direct the investment of securities. Accordingly, a person
having or sharing the power to vote or direct the investment of
securities is deemed to “beneficially own” the
securities even if he or she has no right to receive any part of
the dividends on or the proceeds from the sale of the
securities. Also, because |
8
|
|
|
“beneficial ownership” extends to persons, such as
co-trustees under a trust, who share power to vote or control
the disposition of the securities, the very same securities may
be deemed “beneficially owned” by two or more persons
shown in the table. Information with respect to “beneficial
ownership” shown in the table above is based upon
information supplied by the Directors, nominees and executive
officers of the Company and filings made with the SEC or
furnished to the Company by any shareholder. |
| |
| (2) |
Less than one percent, except as otherwise indicated. |
| |
| (3) |
Of the 320,710 shares deemed under the rules of the SEC to
be beneficially owned by Mr. Ireland, he is a beneficial
holder of 13,096 shares. The remaining 307,614 shares
are held in trusts, substantially for the benefit of a
charitable foundation, as to which Mr. Ireland is a
co-trustee with shared voting and investment powers. Of such
shares in trusts, Mr. Ireland has an interest in the income
or corpus with respect to 23,424.50 shares. |
| |
| (4) |
The information shown above and in this footnote was taken from
the Schedule 13G, dated February 14, 2006, as filed
with the SEC on February 14, 2006 jointly by Legg Mason
Opportunity Trust, Inc. and LMM LLC. The 2,000,000 shares
are held for the account of Legg Mason Opportunity Trust, which
is a portfolio of Legg Mason Investment Trust, Inc. (an
investment company registered under the Investment Company Act
of 1940). LMM LLC manages Legg Mason Opportunity Trust. |
| |
| (5) |
The information shown above and in this footnote was taken from
the Schedule 13G, dated February 14, 2006, as filed
with the SEC on February 14, 2006 jointly by FMR Corp.,
Edward C. Johnson 3d and family, and Fidelity International
Limited. Fidelity Management & Research Company
(“Fidelity”), a wholly owned subsidiary of FMR Corp.
and an investment advisor registered under Section 203 of
the Investment Advisers Act of 1940, is the beneficial owner of
1,465,900 shares as a result of acting as an investment
adviser to various companies registered under Section 8 of
the Investment Company Act of 1940. Mr. Johnson and FMR
Corp., through their control of Fidelity, have the power to
dispose of such shares. |
| |
| (6) |
The information shown above and in this footnote was taken from
the Schedule 13G/A Amendment No. 3, dated
February 14, 2006, and filed with the SEC on
February 14, 2006, as a group, by Tontine Partners, L.P.,
Tontine Management, L.L.C. (which is the general partner of
Tontine Partners, L.P.), Tontine Capital Partners, L.P., Tontine
Capital Management, L.L.C. (which is the general partner of
Tontine Capital Partners, L.P.), Tontine Overseas Associates,
L.L.C. (which serves as the investment manager of Tontine
Overseas Funds, Ltd.), and Jeffrey L. Gendell. Mr. Gendell
is the managing member of Tontine Management, L.L.C., Tontine
Capital Management, L.L.C. and Tontine Overseas Associates,
L.L.C., and in that capacity directs their operations. |
| |
| (7) |
The information shown above and in this footnote was taken from
the Schedule 13G/ A Amendment No. 1, dated
February 23, 2006 and filed with the SEC on
February 23, 2006, by Spears Grisanti & Brown LLC
(“SGB”), William G. Spears, Vance C. Brown and
Christopher Grisanti. The 1,384,331 shares reported as
beneficially owned by SGB include 12,000 shares held by SGB
Simurgh Master Fund Ltd (“SGB Ltd.”).
Messrs. Spears, Brown and Grisanti are the managers of SGB.
SGB is the Investment Manager for SGB Ltd. |
| |
| (8) |
The information shown above and in this footnote was taken from
the Schedule 13G, dated February 8, 2006, and filed
with the SEC on February 9, 2006, jointly by Citigroup
Global Markets Limited, Citigroup Global Markets Europe Limited,
Citigroup Global Markets International LLC, Citigroup Financial
Products Inc., Citigroup Global Markets Holdings Inc., and
Citigroup Inc. Citigroup Global Markets Europe Limited is the
sole stockholder of Citigroup Global Markets Limited. Citigroup
Financial Products Inc. and Citigroup Global Markets
International LLC own a controlling interest in Citigroup Global
Markets Europe Limited. Citigroup Financial Products Inc. is the
sole member of Citigroup Global Markets International LLC.
Citigroup Global Markets Holdings Inc. is the sole stockholder
of Citigroup Global Products Inc. Citigroup Inc. is the sole
stockholder of Citigroup Global Markets Holdings. The Common
Shares shown above assume a conversion rate of 32.3354 of the
Preferred Shares held by the reporting persons. As of
February 17, 2006 the conversion rate was adjusted to
32.6652. |
9
Executive Compensation
The following table sets forth all compensation earned by the
Company’s named executive officers with respect to the
years shown for services rendered to the Company and its
subsidiaries.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Annual Compensation |
| |
|
|
|
|
| |
|
|
|
|
|
Other Annual |
| Name and |
|
|
|
Salary |
|
Bonus(1) |
|
Compensation(2) |
| Principal Position |
|
Year |
|
($) |
|
($) |
|
($) |
| |
|
|
|
|
|
|
|
|
|
John S. Brinzo
|
|
|
2005 |
|
|
|
612,500 |
|
|
|
1,250,000 |
|
|
|
11 |
|
| |
Chairman and
|
|
|
2004 |
|
|
|
568,750 |
|
|
|
700,000 |
|
|
|
-0- |
|
| |
Chief Executive Officer
|
|
|
2003 |
|
|
|
550,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
Joseph A. Carrabba
|
|
|
2005 |
|
|
|
274,431 |
|
|
|
500,000 |
(8) |
|
|
-0- |
|
| |
President and
|
|
|
2004 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
| |
Chief Operating Officer
|
|
|
2003 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
David H. Gunning (7)
|
|
|
2005 |
|
|
|
391,750 |
|
|
|
250,000 |
|
|
|
5 |
|
| |
Vice Chairman
|
|
|
2004 |
|
|
|
357,750 |
|
|
|
300,000 |
|
|
|
-0- |
|
| |
|
|
2003 |
|
|
|
330,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
William R. Calfee
|
|
|
2005 |
|
|
|
319,500 |
|
|
|
515,000 |
|
|
|
87 |
|
| |
Executive Vice President–
|
|
|
2004 |
|
|
|
309,000 |
|
|
|
260,000 |
|
|
|
367 |
|
| |
Commercial
|
|
|
2003 |
|
|
|
300,000 |
|
|
|
-0- |
|
|
|
925 |
|
|
Donald J. Gallagher
|
|
|
2005 |
|
|
|
285,000 |
|
|
|
180,000 |
|
|
|
61 |
|
| |
Executive Vice President,
|
|
|
2004 |
|
|
|
237,500 |
|
|
|
230,000 |
|
|
|
125 |
|
| |
Chief Financial Officer
and Treasurer |
|
|
2003 |
|
|
|
176,667 |
|
|
|
-0- |
|
|
|
177 |
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Long-Term Compensation |
| |
|
|
| |
|
Restricted |
|
Securities |
|
|
| |
|
Stock |
|
Underlying |
|
LTIP |
|
All Other |
| Name and |
|
Awards(3) |
|
Options |
|
Payouts(4) |
|
Compensation(5) |
| Principal Position |
|
($) |
|
(#) |
|
($) |
|
($) |
| |
|
|
|
|
|
|
|
|
|
John S. Brinzo
|
|
|
946,700 |
(6) |
|
|
-0- |
|
|
|
2,956,764 |
|
|
|
69,650 |
|
| |
Chairman and
|
|
|
2,613,272 |
(10) |
|
|
-0- |
|
|
|
3,622,185 |
|
|
|
565,045 |
|
| |
Chief Executive Officer
|
|
|
151,950 |
|
|
|
-0- |
|
|
|
665,370 |
|
|
|
522,138 |
|
|
Joseph A. Carrabba
|
|
|
1,457,666 |
(6)(9) |
|
|
-0- |
|
|
|
-0- |
|
|
|
38,318 |
|
| |
President and
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
| |
Chief Operating Officer
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
David H. Gunning (7)
|
|
|
980,080 |
|
|
|
-0- |
|
|
|
1,478,339 |
|
|
|
47,575 |
|
| |
Vice Chairman
|
|
|
72,846 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
43,975 |
|
| |
|
|
576,725 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
13,365 |
|
|
William R. Calfee
|
|
|
423,250 |
|
|
|
-0- |
|
|
|
827,887 |
|
|
|
44,730 |
|
| |
Executive Vice President–
|
|
|
632,783 |
(10) |
|
|
-0- |
|
|
|
869,321 |
|
|
|
325,110 |
|
| |
Commercial
|
|
|
42,546 |
|
|
|
-0- |
|
|
|
221,790 |
|
|
|
294,150 |
|
|
Donald J. Gallagher
|
|
|
798,296 |
|
|
|
-0- |
|
|
|
354,784 |
|
|
|
36,988 |
|
| |
Executive Vice President,
|
|
|
333,794 |
|
|
|
-0- |
|
|
|
434,621 |
|
|
|
176,188 |
|
| |
Chief Financial Officer
and Treasurer |
|
|
18,234 |
|
|
|
-0- |
|
|
|
88,716 |
|
|
|
152,147 |
|
|
|
| (1) |
Bonuses earned during 2005, the value of which is shown in the
table above, were paid in cash on February 23, 2006. The
amounts shown for Messrs. Brinzo and Calfee also include
$750,000 and $375,000 respectively, paid on March 14, 2006
in order to provide funds to pay taxes on the restricted stock
grant made on that date as described in footnote 3. |
| |
| (2) |
The named executive officers are reimbursed for business club
membership expenses and other business perquisites, in amounts
that are less than the reporting thresholds established by the
SEC. Amounts shown reflect above-market earnings on deferred
compensation payable and deferred during the respective year. |
| |
| (3) |
The aggregate number of shares of restricted stock and retention
units (see footnotes 6 and 9) held by
Messrs. Brinzo, Carrabba, Gunning, Calfee, and Gallagher,
as of December 31, 2005 was 39,285, 4,370, 35,650, 10,205,
and 7,445 respectively, the aggregate value of which, as of
December 31, 2005, was $3,479,470, $387,051, $3,157,520,
$903,857, and $659,404 respectively. Dividends are payable on
the shares of restricted stock reported in this column at the
same rate as dividends on the Company’s other Common
Shares. Dividends are not payable on retention units. Values
shown in this column include shares of restricted stock granted
on March 14, 2006 at the closing market price of $86.00 a
share as follows: 8,721, 13,953, 10,465, 4,360, and 8,721 to
Messrs. Brinzo, Carrabba, Gunning, Calfee and Gallagher,
respectively. |
| |
| (4) |
The payout indicated for 2005 was determined as of March 3,
2006 for the 2003-2005 performance period under the
Company’s Long-Term Incentive Program. The Company’s
closing market price on February 28, 2006 of
$86.05 per share was used to determine the value of the
payout, which payout was made in Common Shares on March 3,
2006. |
| |
| (5) |
Amounts indicated for 2005 include (a) cash contributed by
the Company under the Company’s Voluntary Non-Qualified
Deferred Compensation Plan (“VNQDC Plan”) in the
amount of $10,875 and $4,380, respectively, on behalf of
Messrs. Carrabba and Calfee; (b) cash contributed by
the Company under the Company’s Salaried Employees
Supplemental Retirement Savings Plan (“Savings Plan”)
in the amount of: $8,400, $-0-, $8,400, $8,400, and $8,400 on
behalf of Messrs. Brinzo, Carrabba, Gunning, Calfee, and
Gallagher, respectively; and (c) a discretionary profit
sharing contribution earned in 2005 in the amount of $61,250,
$27,443, $39,175, $31,950, and $28,587 for Messrs. Brinzo,
Carrabba, Gunning, Calfee, and Gallagher respectively in their
Savings Plan and/or VNQDC Plan, as appropriate if Qualified Plan
maximums were reached. |
| |
| (6) |
On March 8, 2005, the Company awarded to
Messrs. Brinzo, Gunning, Calfee, and Gallagher, 2,505,
1,020, 615, and 615 retention units respectively. Upon joining
the Company on May 23, 2005, Mr. Carrabba received 570
retention units. A retention unit is a bookkeeping entry that
records a unit equivalent to one Common Share and is paid-out in
cash, based on the value of a Common Share at the end of the
three-year retention period. The values included for awards of
retention units represent the value of the retention units based
on the closing price of a Common Share on the date of award.
Amounts shown for 2004 and 2003, for Messrs. Brinzo,
Gunning, Calfee, and Gallagher represent the value of retention
units awarded on March 8, 2004 and February 3, 2003,
respectively. |
| |
| (7) |
Mr. Gunning was awarded 25,000 shares of restricted
stock on March 10, 2003, one-quarter of which vests on the
first, second, third, and fourth anniversaries of the date of
grant of the award. |
| |
| (8) |
Includes a signing bonus of $250,000 paid on May 23, 2005. |
| |
| (9) |
Upon joining the Company on May 23, 2005, Mr. Carrabba
received an award of 3,800 shares of restricted stock,
one-third of which vests on the first, second and third
anniversaries of the date of grant. The value of the award
($56.04 per share closing market price on the date of
grant) is included in the table above under “Restricted
Stock Awards” for 2005. |
|
|
| (10) |
On March 8, 2005, the Company awarded a supplemental grant
of Restricted Shares to Messrs. Brinzo and Calfee, among
others, in the amount of 30,420 and 7,301 shares respectively.
The value of the awards on the date of grant, using a share
value at $78.52, were $2,388,578 and $573,275 for
Messrs. Brinzo and Calfee, and are included in the amount
shown above. The Compensation Committee subsequently determined
that the restricted stock was not subject to a substantial risk
of forfeiture and was taxable in 2005 to Messrs. Brinzo and
Calfee because they were eligible for retirement. The grants to
Messrs. Brinzo and Calfee and others similarly situated,
were amended on November 30, 2005 to eliminate restrictions
on 50 percent of their restricted stock to provide
liquidity to pay taxes. |
10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
The following table sets forth information about stock options
exercised during the last fiscal year by the named executive
officers, the number of Common Shares covered by unexercised
options, and the aggregate value of options held at the end of
such fiscal year.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities |
|
Value of Unexercised |
| |
|
|
|
|
|
Underlying Unexercised |
|
“In-the-Money” Options |
| |
|
Shares |
|
Value |
|
Options at FY-End (#) |
|
at FY-End ($) |
| |
|
Acquired |
|
Realized |
|
|
|
|
| Name |
|
on Exercise |
|
($) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
John S. Brinzo
|
|
|
53,334 |
|
|
|
2,146,051 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
Joseph A. Carrabba
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
David H. Gunning
|
|
|
25,000 |
|
|
|
1,765,884 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
William R. Calfee
|
|
|
26,668 |
|
|
|
1,234,096 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
Donald J. Gallagher
|
|
|
6,668 |
|
|
|
273,692 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
LONG-TERM INCENTIVE PLANS — AWARDS IN LAST FISCAL
YEAR
The following table sets forth information with respect to 2005
long-term incentive awards that were made on March 9, 2005
pursuant to the Company’s Long-Term Incentive Program under
the 1992 Incentive Equity Plan (“Incentive Equity
Plan”) for the named executive officers.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Estimated Future Payouts |
| |
|
Number of |
|
Performance |
|
Under Non-Stock Price-Based Plans(1) |
| |
|
Shares, Units |
|
or Other |
|
(Number of Shares) |
| |
|
or Other |
|
Period Until |
|
|
| Name |
|
Rights |
|
Maturation or Payout |
|
Threshold |
|
Target |
|
Maximum |
| |
|
|
|
|
|
|
|
|
|
|
|
John S. Brinzo
|
|
|
14,195 |
|
|
|
1/1/05-12/31/07 |
|
|
|
3,549 |
|
|
|
14,195 |
|
|
|
24,841 |
|
|
Joseph A. Carrabba
|
|
|
3,230 |
|
|
|
1/1/05-12/31/07 |
|
|
|
808 |
|
|
|
3,230 |
|
|
|
5,653 |
|
|
David H. Gunning
|
|
|
5,780 |
|
|
|
1/1/05-12/31/07 |
|
|
|
1,445 |
|
|
|
5,780 |
|
|
|
10,115 |
|
|
William R. Calfee
|
|
|
3,485 |
|
|
|
1/1/05-12/31/07 |
|
|
|
871 |
|
|
|
3,485 |
|
|
|
6,099 |
|
|
Donald J. Gallagher
|
|
|
3,485 |
|
|
|
1/1/05-12/31/07 |
|
|
|
871 |
|
|
|
3,485 |
|
|
|
6,099 |
|
|
|
| (1) |
Estimated payout if certain performance levels are achieved. |
The forgoing table presents information with respect to
performance shares granted during 2005 pursuant to the Long-Term
Incentive Program. Each performance share, if earned, entitles
the holder to receive a number of Common Shares within the range
between the threshold and maximum number shown in the above
table with the actual number of Common Shares earned dependant
upon whether the Company achieves certain objectives established
by the Company’s Compensation Committee. For the 2005-2007
period (the “Performance Period”) performance will be
determined based on Total Shareholder Return (“TSR”)
as measured against a predetermined peer group of mining and
metals companies. The group of companies used for determining
TSR is broader than the S&P Steel Group, which the Company
has selected for the comparative Stock Performance Graph on
page 17.
Once the TSR is determined, the calculated payout based on the
TSR may be increased or reduced by up to 25 percent of the
target based on management’s performance relative to the
Company’s strategic objectives over the Performance Period,
as evaluated by the Compensation Committee. The combined
performance of the TSR and strategic objectives may be further
reduced by up to 50 percent in the event that the Company’s
pre-tax return on net assets (“RONA”) for the
Performance Period falls below 12 percent. The final payout
may vary from zero to 175 percent of the target grant for
each participant.
11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
None of the individuals who served as members of the
Compensation Committee of the Board of Directors in 2005 was or
has been an officer or employee of the Company or engaged in
transactions with the Company (other than in his or her capacity
as director).
None of the Company’s executive officers serves as a
director or member of the compensation committee of another
entity, one of whose executive officers serves as a member of
the Compensation Committee or a director of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Policies
The Company’s Compensation structure is designed to attract
and retain high-performing executives. It places a significant
portion of compensation at risk with the performance of the
Company, the organizational unit and the individual, increasing
the portion at risk with the responsibility level of the
individual.
Executive compensation consists of salary, annual bonus,
long-term incentives, and other benefits. The Compensation
Committee uses independent compensation consultants and
compensation surveys to calibrate pay. The Compensation
Committee also uses predetermined peer groups of mining and
metals companies to establish benchmarks for specific
performance plans. The group of companies used for determining
pay benchmarks is broader than the S&P Steel Group, which
the Company has selected for the comparative Stock Performance
Graph on page 17.
Salaries
The Company strives to maintain pay levels for Company
executives at the 50th percentile of market survey data. Actual
salaries reflect responsibility, performance, and experience.
Salary increases are awarded periodically based on individual
performance. In April 2005, the named executive officers,
excluding the Chairman and Chief Executive Officer
(“CEO”) and the President and Chief Operating Officer
(who joined the Company on May 23, 2005), received merit
and equity increases in the range of approximately 3.2 to
14 percent. The CEO received a merit and equity increase of
nine percent. Pay increases for named officers included both
performance based merit adjustments and market related equity
adjustments.
Annual Bonus
The Company maintains a Management Performance Incentive Plan
(“MPI Plan”) which provides an opportunity for the
executive officers and other management employees to earn an
annual bonus in cash based on a bonus pool determined annually.
The funded bonus pool for officers, including the named
executive officers, can range from zero to a maximum of
200 percent of the officers’ aggregate target bonuses.
Upon approval of the Committee, an additional bonus pool of ten
percent of target bonuses can be set aside for distribution at
the discretion of the Chief Executive Officer. When used,
discretionary awards will reward participants whose
contributions to achievement of the Company’s performance
objectives exceeded expectations. The MPI Plan also provides
that, notwithstanding the established performance standards for
any year, and if otherwise warranted, the Compensation Committee
has the discretion to set funding percentages up to
35 percent of the target bonuses for officers and up to
50 percent of the target bonuses for other management
positions.
Since January 1, 2002, the MPI Plan has used a
“performance scorecard” with multiple performance
standards to drive performance. For 2005, the Compensation
Committee developed with its compensation
12
consultant a scorecard targeted at those areas that would most
directly improve shareholder value. The elements and their
respective weightings are as follows:
| |
|
|
|
|
| Element |
|
Weighting |
| |
|
|
|
Pre-Tax Earnings
|
|
|
50 |
% |
|
Production Cost Per Ton
|
|
|
25 |
% |
|
Corporate Objectives
|
|
|
25 |
% |
| |
|
|
|
|
|
Total
|
|
|
100 |
% |
| |
|
|
|
|
In evaluating Company performance, the Committee compared actual
2005 operating results with the 2005 business plan, focusing on
stated objectives used in the performance scorecard. Overall,
corporate results for 2005 exceeded Plan. Actual pre-tax
earnings compared to the performance scorecard were above
target, as was progress on Corporate Objectives. However, actual
production costs per ton exceeded the plan so that no payout was
earned for this factor. The performance scorecard generated a
total MPI bonus pool of 114.5 percent of total target
bonuses, or $3.4 million. In addition, the Committee
approved funding for the CEO Discretionary Pool of ten percent
of target bonuses, bringing the total MPI pool to
$3.7 million.
Long-Term Incentives
The Incentive Equity Plan authorizes the Compensation Committee
to award a variety of performance and other equity-based
incentives in its discretion.
Under the Incentive Equity Plan, a long-term performance share
program (“Performance Share Program”) was instituted
in 1994 to further align the interests of executive officers and
key management employees with the shareholders. The Performance
Share Program provided executive officers the opportunity to
receive shares of Company stock (“Performance Shares”)
or, at the Compensation Committee’s discretion, equivalent
cash value, based on Company performance against specific
financial objectives. Starting in 1994, grants of Performance
Shares have been made annually to executive officers based on
level of responsibility. Starting in 2000 the Compensation
Committee replaced the Performance Share Program with a
Long-Term Incentive Program (“LTI Program”), which
combines awards of Performance Shares under the Incentive Equity
Plan with cash-based retention awards.
The cash-based retention awards included in the LTI Program
assist the Company in retaining key executives. In 2005, the
Compensation Committee awarded executive officers
15 percent of their target long-term, incentive opportunity
in the form of retention units (“Retention Units”),
and the balance in the form of Performance Shares. Each
Retention Unit represents the value of one Common Share, which
is payable in cash based on the participant’s continued
employment throughout the three-year retention period.
Additional information about the 2005 awards of Retention Units
to the named executive officers is presented in footnote 6 to
the “Summary Compensation Table” on page 10.
In January, 2006 the Compensation Committee determined that, for
the three-year performance period ended December 31, 2005,
the Company achieved an average performance of
82.74 percent with respect to the Company’s objective
for TSR, 25.16 percent with respect to the Company’s
RONA, and 67.1 percent with respect to accomplishment of
strategic objectives. This provided a total performance factor
of 175 percent for the 2003 through 2005 performance
period. This compares to performance payouts of 162.05 and
42 percent, respectively, for the three-year periods ending
December 31, 2004 and 2003.
The Retention Units granted on February 1, 2003 to the
named executive officers (excluding Mr. Carrabba) as shown
on the “Summary Compensation Table” on page 10,
also vested on December 31, 2005 and were paid out in cash
on March 3, 2006. The Company’s closing stock price on
December 30, 2005 of $88.57 per share was used to determine
the value of this payout.
As discussed under LTI Awards in Last Fiscal Year on
page 11, for the 2005-2007 Performance Period, performance
will be determined based on TSR, as measured against a
predetermined group of companies broader than the S&P Steel
Group selected by the Company used in the Performance Graph on
page 17.
13
Once the TSR is determined, the calculated payout based on the
TSR may be increased or reduced by up to 25 percent of the
target based on management’s performance relative to the
Company’s strategic objectives over the Performance Period,
as evaluated by the Compensation Committee. The combined
performance of the TSR and strategic objectives may be further
reduced by up to 50 percent in the event that the
Company’s RONA for the Performance Period falls below
12 percent.
The number of shares calculated to be earned by participants is
determined on the basis of the percent performance factor.
However, actual payouts are capped under the Performance Share
Plan. Specifically, the Plan provides that the value of the
number of shares calculated to be earned as Performance Shares
Earned at the end of any incentive period shall not exceed a
value determined by multiplying the number of shares calculated
to be earned by a participant by twice the market price of a
common share on the date of the Performance Share grant.
Furthermore, the plan specifies that the actual number of
Performance Shares earned will be reduced to the extent
necessary to prevent the calculated payout value from exceeding
the maximum value cap. The Compensation Committee approved a
payout of 101,259 shares for the period ended
December 31, 2005, the value of which is shown in the LTIP
Payouts column of the “Summary Compensation Table” on
page 10. The aggregate number of Performance Shares awarded
to the named executive officers was 65,285 shares.
The Compensation Committee recognizes that the LTI
Program’s maximum value cap limits the share price
appreciation that can accrue to the benefit of the participants
and thereby limits the potential accounting charges from the
Performance Shares. The Compensation Committee also recognizes
that this limit is more restrictive than typical market
practices for equity based pay plans. The Committee believes
that the management team of the Company was significantly
responsible for positioning the Company to benefit from the
current industry conditions that have helped drive the increase
in shareholder value realized over the performance period. The
Committee notes that given a nearly nine to ten-fold increase
occurred in the share price of the Company’s stock from the
grant date to December 31, 2005, relative equity payments
to the Company’s management team have been conservative due
to the maximum value cap.
Deferred Compensation
Under the Company’s Voluntary Non-Qualified Deferred
Compensation Plan (“VNQDC Plan”), officers and other
senior management employees are permitted to defer, on a pre-tax
basis, up to 50 percent of their base salary and all or a
portion of their bonus under the MPI Plan, or their stock award
or cash award which may be payable under the LTI Program. The
VNQDC Plan also permits the exchange of cash bonus awards under
the MPI Plan and deferred cash balances held in the VNQDC Plan
for Company stock with a 25 percent Company match. Under
the terms of the VNQDC Plan, any participant electing to take an
early withdrawal from such plan for deferral made prior to 2005
is prohibited from participating in such plan for two years
following the plan year in which such election is made.
Additionally, in order to have the VNQDC comply with changes
required by the law, as well as with other governmental rules
and regulations applicable to the Plan, the Compensation
Committee authorized certain amendments to the VNQDC. These
amendments took effect January 1, 2005, and did not result
in increased benefits for Officers or Directors of the Company
or any increased liabilities or contributions to the Plan and
related Trusts.
In 2005, two executive officers, two elected officers, and one
mine general manager elected to participate in the VNQDC. In
2006, seven executive officers, five elected officers, and four
mine general managers are eligible to participate in the VNQDC
Plan.
The VNQDC also provides that if an employee is entitled to
receive a discretionary profit sharing contribution under the
Cleveland-Cliffs Inc and its Associated Employers Salaried
Employees Supplemental Retirement Savings Plan (“Savings
Plan”) but is limited in the amounts which can be
contributed to the Savings Plan by certain Internal Revenue Code
limitations, amounts which would otherwise be contributed to the
Savings Plan will be credited to the account of the employee
under the VNQDC. Such excess contributions to the VNQDC are made
automatically and are distributable to the employee in a lump
sum after his death or disability or 6 months after
termination of employment unless the employee elects otherwise.
14
In 2005, six executive officers, one retired elected officer,
and one manager were allocated excess profit sharing
contributions under the VNQDC. It is expected that similar
credits will be made to the accounts of similarly situated
employees in 2006.
Stock Options
During 2005, the Company did not award any stock options to
executive officers.
Restricted Stock
On March 8, 2005, in recognition of the significant
performance of the Company since 2002, the Compensation
Committee approved a supplemental grant of 67,921 restricted
shares payable to certain key management under the Incentive
Equity Plan. The restricted shares vest on December 31,
2007 for participants who remain with the Company until that
date, or who retire, become disabled or become deceased. Of the
67,921 restricted shares granted on March 8,
Mr. Brinzo received 30,420 restricted shares and the
remaining named executive officers received an aggregate of
10,951 restricted shares.
Fifteen of the recipients are currently eligible for retirement.
The Compensation Committee determined, based upon the advice of
counsel, that the restricted stock was not subject to a
substantial risk of forfeiture and was taxable in 2005 to those
participants on the date they became eligible for retirement. In
order to provide the participants with sufficient liquidity to
pay taxes on 100 percent of the restricted stock granted to
them, the Restricted Stock Agreement was amended on
November 30, 2005 to remove the restrictions on 50 percent
of each retirement eligible participant’s grant, an
aggregate of 25,275 shares of stock, in order to satisfy tax
withholding requirements. Of those shares on which the
restriction was removed , Mr. Brinzo received 15,210 Common
Shares and one named executive officer received 3,651 Common
Shares .
On May 23, 2005, the Company granted 3,800 restricted
shares to Joseph A. Carrabba upon joining the Company. The
shares will vest in equal installments on the first, second and
third anniversaries of the date of grant.
On March 14, 2006 the Board, upon recommendation from the
Compensation Committee, approved grants of restricted stock for
selected employees whose past achievements and expected future
contributions are seen as critical to Company success. Given the
recent performance of the Company, the Board felt the grants
would be an appropriate way to recognize past accomplishments
for certain employees and to also provide a retention incentive
for certain other employees. The resulting total number of
restricted shares granted to all eligible employees was 78,341.
However, because retirement eligible participants incur an
immediate tax obligation on their entire grant, one-half the
amount approved by the Board was paid in cash and one-half was
granted in the form of restricted stock for these employees. In
total, $1,537,500 was paid in cash to those who were retirement
eligible on the date of grant.
Chief Executive Officer Compensation
Mr. Brinzo’s current base salary is $625,000 with a
target bonus of 60 percent of base salary. An MPI Plan award of
$500,000 was made to Mr. Brinzo for 2005, based on the same
factors considered for other executive officers, as discussed
under Annual Bonus on page 12.
Mr. Brinzo’s LTI Program payout of his 2003 grant was
calculated in the same way as the payout to all other
participants as discussed on page 13 under Long-Term Incentives.
Mr. Brinzo received 34,361 Common Shares with respect
to the payout of his 2003 Performance Share grant for the
three-year performance period ending December 31, 2005.
Mr. Brinzo was granted 14,195 Performance Shares and 2,505
Retention Units in 2005 under the LTI Program, for the
performance period 2005-2007, which will be earned under the
same criteria as Performance Shares and Retention Units granted
to all other executive officers in 2005 as discussed under
“Long-Term Incentive Plans — Awards in Last
Fiscal Year” on page 12.
The Board approved grants of cash and restricted stock to
retirement eligible employees as discussed under Restricted
Stock above. Mr. Brinzo is retirement eligible and was
granted $750,000 in cash and 8,721 in
15
restricted shares for his contributions to the Company both past
and future. His restricted shares will vest March 14, 2009.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code limits the
deductibility of certain executive compensation in excess of
$1 million. The aggregate combination of distributions from
the Supplemental Plan, payments under the Executive Retention
Plan in 2005, LTI Program payouts, vesting of restricted stock
and exercises of stock options, and dividends on restricted
stock has caused, with respect to 2005, the $1 million
limit to be exceeded with respect to four of the named executive
officers, and will cause the $1 million limit to be
exceeded in 2006 with respect to one or more of the named
executive officers. Accordingly, the Company expects that some
portion of such payments to the named executive officers for
2006 will not be deductible. The Company believes that it is
important to maintain compensation programs that are competitive
and motivate executives irrespective of the deductibility of
such payments under the Internal Revenue Code.
The foregoing report has been furnished by the members of the
Compensation Committee as set forth below:
|
|
| |
Francis R. McAllister, Chairman
James D. Ireland III
Roger Phillips
Richard K. Riederer |
16
SHAREHOLDER RETURN PERFORMANCE
The following graph shows changes over the past five-year period
in the value of $100 invested in: (1) Cliffs’ Common
Shares; (2) S&P 500 Stock Index; and (3) S&P
Steel Group Index. The values of each investment are based on
price change plus reinvestment of all dividends.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
Value of $100 Invested at December 31, 1999
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Value at December 31 |
| |
|
|
| |
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cliffs’ Common
|
|
$ |
100.00 |
|
|
$ |
86.75 |
|
|
$ |
94.10 |
|
|
$ |
241.54 |
|
|
$ |
493.49 |
|
|
$ |
848.45 |
|
|
S&P 500
|
|
|
100.00 |
|
|
|
87.76 |
|
|
|
68.41 |
|
|
|
88.03 |
|
|
|
97.61 |
|
|
|
119.48 |
|
|
S&P Steel
|
|
|
100.00 |
|
|
|
128.74 |
|
|
|
98.32 |
|
|
|
166.74 |
|
|
|
267.05 |
|
|
|
280.16 |
|
17
PENSION BENEFITS
The Company sponsors a qualified defined benefit pension plan,
which together with the Supplemental Plan described below,
provides retirement income to employees.
For service with the Company through June 30, 2003, the
benefits provided by the qualified pension plan at age 65 are
generally based on a 1.65% pension formula. For each year of
service up to June 30, 2003, the plan provides 1.65% of
Average Annual Compensation. Average Annual Compensation is
defined as the average annual compensation earned during the 60
consecutive months providing the highest such average during the
last 120 months preceding June 30, 2003. The benefit
is subject to an offset of 50% of Social Security benefits
through June 30, 2003.
For service with the Company after June 30, 2003, benefits
provided by the qualified pension plan at age 65 are based on a
cash balance formula. A nominal cash balance account is
established for each participant and credited on a quarterly
basis with a benefit amount based on the participant’s age,
service and earnings. Interest is credited to the account
balance on a quarterly basis. At retirement, the accumulated
account balance can be paid as either a lump sum or actuarially
equivalent annuity.
The Internal Revenue Code of 1986 (“Code”) places
limitations on the benefits that may be paid from a qualified
pension plan. The Company has a non-qualified Supplemental
Retirement Benefit Plan (“Supplemental Plan”)
providing for the payment from general funds of the benefits
that would be lost by Supplemental Plan participants as a result
of present or future Code or other government limitations.
Total estimated annual benefits under the qualified pension plan
and the Supplemental Plan by each of the named executive
officers assuming retirement at age 65, with 3% pay increases
and a 4.73% cash balance crediting rate is as follows:
Mr. Brinzo, $424,300; Mr. Carrabba, $206,100,
Mr. Gunning, $29,700; Mr. Calfee, $233,900; and
Mr. Gallagher, $126,600.
In fulfillment of the Company’s obligations under the
Supplemental Plan accrued through December 31, 2000,
amounts equal to the present value of the accrued vested
benefits payable under the Supplemental Plan were paid out in a
lump sum in February, 2001 to all participants, including the
named executive officers (except Mr. Gunning). Subsequent
accrued benefits continue to be paid out annually, and may be
paid out more frequently, as determined by the Compensation
Committee. Amounts accrued during 2005 were paid out in a lump
sum in March, 2006 to the named executive officers as follows:
Mr. Brinzo, $147,065; Mr. Carrabba, -0-,
Mr. Gunning, -0-; Mr. Calfee, $49,019; and
Mr. Gallagher, $32,714. (Messrs. Gunning and Carrabba
are not yet vested.)
The compensation used to determine benefits under the
Company’s pension plans is the sum of salary and bonus paid
to a participant during a calendar year. Pensionable earnings
for each of the Company’s named executive officers during
2005 include the amount shown for 2005 in the Salary column of
the “Summary Compensation Table” on page 10, plus
the amount of bonus earned in 2004 and paid in 2005, as shown in
the Bonus column of the “Summary Compensation Table”
for 2004. Pensionable earnings in 2005 for Messrs. Brinzo,
Gunning, Gallagher, Calfee, and Carrabba were $1,312,500,
$691,750, $515,880, $579,500 and $274,432 respectively.
Messrs. Brinzo, Carrabba, Gunning, Calfee and Gallagher
have 36, 0, 4, 33, and 24 years, respectively, of credited
service under the Company’s qualified pension plan.
18
AGREEMENTS AND TRANSACTIONS
Effective January 1, 2000, the Company entered into
severance agreements with named executive officers John S.
Brinzo, Director, Chairman and Chief Executive Officer, and
William R. Calfee, Executive Vice President-Commercial,
effective April 16, 2001, the Company entered into a
severance agreement with named executive officer David H.
Gunning, Director and Vice Chairman; effective March 9,
2004, the Company entered into a severance agreement with named
executive officer Donald J. Gallagher, Executive Vice President,
Chief Financial Officer and Treasurer. The Company entered into
a severance agreement with named executive officer, Joseph A.
Carrabba effective May 23, 2005 (“Agreements”).
The Agreements specify certain financial arrangements that the
Company will provide upon the termination of such officers’
employment with the Company under certain circumstances. The
Agreements are intended to ensure continuity, stability and fair
treatment of such executive officers of the Company in the event
of a “change in control” of the Company (as defined in
the Agreements). The terms of the Agreements are automatically
extended on January 1 of each year, for an additional year,
unless the Company or the officer gave notice, not later than
September 30 of the immediately preceding year, that it or they
do not want the terms extended. The terms currently expire on
December 31, 2007.
Under the Agreements, if during the two-year period following a
“change in control”, the officer is terminated by the
Company without “cause”, or resigns after (1) not
being maintained in his or her prior position, (2) being reduced
in duties, compensation or benefits, (3) determining he or
she is unable to carry out his or her duties and
responsibilities, or (4) being relocated without his or her
consent (and also in the case of J. S. Brinzo, resigns within
30 days following the first anniversary of a “change
in control”), such officer would be entitled (a) to
lump sum payments of three years of base pay and incentive
compensation, (b) to a lump sum payment of the then present
value of the unfunded pension benefits that he or she would be
entitled to receive three years after his or her termination of
employment, and (c) to continue participation in medical
and other welfare benefit plans for three years after his
termination of employment. The Agreements also entitle the
officers to vesting of all incentive pay at the greater of
target or actual performance, and medical and life insurance
benefit continuation for life upon retirement (excluding
Mr. Carrabba) or following termination, unless the
termination was for “cause”. In addition, the
Agreements provide that the officers are eligible for
reimbursement of outplacement expenses up to 15 percent of
base pay. The Company will protect the officers against any
imposition of excise tax on “excess parachute”
payments under the Internal Revenue Code by providing
“gross up” payments to the officers. The Agreements
provide that the officers will not compete with the Company for
two years following their termination of employment under the
Agreements.
None of these Agreements creates employment obligations for the
Company. Both before and after the occurrence of a “change
in control”, the Company may terminate the employment of
any of such officers for “cause”, without an
obligation to pay severance compensation or benefits.
Effective January 1, 2000, the Company implemented the
Change in Control Severance Pay Plan (“Severance
Plan”). The Severance Plan is designed to assure
continuity, stability, and fair treatment of employees in key
positions in the event of a “change in control” of the
Company (as defined in the Severance Plan). Under the Severance
Plan, if during the two-year period following a “change in
control”, in the case of a Senior Vice President, Vice
President, or Secretary of the Company, a participant is
terminated by the Company without “cause” or resigns
after (1) not being maintained in his or her prior
position, (2) being reduced in compensation or benefits, or
(3) being relocated without consent, he or she is entitled
to (a) receive a lump sum payment in the amount of two
years of base pay and incentive compensation, (b) receive a
lump sum payment of the then present value of the pension
benefits that he or she would be entitled to receive two years
after his or her termination of employment, and (c) continue
participation in medical and other welfare benefit plans for two
years after his or her termination of employment; or in the case
of a Mine Manager of a Subsidiary of the Company, a participant
is terminated without “cause” or resigns after
(1) being reduced in compensation or benefits or
(2) being relocated without consent, he or she is entitled
to (a) receive a lump sum payment in the amount of one year
of base salary and incentive compensation, (b) receive a
lump sum payment of the present value of the unfunded pension
benefits that he or she would be entitled to receive two years
after his or her termination of employment, and
(c) continue participation in medical and other welfare
benefit plans for one year after his or her termination of
employment. Participants are entitled to vesting of all
incentive pay at the greater of target or actual
19
performance, and to medical and life insurance benefit
continuation for life following termination, unless the
termination was for “cause”. Also, participants are
eligible for reimbursement of outplacement expenses up to
15 percent of base pay. The Severance Plan provides that
the participants will not compete with the Company for the two
or one year period for which they are receiving severance pay.
Individuals who would be covered by the Severance Plan, but who
receive severance pay and benefits pursuant to the Agreements or
another plan or agreement signed on behalf of the Company, are
not entitled to benefits under the Severance Plan. All benefits
payable under the Severance Plan are to be derived from the
Company’s then current operating funds. None of the
obligations of the Company described above exist unless a
“change in control” has occurred. The Company will
protect the participant against imposition of any excise tax on
“excess parachute” payments under the Code by
providing “gross up” payments to the participant. The
termination date of the Severance Plan has been automatically
extended through December 31, 2007, and will be
automatically extended on January 1 of each year following,
unless the Company gives notice that the termination date is not
to be extended.
The Company has two trust agreements with KeyBank National
Association which relate to the Agreements and the Severance
Plan. The first such trust agreement provides for the payment of
the benefits arising under the Agreements, and the second trust
agreement provides for reimbursement of legal fees and expenses
incurred by the officers in enforcing their rights under the
Agreements and by the key employees under the Severance Plan.
The Company has entered into indemnification agreements
(“Indemnification Agreements”) with each current
member of the Board of Directors. The form and execution of the
Indemnification Agreements were approved by the Company’s
shareholders at the Annual Meeting convened on April 29,
1987. Such Indemnification Agreements essentially provide that,
to the extent permitted by Ohio law, the Company will indemnify
the indemnitee against all expenses, costs, liabilities and
losses (including attorneys’ fees, judgments, fines or
settlements) incurred or suffered by the indemnitee in
connection with any suit in which the indemnitee is a party or
otherwise involved as a result of his or her service as a member
of the Board. In connection with the foregoing Indemnification
Agreements, the Company has a trust agreement with KeyBank
National Association pursuant to which the parties to the
Indemnification Agreements may be reimbursed with respect to
enforcing their respective rights under the Indemnification
Agreements.
In order to promote mutual appreciation of management and union
interests, the Company and the United Steel Workers of America
(“USWA”) reached a new agreement in 2004 on a process
under which the Union may designate a member of the Board of
Directors of the Company, provided that individual is acceptable
to the Chairman, is recommended by the Board Affairs Committee
of the Board of Directors, and is elected by the full Board.
This agreement superceded a general understanding between the
USWA and certain Company subsidiaries reached in 1993. Such
designee would be subject to annual nomination by the Company,
election by vote of the shareholders, and all laws and Company
policies applicable to the Board of Directors. To date, no
nominee has been recommended to the full Board for election. In
the event a new Director is elected in the future, the total
number of Directors will be increased to include such designee.
This arrangement is concurrent with the U.S. labor agreements
which may be terminated by either party on September 1,
2008.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
(“Exchange Act”) requires the Company’s Directors
and officers and persons who own ten percent or more of a
registered class of the Company’s equity securities, to
file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the SEC. Directors, officers and ten
percent or greater shareholders are required by SEC regulations
to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company’s review of the copies of such
Forms it has received, and written representations by such
persons, the Company believes that all of its Directors and
officers complied with all filing requirements applicable to
them with respect to transactions in the Company’s equity
securities during the fiscal year ended December 31, 2005.
20
AUDIT COMMITTEE REPORT
The Audit Committee of Cleveland-Cliffs Inc Board of Directors
(“Committee”) is composed of four independent
directors and operates under a written charter adopted by the
Board of Directors. The charter is reviewed and reassessed for
adequacy annually by the Audit Committee and reviewed by the
Audit Committee with the Board of Directors. The Audit Committee
reviewed the existing charter at its March 2006 meeting and
determined that no changes were required. A copy of the charter
is available at http://www.cleveland-cliffs.com website and is
also available on request at (800)214-0739.
The members of the Audit Committee are Richard K. Riederer
(Chairman), Susan M. Cunningham, James D. Ireland III, and Alan
Schwartz, all of whom are independent of the Company in
accordance with the listing standards of the NYSE and meet the
financial literacy and accounting or financial management
expertise necessary to effectively discharge their
responsibilities. The Audit Committee retains the Company’s
independent auditors.
Management is responsible for the Company’s financial
statements, systems of internal control and the financial
reporting process. Management is also responsible to attest, as
of December 31, 2005, to the effectiveness of the
Company’s system of internal control over financial
reporting in compliance with Sarbanes-Oxley Section 404
(“SOX 404”).
The independent auditors are responsible for performing an
audit of the Company’s consolidated financial statements in
accordance with Public Company Accounting Oversight Board
(“PCAOB”) standards and to issue a report thereon. The
independent auditors are also responsible for performing an
audit of the company’s system of internal control over
financial reporting and to report on the acceptability of
management’s assertion for SOX 404 and to provide an
independent attestation as of December 31, 2005.
The Audit Committee’s responsibility is to monitor and
oversee these financial reporting processes on behalf of the
Board of Directors. In fulfilling its oversight
responsibilities, the Audit Committee reviewed the audited
financial statements in the Annual Report with management and
the independent auditors, including a discussion of the quality,
not just the acceptability, of the accounting principles; the
reasonableness of significant judgments; and the clarity of
disclosures in the financial statements. The Audit Committee
also reviewed management’s report on their review of the
system of internal control over financial reporting.
In this context, the Audit Committee met six times in 2005 and
held discussions with management and the independent auditors.
The Audit Committee also regularly met in separate executive
sessions with the independent auditors, the Company’s chief
internal auditor, management, and with Audit Committee members
only. Furthermore, the Audit Committee has regularly reviewed
the results of its executive sessions with the Chief Executive
Officer, as appropriate.
Management has represented to the Audit Committee that the
Company’s consolidated financial statements were prepared
in accordance with generally accepted accounting principles. The
Audit Committee has reviewed and discussed the consolidated
financial statements and critical accounting policies with
management and the independent auditors. The Audit Committee
discussed with the independent auditors matters required to be
discussed under PCAOB standards and any other matters required
to be discussed under applicable standards.
The Company’s independent auditors also provided to the
Audit Committee the written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and the Audit Committee discussed with the
independent auditors that firm’s independence, including
consideration of the compatibility of non-audit services with
the auditors’ independence.
Based on the Audit Committee’s discussion with management
and the independent auditors and the Audit Committee’s
review of the representation of management and the report of the
independent auditors to the Audit Committee, the Audit Committee
recommended that the Board of Directors include the audited
consolidated financial statements in the Company’s Annual
Report on Form 10-K for the year ended December 31,
2005 filed with the SEC.
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R. K. Riederer, Chairman
S. M. Cunningham
J. D. Ireland III
A. Schwartz |
21
RATIFICATION OF INDEPENDENT AUDITORS
(Proposal No. 2)
Dismissal of Ernst & Young LLP
Effective as of August 20, 2004, the Company dismissed
Ernst & Young LLP (“E&Y”) as the independent
auditor of the Company. The decision to change independent
auditors was made by the Audit Committee of the Company’s
Board of Directors. The audit reports of E&Y on the
Company’s financial statements for the fiscal years ended
December 31, 2003 and December 31, 2002 did not
contain any adverse opinion or disclaimer of opinion, nor were
such reports qualified or modified as to uncertainty, audit
scope or accounting principles.
During the fiscal years ended December 31, 2003 and
December 31, 2002, and the period through the dismissal of
E&Y, there were no disagreements with E&Y on any matter
of accounting principles or practices, financial statement
disclosure, or audit scope or procedures, which disagreements,
if not resolved to E&Y’s satisfaction, would have
caused them to make reference to the subject matter of the
disagreement in connection with their report on the
Company’s financial statements for such years.
During the fiscal years ended December 31, 2003 and
December 31, 2002, and the period through the dismissal of
E&Y, E&Y did not advise the Company with respect to any
of the matters described in paragraphs (a)(1)(v)(A) through
(D) of Item 304 of Regulation S-K.
Appointment of Deloitte & Touche LLP
Effective as of August 25, 2004, the Audit Committee
engaged Deloitte & Touche LLP (“Deloitte”) as its
independent auditor to examine the books of account and other
records of the Company and its consolidated subsidiaries for the
fiscal year ending December 31, 2004 and reappointed for
the fiscal year ending December 31, 2005. The appointment
of the new auditors was made by the Audit Committee of the Board
of Directors. Representatives of Deloitte are expected to be
present at the Meeting. Such representatives will have an
opportunity to make a statement if they so desire and are
expected to be available to respond to appropriate questions.
During the fiscal years ended December 31, 2003 and
December 31, 2002 and through the date of the appointment
of Deloitte, the Company did not consult with Deloitte regarding
either (i) the application of accounting principles to a
specified transaction, either completed or proposed;
(ii) the type of audit opinion that might be rendered on
the Company’s financial statements; or (iii) any
matter that was either the subject of disagreement (as defined
in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as defined in Item 304(a)(1)(v) of
Regulation S-K).
Independent Auditors Fees and Services
Fees for professional services provided by our independent
auditors in each of the last two fiscal years, in each of the
following categories (in thousands) are as follows:
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2005 |
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2004 |
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Audit Fees (1)
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$ |
1,931 |
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$ |
1,574 |
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Audit-Related Fees (2)
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230 |
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36 |
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Tax Fees
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5 |
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35 |
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Total
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$ |
2,166 |
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$ |
1,645 |
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Audit Fees consist of fees billed, or to be billed for
professional services rendered for the audit of the
Company’s annual consolidated financial statements and
audit of internal controls over financial reporting for the
years ended December 31, 2005 and 2004, and reviews of the
interim financial statements included in quarterly reports and
services that are normally provided by the Company’s
independent auditors in connection with regulatory filings. |
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Audit-Related Fees consist of fees billed primarily related to
the Portman acquisition and for accounting consultations and
agreed-upon procedures. |
22
The Audit Committee’s policy is to pre-approve all audit
and non-audit services provided by the Company’s
independent auditors. These services may include audit services,
audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or
category of services and is generally subject to a specific
budget. The Audit Committee has delegated pre-approval authority
to the Audit Committee Chairman, or any Audit Committee Member
in his absence, when services are required on an expedited
basis, with such pre-approval disclosed to the full Audit
Committee at its next scheduled meeting. None of the fees paid
to the independent auditors under the categories
“Audit-Related,” and “Tax Fees” described
above were approved by the Audit Committee after services were
rendered pursuant to the de minimis exception established by the
Securities and Exchange Commission.
The Board of Directors recommends that you vote FOR
ratification of the appointment of Deloitte & Touche LLP as
the Company’s independent auditors for the fiscal year
ending December 31, 2006.
ANNUAL REPORT
The Company’s 2005 Annual Report to Shareholders, including
financial statements, is being distributed to all shareholders
of the Company together with this Proxy Statement, in
satisfaction of the requirements of the SEC. Additional copies
of such report are available upon request. To obtain additional
copies of such Annual Report, please contact the Company’s
Investor Relations Department at (800) 214-0739 or (216)
694-5459.
GENERAL INFORMATION
The cost of soliciting proxies will be paid by the Company. In
addition to solicitation by mail, solicitations may also be made
by personal interview, telegram and telephone. Arrangements will
be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their
principals, and the Company will reimburse them for their
expenses in so doing. Officers and other employees of the
Company, as yet undesignated, may also request the return of
proxies by telephone, telegram, or in person. Finally, the
Company has retained Georgeson Shareholder Communications Inc.,
New York, New York, to assist in the solicitation of proxies
using the means referred to above, at an anticipated cost of
$10,000, plus reasonable expenses.
Pursuant to regulations of the SEC, the material appearing under
the captions “Audit Committee Report,”
“Compensation Committee Report on Executive
Compensation” and “Shareholder Return
Performance” are not deemed to be soliciting material or to
be filed with the SEC or subject to Regulation 14A (other
than provided therein) promulgated by the SEC or Section 18
of the Exchange Act except to the extent that the Company
specifically incorporates this information by reference into any
filing under the Securities Act or the Exchange Act.
The Common Shares and Preferred Shares represented by properly
authorized proxies will be voted as specified. It is intended
that the Common Shares and the Preferred Shares represented by
proxies on which no specification has been made will be voted
FOR the election of the nominees for Director named herein or
such substitute nominees as the Board of Directors may designate
and at the discretion of the persons named as proxies on all
other matters which may properly come before the Meeting.
At the Meeting, the results of shareholder voting will be
tabulated by the inspector of elections appointed for the
Meeting. The Company intends to treat properly authorized
proxies as “present” for purposes of determining
whether a quorum has been achieved at the Meeting. The
candidates for Directors receiving a plurality of the votes will
be elected. Votes withheld and broker non-votes in respect of
the election of Directors will not be counted in determining the
outcome of that vote. Abstentions will be counted as cast with
respect to a proposal and have the same effect as votes against
the ratification of the appointment of Deloitte & Touche LLP
as independent auditors. Broker non-votes will not be counted as
cast for the proposal.
23
If notice in writing shall be given by any shareholder to the
President, a Vice President or the Secretary, not less than 48
hours before the time fixed for the holding of the Meeting, that
such shareholder desires that the voting for the election of
Directors shall be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the Meeting
by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice, each shareholder shall have the
right to cumulate such voting power as he or she possesses at
such election. Under cumulative voting a shareholder may cast
for any one nominee as many votes as shall equal the number of
Directors to be elected, multiplied by the number of his or her
Common Shares and/or Preferred Shares. All of such votes may be
cast for a single nominee or may be distributed among any two or
more nominees as he or she may desire. If cumulative voting is
invoked, and unless contrary instructions are given by a
shareholder who signs a proxy, all votes represented by such
proxy will be cast in such manner and in accordance with the
discretion of the person acting as proxy as will result in the
election of as many of the Board of Directors’ nominees as
is possible.
OTHER BUSINESS
It is not anticipated that any other matters will be brought
before the Meeting for action; however, if any such other
matters shall properly come before the Meeting, it is intended
that the persons authorized under proxies may, in the absence of
instructions to the contrary, vote or act thereon in accordance
with their best judgment.
SHAREHOLDER PROPOSALS
Deadline for Inclusion in Proxy Materials
Any proposal by a shareholder of the Company intended to be
presented at the year 2007 Annual Meeting of Shareholders must
be received by the Company on or before November 30, 2006
to be included in the proxy materials of the Company relating to
such meeting.
Discretionary Voting of Proxies
In accordance with Rule 14a-4 under the Securities Exchange
Act of 1934, if notice of a proposal by a shareholder of the
Company intended to be presented at the year 2007 Annual Meeting
of Shareholders is received by the Company after
February 13, 2007, the persons authorized under the
Company’s management proxies may exercise discretionary
authority to vote or act on such proposal if the proposal is
raised at the Company’s 2007 Annual Meeting of Shareholders.
24
Annex A
INDEPENDENCE STANDARDS FOR DIRECTORS
The following standards will be applied by the Board of
Directors of Cleveland-Cliffs Inc (the “Company”) in
determining whether individual directors qualify as
“independent” under the Rules of the New York Stock
Exchange. References to the Company include its consolidated
subsidiaries.
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1. |
No director will qualify as “independent” unless the
Board of Directors affirmatively determines that the director
has no material relationship with the Company, either directly
or as a partner, shareholder or officer of an organization that
has a relationship with the Company. The Company will identify
which directors are independent and disclose these affirmative
determinations. |
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2. |
No director can be independent if the director is, or has been
within the last three years, an employee of the Company. |
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3. |
No director can be independent whose immediate family member is
or has been an executive officer of the Company within the last
three years. |
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4. |
No director can be independent if the director received, or has
an immediate family member who has received, during any
twelve-month period within that last three years, more than
$100,000 during any twelve-month period in direct compensation
from the Company, other than director and committee fees and
pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way
on continued service). |
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5. |
No director can be independent if: |
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the director or an immediate family member is a current partner
of the Company’s internal or external auditor; |
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b. |
the director is a current employee of the Company’s
internal or external auditor; |
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c. |
the director has an immediate family member who is a current
employee of the Company’s internal or external auditor and
participates in such auditor’s audit, assurance or tax
compliance (but not tax planning) practice; or |
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d. |
the director or an immediate family member was within the last
three years (but is no longer) a partner or employee of such
auditor and personally worked on the Company’s audit within
that time. |
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6. |
No director can be independent if the director or an immediate
family member is, or has been within the last three years,
employed as an executive officer of another company where any of
the Company’s present executives at the same time serves or
served on that company’s compensation committee. |
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7. |
No director can be independent if the director is a current
employee, or an immediate family member is an current executive
officer, of a company (excluding charitable organizations) that
has made payments to, or received payments from, the Company for
property or services in an amount which, in any of the last
three fiscal years, exceeds the greater of $1 million, or 2% of
such other company’s consolidated gross revenues. |
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8. |
No director can be independent if the Company has made
charitable contributions to any charitable organization in which
such director serves as an executive officer if, within the
preceding three years, contributions by the Company to such
charitable organization in any single completed fiscal year of
such charitable organization exceeded the greater of $1,000,000,
or 2% of such charitable organization’s consolidated gross
revenues. |
A-1
CLEVELAND-CLIFFS INC
Notice of
Annual Meeting
of Shareholders
to be held on
May 9, 2006
and
Proxy Statement
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Mark this box with an X if you have made changes
to your name or address details
above. |
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Annual Meeting Proxy Card |
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PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
This
proxy when properly signed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted
“FOR” all of the Board of Directors’ nominees and the
ratification of the appointment of Deloitte & Touche LLP as
independent auditors. The Board of Directors recommends a vote FOR
its nominees in proposal 1 and FOR proposal 2.
A Election of Directors
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For |
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01 — J.S. Brinzo
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05 — S.M. Cunningham |
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09 — F.R. McAllister |
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02 — R.C. Cambre |
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06 — B.J. Eldridge |
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10 — R. Phillips |
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03 — J.A. Carrabba |
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07 — D.H. Gunning |
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11 — R.K. Riederer |
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04 — R.
Cucuz |
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08 — J.D. Ireland III |
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12 — A. Schwartz |
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B Proposal
The Board of Directors recommends a vote FOR the following proposal.
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For |
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Abstain |
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Ratification of the appointment of Deloitte & Touche LLP as independent auditors. |
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IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
C Authorized Signatures — Sign Here — This section must be completed for your
instructions to be executed.
Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian please give full title as such.
Signature 1 - Please keep signature within
the box
Signature 2 - Please keep signature within
the box
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Proxy - Cleveland-Cliffs Inc |
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COMMON SHARES AND/OR 3.25% REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK
CLEVELAND-CLIFFS INC
1100 Superior Avenue, Cleveland, Ohio 44114-2589
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints R.C. Cambre, R. Cucuz, F.R. McAllister, and R. Phillips as
proxies, each with the power of substitution, and hereby authorizes them to represent and to vote
all of Cleveland-Cliffs Inc Common Shares (“Common Shares”) and/or 3.25% Redeemable Cumulative
Convertible Perpetual Preferred Stock, without par value (“Preferred Stock”), held of record by the
undersigned on March 15, 2006, at the Annual Meeting of Shareholders to be held on May 9, 2006, or
at any adjournments or postponements thereof, as follows.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but
you need not mark any boxes if you wish to vote in accordance with
the Board of Directors’ recommendations. It is important that
your shares are represented at this meeting, whether or not you attend the meeting in person. To make sure your shares are
represented, we urge you to complete and mail the proxy card on the reverse side or to use our
internet or toll-free telephone voting system.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Dear Shareholder,
Cleveland-Cliffs Inc encourages you to take advantage of convenient ways to vote your Common Shares
and/or Preferred Stock. You may appoint your proxies to vote your Common Shares and/or Preferred
Stock electronically through the Internet or via toll-free telephone, 24 hours a day, 7 days a
week. Please note that all proxy appointments through the Internet or by telephone must be received
by 12:00 a.m. on May 9, 2006.
Telephone and Internet Voting Instructions
You can vote by telephone OR Internet! Available 24 hours a day 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to
vote your proxy.
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Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time on
a touch tone telephone. There is NO CHARGE to you for the call. |
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Follow the simple instructions provided by the recorded message. |
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Go to the following web site:
WWW.COMPUTERSHARE.COM/EXPRESSVOTE |
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Enter the information requested on your computer screen and
follow the simple
instructions. |
VALIDATION DETAILS ARE LOCATED ON THE FRONT OF THIS FORM IN THE COLORED BAR.
If you vote by telephone or the Internet, please DO NOT mail back this proxy card.
Proxies submitted by telephone or the Internet must be received by 1:00 a.m., Central Time, on May
9, 2006.
THANK YOU FOR VOTING
