Exhibit 10(k)
SEVERANCE PAY PLAN FOR
KEY EMPLOYEES OF CLEVELAND-CLIFFS INC
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TABLE OF CONTENTS
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1. General Statement of Purpose................................................... 1
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2. Effective and Termination Dates................................................ 1
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3. Definitions.................................................................... 1
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a. Average Incentive Pay................................................. 1
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b. Base Salary........................................................... 1
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c. Change of Control..................................................... 1
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d. Committee............................................................. 2
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e. Company............................................................... 2
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f. For Cause............................................................. 2
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g. Incentive Pay......................................................... 2
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h. Industry Service and Credited Years of Industry Service............... 2
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i. Key Employee.......................................................... 2
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j. Selected Affiliate.................................................... 3
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k. Supplemental Retirement Plan or SRP................................... 3
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4. Eligibility Under This Plan.................................................... 3
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5. Severance Compensation......................................................... 5
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a. Severance Pay......................................................... 5
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b. Health and Life Benefits.............................................. 5
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c. Welfare Benefit Continuation Following Termination..................... 6
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d. Stock Options, Restricted Stock and Performance Shares................. 7
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e. Outplacement Counseling ................................................7
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f. Calculation............................................................ 7
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6. Supplemental Retirement Benefit Plan............................................ 7
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7. Certain Additional Payments by Cleveland-Cliffs............................... 8
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8. Mitigation..................................................................... 11
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9. Timing of Separation Pay, etc.................................................. 11
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10. Confidentiality and Competitive Activity....................................... 12
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11. Release........................................................................ 12
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12. Legal Fees and Expenses........................................................ 13
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13. Employment Rights.............................................................. 14
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14. Withholding of Taxes........................................................... 14
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15. Successors and Binding Effect.................................................. 14
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16. Governing Law.................................................................. 15
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17. Validity....................................................................... 15
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18. Captions....................................................................... 15
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19. Administration of Plan......................................................... 15
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a. In General............................................................ 15
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b. Delegation of Duties.................................................. 15
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c. Regulations........................................................... 15
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d. Claims Procedure...................................................... 16
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e. Revocability of Action................................................ 16
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f. Execution of Receipt.................................................. 17
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SEVERANCE PAY PLAN FOR
KEY EMPLOYEES OF CLEVELAND-CLIFFS INC
(As Amended and Restated as of February 1, 1997)
------------------------------------------------
1. GENERAL STATEMENT OF PURPOSE. With the high level of corporate
acquisition and restructuring activity over the past several years,
employees are understandably concerned about their careers and their
personal financial security. As a result, even rumors of acquisitions
and restructuring cause employees to consider major career changes in
an effort to assure financial security for themselves and their
families.
This Severance Pay Plan for Key Employees of Cleveland-Cliffs Inc (the
"Plan") is designed to assure fair treatment of "Key Employees" (as
defined below) in the event of a "Change of Control" (as defined
below). In such circumstances, it would permit Key Employees to make
critical career decisions in an atmosphere free of time pressure and
financial uncertainty, increasing their willingness to remain with
Cleveland-Cliffs Inc ("Cleveland-Cliffs") notwithstanding the outcome
of a possible Change of Control transaction.
2. EFFECTIVE AND TERMINATION DATES. This Plan is a continuation of the
severance plan originally effective as of February 1, 1992 (the
"Effective Date"). The Plan will automatically terminate on January 31,
2000 (the "Termination Date") if there has been no Change of Control
prior to such date.
3. Definitions.
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a. AVERAGE INCENTIVE PAY. The term "Average Incentive Pay" shall
mean an amount which is the greater of (i) the average amount
of Incentive Pay awarded to the Key Employee for the three
calendar years immediately prior to the Key Employee's
termination of employment, or (ii) the amount of the most
recent award of Incentive Pay.
b. BASE SALARY. The term "Base Salary" shall mean, with respect
to each Key Employee, the annual base compensation of such Key
Employee at the rate in effect immediately prior to the Change
of Control, or at such higher rate as may be in effect
immediately prior to the Key Employee's termination of
employment, in each case including any portion of the Key
Employee's annual base compensation the receipt of which the
Key Employee has elected to defer.
c. CHANGE OF CONTROL. The term "Change of Control" shall mean the
occurrence of any of the following events:
(i) Cleveland-Cliffs shall merge into itself, or be
merged or consolidated with, another corporation and
as a result of such merger or consolidation less than
70% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in
the aggregate by the former shareholders of
Cleveland-Cliffs as the same shall have existed
immediately prior to such merger or consolidation;
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(ii) Cleveland-Cliffs shall sell or otherwise transfer all
or substantially all of its assets to any other
corporation or other legal person, and immediately
after such sale or transfer less than 70% of the
combined voting power of the outstanding voting
securities of such corporation or person is held in
the aggregate by the former shareholders of
Cleveland-Cliffs as the same shall have existed
immediately prior to such sale or transfer;
(iii) A person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of
the Securities Exchange Act of 1934, shall become the
beneficial owner (as defined in Rule 13d-3 of the
Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934) of 30% or more of
the outstanding voting securities of Cleveland-Cliffs
(whether directly or indirectly); or
(iv) During any period of three consecutive years,
individuals who at the beginning of any such period
constitute the Board of Directors of Cleveland-Cliffs
cease, for any reason, to constitute at least a
majority thereof, unless the election, or the
nomination for election by the shareholders of
Cleveland-Cliffs, of each Director first elected
during any such period was approved by a vote of at
least one-third of the Directors of Cleveland-Cliffs
who are Directors of Cleveland-Cliffs on the date of
the beginning of any such period.
d. COMMITTEE. The term "Committee" shall mean the Compensation
and Organization Committee of the Board of Directors of
Cleveland-Cliffs.
e. COMPANY. The term "Company" shall mean, with respect to a Key
Employee, Cleveland-Cliffs or the Selected Affiliate which
pays such Key Employee's compensation.
f. FOR CAUSE. The term "For Cause" shall mean an act that is
materially inimical to the best interests of the Company and
that constitutes on the part of the Key Employee common law
fraud, a felony, or other gross malfeasance of duty.
g. INCENTIVE PAY. The term "Incentive Pay" shall mean the annual
compensation and awards allocated to a Key Employee pursuant
to any incentive compensation plans and arrangements of the
Company including, but not limited to, the Incentive Bonus
Plan and the 1992 Incentive Equity Plan.
h. INDUSTRY SERVICE AND CREDITED YEARS OF INDUSTRY SERVICE. The
term "Industry Service" shall mean professionally related
service, prior to the Key Employee's employment by the
Company, by a Key Employee as an employee within the iron and
steel industry or an industry to which such Key Employee's
position with the Company relates. A Key Employee shall be
given credit for one year of Industry Service for every two
years of service with the Company, as designated in the case
of each Key Employee in writing by, or in minutes of the
actions of, the Committee, and such years of credited Industry
Service shall be defined as "Credited Years of Industry
Service".
i. KEY EMPLOYEE. The term "Key Employee" shall mean any employee
of the Company who, at the time of the Change of Control,
holds a position
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as (i) a Senior Vice President, Vice President or Secretary of
Cleveland-Cliffs, or (ii) a mine manager. Notwithstanding the
foregoing, employees who would otherwise be Key Employees
shall not be Key Employees for purposes of this Plan if they
have entered into an Employment Agreement or similar
arrangement with the Company providing for the payment of
severance compensation in specified circumstances following a
Change of Control. In addition, Key Employee shall include
such other employees of the Company as shall be designated in
writing by, or in minutes of the actions of, the Committee.
j. SELECTED AFFILIATE. The term "Selected Affiliate" means (i)
any corporation in an unbroken chain of corporations beginning
with Cleveland-Cliffs if each of the corporations other than
the last corporation in the chain owns or controls, directly
or indirectly, stock possessing not less than 50 percent of
the total combined voting power of all classes of stock in one
of the other corporations, or (ii) any partnership or joint
venture in which one or more of such corporations is a partner
or venturer, each of which shall be selected by the Committee.
k. SUPPLEMENTAL RETIREMENT PLAN OR SRP. The term "Supplemental
Retirement Plan" or "SRP" shall mean the Cleveland-Cliffs Inc
Supplemental Retirement Benefit Plan (As Amended and Restated
Effective January 1, 1997).
4. Eligibility Under This Plan.
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a. Subject to the limitations described below, this Plan applies
to Key Employees who are employed on the date that a Change of
Control occurs. The Company reserves the right, at any time
prior to the occurrence of a Change of Control, to amend,
modify, change or terminate this Plan with or without notice
or any liability to Key Employees. This Plan shall not be
amended, modified, changed or terminated after the occurrence
of a Change of Control without the written consent of each Key
Employee.
b. A Key Employee will be eligible for Severance Compensation and
other benefits under this Plan if, within three years after
the occurrence of a Change of Control (the "Severance
Protection Period"):
(i) The Key Employee's employment with the Company is
terminated by the Company other than For Cause.
(ii) The Key Employee voluntarily terminates his or her
employment with the Company following the occurrence
of any of the following events:
(A) The failure to elect, re-elect or otherwise
maintain the Key Employee in the office or
position in the Company which the Key
Employee held immediately prior to the
Change of Control;
(B) (I) A reduction in the aggregate of the Key
Employee's Base Salary and Incentive Pay
received from Cleveland-Cliffs, or a
reduction in the Key Employee's
opportunities for Incentive Pay (including,
but not limited to, a reduction in the
target bonus percentage or
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target award opportunity (whether measured
by number of performance shares or
management objectives) provided by
Cleveland-Cliffs, or (II) a reduction or
termination of any benefits described in
Section 5.b. hereof to which the Key
Employee was entitled immediately prior to
the Change of Control, any of which is not
remedied by Cleveland-Cliffs within ten
calendar days after receipt by
Cleveland-Cliffs of written notice from the
Key Employee of such reduction or
termination, as the case may be;
(C) A determination by the Key Employee (which
determination will be conclusive and binding
upon the Company provided it has been made
in good faith and in all events will be
presumed to have been made in good faith
unless otherwise shown by the Company by
clear and convincing evidence) that a change
in circumstances has occurred following a
Change of Control, including without
limitation a change in the scope of the
business or other activities for which he or
she was responsible immediately prior to the
Change of Control, which has rendered the
Key Employee substantially unable to carry
out, has substantially hindered the Key
Employee's performance of, or has caused the
Key Employee to suffer a substantial
reduction in, any of the authorities,
powers, functions, responsibilities or
duties attached to the position held by the
Key Employee immediately prior to the Change
of Control, which situation is not remedied
within ten calendar days after written
notice to Cleveland-Cliffs from the Key
Employee of such determination;
(D) The liquidation, dissolution, merger,
consolidation or reorganization of
Cleveland-Cliffs or the transfer of all or a
significant portion of its business and/or
assets, unless the successor or successors
(by liquidation, merger, consolidation,
reorganization or otherwise) to which all or
a significant portion of its business and/or
assets have been transferred (directly or by
operation of law) shall have assumed all
duties and obligations of the Company under
this Plan pursuant to Section 15 hereof;
(E) Cleveland-Cliffs relocates its principal
executive offices, or the Company requires
the Key Employee to change his or her
principal location of work to any location
which is in excess of 25 miles from the
location thereof immediately prior to the
Change of Control, or the Company requires
the Key Employee to travel away from his or
her office in the course of discharging his
or her responsibilities or duties hereunder
at least 20% more (in terms of aggregate
days in any calendar year or in any calendar
quarter when annualized for purposes of
comparison to any prior year) than was
required of him or her prior to the Change
of Control, without, in any case, his or her
prior written consent; or
(F) Without limiting the generality or effect of
the foregoing, any material breach of its
obligations under the Plan by the Company or
any successor thereto.
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5. Severance Compensation.
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a. SEVERANCE PAY. Each Key Employee who is terminated in
accordance with Section 4.b. shall, within five business days
after such termination:
(i) Receive severance pay from the Company in a lump sum
payment (the "Severance Payment") in an amount equal
to the present value (using a discount rate
prescribed for purposes of valuation computations
under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") or any successor
provision thereto or if no such rate is so
prescribed, a rate equal to the then "applicable
interest rate" under Section 417(e)(3)(A)(ii)(II) of
the Code for the month in which such termination
occurs (the "Discount Rate")) equivalent to:
(A) For a Key Employee who is a corporate
officer of Cleveland-Cliffs at the senior
vice presidential level or higher, the sum
of his or her Base Salary plus his or her
Average Incentive Pay multiplied by the
lesser of (I) the number of years (with
periods of less than a year expressed as the
number of days remaining in a year divided
by 365) remaining in the Severance
Protection Period (but not less than one),
or (II) two.
(B) For a Key Employee other than one described
in subparagraph a.(i)(A) of this Section 5,
the sum of his or her Base Salary multiplied
by one plus his or her Average Incentive Pay
multiplied by one.
(ii) Receive from the Company a lump sum payment (the "SRP
Payment") in an amount equal to the sum of the future
pension benefits (converted to a lump sum of
actuarial equivalence) which the Key Employee would
have been entitled to receive under the SRP, as the
same may be further amended prior to a Change of
Control and as modified by Section 6 hereof (assuming
Base Salary at the rate in effect immediately prior
to the termination of employment and Incentive Pay
equivalent to the amount of Average Incentive Pay),
if the Key Employee had remained in the full-time
employment of the Company until the expiration of the
third anniversary of the occurrence of the Change of
Control.
The calculation of the SRP Payment and its actuarial
equivalence shall be made as of the date the Key
Employee is terminated. The lump sum of actuarial
equivalence shall be calculated as of the third
anniversary of the occurrence of the Change of
Control using the assumptions and factors used in the
SRP, and such sums shall be discounted to the date of
payment using the Discount Rate.
Payment of the SRP Payment by the Company shall be
deemed to be a satisfaction of all obligations of the
Company to the Key Employee under the SRP.
b. HEALTH AND LIFE BENEFITS. Each Key Employee who is terminated
in accordance with Section 4.b., and his or her eligible
dependents, will receive continued health and life insurance
benefits as follows:
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(i) A Key Employee described in Section 5.a.(i)(A) will
be covered under the health and life insurance plans
that covered him or her immediately before the date
of termination until the earlier of (A) the
expiration of the lesser of (I) the number of years
(with periods of less than a year expressed as the
number of days remaining in a year divided by 365)
remaining in the Severance Protection Period (but not
less than one year) or (II) two years, or (B) the
date upon which the Key Employee becomes eligible for
health and life insurance benefits as a result of
subsequent employment. If the continued health
coverage under this clause (i) is provided through
participation in the Company's group health plan,
then following such period of continued health
coverage, the Key Employee will be eligible to elect
to continue, for himself or herself and his or her
eligible dependents, health benefits in accordance
with the provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended
("COBRA").
(ii) A Key Employee described in Section 5.a.(ii)(B) will
be covered under the health and life insurance plans
that covered him or her immediately before the date
of termination until the earlier of (A) the
expiration of the first anniversary of the date of
termination, or (B) the date upon which the Key
Employee becomes eligible for health and life
insurance benefits as a result of subsequent
employment. If the continued health coverage under
this clause (ii) is provided through participation in
the Company's group health plan, then following such
period of continued health care coverage, the Key
Employee will be eligible to elect to continue, for
himself or herself and his or her eligible
dependents, health benefits in accordance with the
provisions of COBRA.
c. WELFARE BENEFIT CONTINUATION FOLLOWING TERMINATION. Each Key
Employee who is terminated in accordance with Section 4.b.
hereof shall, upon the earlier to occur of (i) the date upon
which the Key Employee would have otherwise reached 30 years
of continuous service with the Company but for his or her
termination of employment after the Change of Control, or (ii)
the date upon which the sum of the Key Employee's years of
continuous service with the Company that the Key Employee
would have attained as of the third anniversary of the Change
of Control (but for his or her termination of employment) and
the Key Employee's Credited Years of Industry Service (as
defined in Section 3.h. hereof) is equal to 30 years, receive
the following post-retirement welfare benefits:
(A) medical, hospital, surgical and prescription drug
coverage, equivalent to that furnished on February 1,
1992 by the Company to officers who retire after
January 1, 1990 for the lifetime of the Key Employee
and the lifetime of his or her spouse, and to the Key
Employee's eligible dependents for their periods of
eligibility, through insurance or otherwise;
(B) life insurance on the Key Employee, to the Key
Employee for his or her lifetime, equivalent to that
furnished on February 1, 1992 by the Company to
officers who retire after January 1, 1990; and
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(C) without otherwise limiting the purposes or effect of
this Section 5.c. hereof, welfare benefits payable to
the Key Employee or his or her spouse or dependents
pursuant to this Section 5.c. shall be reduced to the
extent comparable welfare benefits are payable
pursuant to Section 5.b. hereof (other than through
COBRA) or are actually received by the Key Employee
or his or her spouse or dependents from another
employer of the Key Employee.
d. STOCK OPTIONS, RESTRICTED STOCK AND PERFORMANCE SHARES. Upon a
Key Employee's termination in accordance with Section 4.b.,
(i) all stock options granted under the 1992 Incentive Equity
Plan, or any successor plan or similar plan, shall be vested,
(ii) the restrictions on any restricted stock awarded under
the 1992 Incentive Equity Plan, or any successor plan or
similar plan, shall be released, and (iii) all performance
share awards under the Long-Term Performance Share Program
under the 1992 Incentive Equity Plan for which the measurement
period has not yet expired shall be earned assuming management
objectives have been met at the target level.
e. OUTPLACEMENT COUNSELING. Each Key Employee who is terminated
in accordance with Section 4.b. shall be reimbursed by the
Company for reasonable expenses incurred for outplacement
counseling (i) which are pre-approved by Cleveland-Cliffs
Chief Human Resources Officer, (ii) which do not exceed 15% of
the Key Employee's Base Salary, and (iii) which are incurred
by the Key Employee within six months following such
termination.
f. CALCULATION. The calculation of all payments of compensation
and other benefits to be provided to each affected Key
Employee under this Plan (other than payments pursuant to
Section 7 hereof) shall be made by Hewitt Associates
("Hewitt"), or such other actuarial firm selected by
Cleveland-Cliffs' independent accountants and satisfactory to
each affected Key Employee. The Company shall provide to such
actuarial firm all information requested by such actuarial
firm as necessary for or helpful to it to make the
calculations hereunder.
6. SUPPLEMENTAL RETIREMENT BENEFIT PLAN. The Company hereby waives the
discretionary right, at any time subsequent to the date of a Change of
Control, to amend or terminate the SRP as to the Key Employee as
provided in paragraph 8 thereof or to terminate the rights of the Key
Employee or his or her beneficiary under the SRP in the event the Key
Employee engages in a competitive business as provided in any plan or
arrangement between the Company and the Key Employee, including but not
limited to, provisions of paragraph 4 of the SRP, or any similar
provisions of any such plan or arrangement or other plan or arrangement
supplementing or superseding the same. The Company agrees that in
consideration for each Key Employee's continuing to perform services
for the Company, this Section 6 shall constitute a "Supplemental
Agreement", as defined in paragraph 1.K of the SRP, between the Company
and each such Key Employee. If, within three years after the occurrence
of a Change of Control, (1) the Company shall terminate the Key
Employee's employment other than For Cause, or (2) the Key Employee
shall terminate his or her employment pursuant to Section 4.b.(ii)
hereof, for purposes of computing the Key Employee's period of
continuous service and of calculating and paying his or her benefit
under the SRP:
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a. The Key Employee shall be credited with years of continuous
service at the time of his or her termination of employment
with the Company (by death or otherwise) equal to the number
of years of continuous service he or she would have had if he
or she had continued his or her employment with the Company
until the expiration of the third anniversary of the
occurrence of the Change of Control, and had he or she
attained his or her chronological age at the expiration of the
third anniversary of the occurrence of the Change of Control.
In addition, the Key Employee shall be eligible for a 30-year
pension benefit based upon his or her years of continuous
service as computed under the preceding sentence. The Key
Employee shall be eligible to commence the 30-year pension
benefit on the earlier of (i) the date upon which the Key
Employee would have otherwise reached 30 years of continuous
service with Cleveland-Cliffs and any Selected Affiliate but
for his or her termination of employment after the Change of
Control, or (ii) the date upon which the sum of the Key
Employee's years of continuous service (as computed in the
first sentence of this subparagraph a.) and his or her
Credited Years of Industry Service (as defined in Section 3.h.
hereof) is equal to 30 years.
b. The Key Employee shall be a "Participant" in the SRP,
notwithstanding any limitations therein.
A copy of the SRP is attached to this Agreement as Exhibit A. The SRP
is incorporated in all respects herein; provided, however, that the
terms of this Agreement shall take precedence to the extent they are
contrary to provisions contained in the SRP.
7. Certain Additional Payments by Cleveland-Cliffs.
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(a) Anything in this Plan to the contrary notwithstanding, in the
event that it shall be determined (as hereafter provided) that
any payment or distribution by the Company to or for the
benefit of the Key Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this
Plan or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right,
phantom share right or similar right, or the lapse or
termination of any restriction on or the vesting or
exercisability of any of the foregoing (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code
by reason of being considered "contingent on a change in
ownership or control" of Cleveland-Cliffs, within the meaning
of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law,
or any interest or penalties with respect to such tax (such
tax or taxes, together with any such interest and penalties,
being hereafter collectively referred to as the "Excise Tax"),
then the Key Employee shall be entitled to receive an
additional payment or payments (collectively, a "Gross-Up
Payment"); PROVIDED, HOWEVER, that no Gross-up Payment shall
be made with respect to the Excise Tax, if any, attributable
to (i) any incentive stock option, as defined by Section 422
of the Code ("ISO"), or (ii) any stock appreciation or similar
right, whether or not limited, granted in tandem with any ISO
described in clause (i). The Gross-Up Payment shall be in an
amount such that, after payment by the Key Employee of all
taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed upon
the Gross-Up
9
Payment, the Key Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 7(f), all determinations
required to be made under this Section 7, including whether an
Excise Tax is payable by the Key Employee and the amount of
such Excise Tax and whether a Gross-Up Payment is required to
be paid by Cleveland-Cliffs to the Key Employee and the
amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm")
selected by the Key Employee in his sole discretion. The Key
Employee shall direct the Accounting Firm to submit its
determination and detailed supporting calculations to both
Cleveland-Cliffs and the Key Employee within 30 calendar days
after the Key Employee's termination date, if applicable, and
any such other time or times as may be requested by
Cleveland-Cliffs or the Key Employee. If the Accounting Firm
determines that any Excise Tax is payable by the Key Employee,
Cleveland-Cliffs shall pay the required Gross-Up Payment to
the Key Employee within five business days after receipt of
such determination and calculations with respect to any
Payment to the Key Employee. If the Accounting Firm determines
that no Excise Tax is payable by the Key Employee, it shall,
at the same time as it makes such determination, furnish
Cleveland-Cliffs and the Key Employee an opinion that the Key
Employee has substantial authority not to report any Excise
Tax on his or her federal, state or local income or other tax
return. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto)
and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by
Cleveland-Cliffs should have been made (an "Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that Cleveland-Cliffs exhausts or
fails to pursue its remedies pursuant to Section 7(f) and the
Key Employee thereafter is required to make a payment of any
Excise Tax, the Key Employee shall direct the Accounting Firm
to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting
calculations to both Cleveland-Cliffs and the Key Employee as
promptly as possible. Any such Underpayment shall be promptly
paid by Cleveland-Cliffs to, or for the benefit of, the Key
Employee within five business days after receipt of such
determination and calculations.
(c) Cleveland-Cliffs and the Key Employee shall each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of Cleveland-Cliffs or the Key
Employee, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the
determinations and calculations contemplated by Section 7(b).
Any determination by the Accounting Firm as to the amount of
the Gross-Up Payment shall be binding upon Cleveland-Cliffs
and the Key Employee.
(d) The federal, state and local income or other tax returns filed
by the Key Employee shall be prepared and filed on a
consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Key Employee.
The Key Employee shall make proper payment of the amount of
any Excise Payment, and at the request of
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Cleveland-Cliffs, provide to Cleveland-Cliffs true and correct
copies (with any amendments) of his federal income tax return
as filed with the Internal Revenue Service and corresponding
state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents
reasonably requested by Cleveland-Cliffs, evidencing such
payment. If prior to the filing of the Key Employee's federal
income tax return, or corresponding state or local tax return,
if relevant, the Accounting Firm determines that the amount of
the Gross-Up Payment should be reduced, the Key Employee shall
within five business days pay to Cleveland-Cliffs the amount
of such reduction.
(e) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations
contemplated by Section 7(b) shall be borne by
Cleveland-Cliffs. If such fees and expenses are initially paid
by the Key Employee, Cleveland-Cliffs shall reimburse the Key
Employee the full amount of such fees and expenses within five
business days after receipt from the Key Employee of a
statement therefor and reasonable evidence of his payment
thereof.
(f) The Key Employee shall notify Cleveland-Cliffs in writing of
any claim by the Internal Revenue Service or any other taxing
authority that, if successful, would require the payment by
Cleveland-Cliffs of a Gross-Up Payment. Such notification
shall be given as promptly as practicable but no later than
ten business days after the Key Employee actually receives
notice of such claim and the Key Employee shall further
apprise Cleveland-Cliffs of the nature of such claim and the
date on which such claim is requested to be paid (in each
case, to the extent known by the Key Employee). The Key
Employee shall not pay such claim prior to the earlier of (i)
the expiration of the 30-calendar-day period following the
date on which he gives such notice to Cleveland-Cliffs, and
(ii) the date that any payment of an amount with respect to
such claim is due. If Cleveland-Cliffs notifies the Key
Employee in writing prior to the expiration of such period
that it desires to contest such claim, the Key Employee shall:
(i) provide Cleveland-Cliffs with any written records or
documents in his or her possession relating to such
claim reasonably requested by Cleveland-Cliffs;
(ii) take such action in connection with contesting such
claim as Cleveland-Cliffs shall reasonably request in
writing from time to time, including without
limitation accepting legal representation with
respect to such claim by an attorney competent in
respect of the subject matter and reasonably selected
by Cleveland-Cliffs;
(iii) cooperate with Cleveland-Cliffs in good faith in
order effectively to contest such claim; and
(iv) permit Cleveland-Cliffs to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that Cleveland-Cliffs shall bear and pay
directly all costs and expenses (including interest and
penalties) incurred in connection with such contest and shall
indemnify and hold harmless the Key Employee, on an after-tax
basis, for and against any Excise
11
Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation
and payment of costs and expenses. Without limiting the
foregoing provisions of this Section 7(f), Cleveland-Cliffs
shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 7(f) and, at
its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim (provided,
however, that the Key Employee may participate therein at his
own cost and expense) and may, at its option, either direct
the Key Employee to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Key
Employee agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
Cleveland-Cliffs shall determine; PROVIDED, HOWEVER, that if
Cleveland-Cliffs directs the Key Employee to pay the tax
claimed and sue for a refund, Cleveland-Cliffs shall advance
the amount of such payment to the Key Employee on an
interest-free basis and shall indemnify and hold the Key
Employee harmless, on an after-tax basis, from any Excise Tax
or income or other tax, including interest or penalties with
respect thereto, imposed with respect to such advance; and,
PROVIDED FURTHER, HOWEVER, that any extension of the statute
of limitations relating to payment of taxes for the taxable
year of the Key Employee with respect to which the contested
amount is claimed to be due is limited solely to such
contested amount. Furthermore, Cleveland-Cliffs' control of
any such contested claim shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder
and the Key Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(g) If, after the receipt by the Key Employee of an amount
advanced by Cleveland-Cliffs pursuant to Section 7(f), the Key
Employee receives any refund with respect to such claim, the
Key Employee shall (subject to Cleveland-Cliffs' complying
with the requirements of Section 7(f)) promptly pay to
Cleveland-Cliffs the amount of such refund (together with any
interest paid or credited thereon after any taxes applicable
thereto). If, after the receipt by the Key Employee of an
amount advanced by Cleveland-Cliffs pursuant to Section 7(f),
a determination is made that the Key Employee shall not be
entitled to any refund with respect to such claim and
Cleveland-Cliffs does not notify the Key Employee in writing
of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then
such advance shall be forgiven and shall not be required to be
repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid by Cleveland-Cliffs to the Key Employee pursuant to this
Section 7.
8. MITIGATION. A Key Employee shall not be required to mitigate the amount
of any payment or benefit provided for in this Plan by seeking other
employment or otherwise.
9. TIMING OF SEPARATION PAY, ETC. Separation Pay and the Gross-Up Payment
are not included as earnings for the purpose of calculating benefits
under any employee benefit plan of the Company. The Separation Pay and
the Gross-Up Payment shall not be made from any benefit plan funds, and
shall constitute
12
an unfunded unsecured obligation of the Company. Separation Pay and the
Gross-Up Payment shall be paid in a lump sum on the date of termination
or promptly thereafter. Upon the request of the Key Employee and at the
option of the Company, Separation Pay may be paid in two equal
installments with the first installment to be made at the time of
termination, and the second installment to be made on the January 1st
immediately after the date of termination. Separation Pay and the
Gross-Up Payment shall be net of any income, excise or employment taxes
which are required to be withheld from such payment.
10. CONFIDENTIALITY AND COMPETITIVE ACTIVITY. Payment of the severance pay
and benefits set forth in Sections 5 and 6 hereof to a Key Employee is
conditioned upon the Key Employee agreeing in writing with the Company
that:
a. All trade secrets, customer lists and other confidential
business information are the exclusive property of the
Company, and the Key Employee shall not at any time directly
or indirectly reveal or cause to be revealed to any person or
entity such trade secrets, customer lists and other
confidential business information obtained as a result of the
Key Employee's employment or relationship with the Company.
b. For a period of 12 months from and after any termination of
employment following a Change of Control, the Key Employee
shall not become an officer, director, joint venturer,
employee, consultant, 5-percent or more shareholder (directly
or indirectly) of, or promote or assist (financially or
otherwise), any entity which competes in any business in which
the Company or any of its affiliates are engaged as of the
date of the Change of Control. For this purpose, business is
defined as the iron and steel industry. The provisions of this
Section 10.b shall, following a Change of Control, supersede
and be in lieu of any similar provision in any other plan or
agreement involving the Company or any of its affiliates and
the Key Employee, whether now existing or hereinafter adopted
or entered into, including, but not limited to, the SRP.
11. RELEASE. Payment of the severance pay and benefits set forth in
Sections 5 and 6 hereof to a Key Employee is conditioned upon the Key
Employee executing and delivering a release satisfactory to the Company
releasing Cleveland-Cliffs and each Selected Affiliate from any and all
claims, demands, damages, actions and/or causes of action whatsoever,
which he or she may have had on account of the termination of his or
her employment, including, but not limited to claims of discrimination,
including on the basis of sex, race, age, national origin, religion or
handicapped status (with all applicable periods during which the Key
Employee may revoke the release or any provision thereof having
expired), and any and all claims, demands and causes of action for
retirement (other than under the Pension Plan for Salaried Employees of
Cleveland-Cliffs Inc or under any "welfare benefit plan" of the Company
(as the term "welfare benefit plan" is defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended)),
severance or other termination pay, and because, pursuant to Section
5.a, the Key Employee is entitled to lump sum payments of Incentive Pay
and benefits under the SRP, under the SRP and under the incentive
compensation plans and arrangements of the Company described in Section
3.d. Such release shall not, however, apply to the ongoing obligations
of the Company arising under this Plan, or rights of indemnification
the Key Employee may have under Cleveland-Cliffs' Regulations or by
contract or by statute.
13
12. Legal Fees and Expenses.
------------------------
a. It is the intent of the Company that no Key Employee be
required to incur the expenses associated with the enforcement
of his or her rights under this Plan by litigation or other
legal action because the cost and expense thereof would
substantially detract from the benefits intended to be
extended to the Key Employee hereunder. Accordingly, if it
should appear to the Key Employee that the Company has failed
to comply with any of its obligations under this Plan or in
the event that the Company or any other person takes any
action to declare this Plan void or unenforceable, or
institutes any litigation designed to deny, or to recover
from, the Key Employee the benefits intended to be provided to
the Key Employee hereunder, the Company irrevocably authorizes
the Key Employee from time to time to retain counsel of his or
her choice, at the expense of the Company as hereafter
provided, to represent the Key Employee in connection with the
initiation or defense of any litigation or other legal action,
whether by or against the Company or any Director, officer,
stockholder or other person affiliated with the Company in any
jurisdiction.
Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company
irrevocably consents to the Key Employee's entering into an
attorney-client relationship with such counsel, and in that
connection the Company and the Key Employee agree that a
confidential relationship shall exist between the Key Employee
and such counsel. The Company shall pay or cause to be paid
and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Key Employee as a
result of the Company's failure to perform under this Plan or
any provision hereof or as a result of the Company or any
person contesting the validity or enforceability of this Plan
or any provision hereof as aforesaid; or as a result of the
Company or any person contesting the validity or
enforceability of this Plan or any provision thereof.
b. To ensure that the provisions of this Plan can be enforced by
the Key Employee, a trust arrangement ("Trust No. 2") has been
established between KeyTrust Company of Ohio, N.A., as Trustee
("Trustee"), and Cleveland-Cliffs. Trust Agreement No. 2
(Amended and Restated Effective June 1, 1997) ("Trust
Agreement No. 2") dated June 12, 1997, as amended and/or
restated, between the Trustee and Cleveland-Cliffs is attached
as Exhibit B and shall be considered a part of this Plan and
shall set forth the terms and conditions relating to payment
under Trust Agreement No. 2 for attorneys' fees and related
fees and expenses pursuant to Section 12.a. hereof owed by the
Company. The Key Employee shall make demand on the Company for
any payments due the Key Employee pursuant to Section 12.a.
hereof prior to making demand therefor on the Trustee under
Trust Agreement No. 2. Payments by such Trustee shall
discharge the Company's liability under Section 12.a. hereof
only to the extent that trust assets are used to satisfy such
liability.
c. Upon the earlier to occur of (i) a Change of Control or (ii) a
declaration by the Board of Directors of Cleveland-Cliffs that
a Change of Control is imminent, Cleveland-Cliffs shall
promptly to the extent it has not previously done so, and in
any event within five business days, transfer to the Trustee
to be added to the
14
principal of the Trust under Trust Agreement No. 2 the sum of
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) less any
principal in such Trust as of the date of such transfer. Any
payments of attorneys' and related fees and expenses by the
Trustee pursuant to Trust Agreement No. 2 shall, to the extent
thereof, discharge the Company's obligation hereunder, it
being the intent of Cleveland-Cliffs that assets in such
Trust be held as security for the Company's obligation under
Section 12.a. hereof. The Key Employee understands and
acknowledges that the entire corpus of the Trust under Trust
Agreement No. 2 will be $250,000 and that said amount will be
available to discharge not only the obligations of the Company
to the Key Employee under Section 12.a. hereof, but also
similar obligations of the Company to other employees under
similar provisions.
13. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Plan shall
create any right or duty on the part of the Company or the Key Employee
to have the Key Employee remain in the employment of the Company at any
time prior to a Change of Control. The Key Employee is an employee at
will, and following a Change of Control the Company may terminate him
or her at any time for any reason if the Company pays the Severance
Compensation provided for under Section 5 of this Plan.
14. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable
under this Plan all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
15. Successors and Binding Effect.
------------------------------
a. The Company shall require any successor, (including without
limitation any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company
whether by purchase, merger, consolidation, reorganization or
otherwise, and such successor shall thereafter be deemed the
Company for the purposes of this Plan), to assume and agree to
perform the obligations under this Plan in the same manner and
to the same extent the Company would be required to perform if
no such succession had taken place. This Plan shall be binding
upon and inure to the benefit of the Company and any successor
to the Company, but shall not otherwise be assignable,
transferable or delegable by the Company.
b. The rights under this Plan shall inure to the benefit of and
be enforceable by the Key Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees and/or legatees.
c. The rights under this Plan are personal in nature and neither
the Company nor any Key Employee shall, without the consent of
the other, assign, transfer or delegate this Plan or any
rights or obligations hereunder except as expressly provided
in this Section 15. Without limiting the generality of the
foregoing, a Key Employee's right to receive payments
hereunder shall not be assignable, transferable or delegable,
whether by pledge, creation of a security interest or
otherwise, other than by a transfer by his or her will or by
the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this
15
Section 15, the Company shall have no liability to pay any
amount so attempted to be assigned, transferred or delegated.
d. The obligation of the Company to make payments and/or provide
benefits hereunder shall represent an unsecured obligation of
the Company.
e. The Company and each Key Employee recognize that each party
will have no adequate remedy at law for breach by the other of
any of the agreements contained herein and, in the event of
any such breach, the Company and each Key Employee hereby
agree and consent that the other shall be entitled to a decree
of specific performance, mandamus or other appropriate remedy
to enforce performance of obligations under this Plan.
16. GOVERNING LAW. The validity, interpretation, construction and
performance of this Plan shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of
such State.
17. VALIDITY. If any provision of this Plan or the application of any
provision hereof to any person or circumstance is held invalid,
unenforceable or otherwise illegal, the remainder of this Plan and the
application of such provision to any other person or circumstances
shall not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal shall be reformed to the extent (and
only to the extent) necessary to make it enforceable, valid and legal.
18. CAPTIONS. The captions in this Plan are for convenience of reference
only and do not define, limit or describe the scope or intent of this
Plan or any part hereof and shall not be considered in any construction
hereof.
19. Administration of Plan.
-----------------------
a. IN GENERAL. The Plan shall be administered by
Cleveland-Cliffs, which shall be the plan administrator and
named fiduciary under the Plan. Cleveland-Cliffs shall have
the sole and absolute discretion to interpret where necessary
all provisions of the Plan (including, without limitation, by
supplying omissions from, correcting deficiencies in, or
resolving inconsistencies or ambiguities in, the language of
the Plan), to determine the rights and status under the Plan
of Key Employees or other persons, to resolve questions or
disputes arising under the plan and to make any determinations
with respect to the benefits payable hereunder and the persons
entitled thereto as may be necessary for the purposes of the
Plan. Without limiting the generality of the foregoing,
Cleveland-Cliffs is hereby granted the authority (i) to
determine whether a particular employee is a "Key Employee"
under the Plan, and (ii) to determine whether a particular Key
Employee is eligible for Severance Compensation and other
benefits under the Plan.
b. DELEGATION OF DUTIES. Cleveland-Cliffs may delegate any of its
administrative duties, including, without limitation, duties
with respect to the processing, review, investigation,
approval and payment of Severance Compensation and Gross-Up
Payments, to a named administrator or administrators.
c. REGULATIONS. Cleveland-Cliffs shall promulgate any rules and
regulations it deems necessary in order to carry out the
purposes of
16
the Plan or to interpret the terms and conditions of the Plan;
provided, however, that no rule, regulation or interpretation
shall be contrary to the provisions of the Plan.
d. CLAIMS PROCEDURE. Cleveland-Cliffs shall determine the rights
of any employee of the Company to any Severance Compensation
or a Gross-up Payment hereunder. Any employee or former
employee of the Company who believes that he or she is
entitled to receive Severance Compensation or a Gross-up
Payment under the Plan, including other than that initially
determined by Cleveland-Cliffs, may file a claim in writing
with the Cleveland-Cliffs' Chief Human Resources Officer.
Cleveland-Cliffs shall, no later than 90 days after the
receipt of a claim, either allow or deny the claim by written
notice to the claimant. If a claimant does not receive written
notice of Cleveland-Cliffs' decision on his or her claim
within such 90-day period, the claim shall be deemed to have
been denied in full.
A denial of a claim by Cleveland-Cliffs, wholly or partially,
shall be written in a manner calculated to be understood by
the claimant and shall include:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions upon
which the denial is based;
(iii) a description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
A claimant whose claim is denied (or his or her duly
authorized representative) may, within 30 days after receipt
of denial of his or her claim, request a review of such denial
by Cleveland-Cliffs by filing with the Secretary of
Cleveland-Cliffs a written request for review of his or her
claim. If the claimant does not file a request for review with
Cleveland-Cliffs within such 30-day period, the claimant shall
be deemed to have acquiesced in the original decision of the
Company on his or her claim. If a written request for review
is so filed within such 30-day period, Cleveland-Cliffs shall
conduct a full and fair review of such claim. During such full
review, the claimant shall be given the opportunity to review
documents that are pertinent to his or her claim and to submit
issues and comments in writing and, if he or she requests a
hearing, to present his or her case in person at a hearing
scheduled by Cleveland-Cliffs. Cleveland-Cliffs shall notify
the claimant of its decision on review within 60 days after
receipt of a request for review. Notice of the decision on
review shall be in writing. If the decision on review is not
furnished to the claimant within such 60-day period, the claim
shall be deemed to have been denied on review.
e. REVOCABILITY OF ACTION. Any action taken by Cleveland-Cliffs
with respect to the rights or benefits under the Plan of any
employee shall be revocable by Cleveland-Cliffs as to payments
or distributions not yet made to such person, and acceptance
of
17
Severance Compensation or a Gross-up Payment under the Plan
constitutes acceptance of and agreement to Cleveland-Cliffs
making any appropriate adjustments in future payments or
distributions to such person to offset any excess or
underpayment previously made to him or her.
f. EXECUTION OF RECEIPT. Upon receipt of any Severance
Compensation or Gross-Up Payment hereunder, Cleveland-Cliffs
reserves the right to require any Key Employee to execute a
receipt evidencing the amount and payment of such Severance
Compensation and/or Gross-up Payment.
IN WITNESS WHEREOF, the Company, pursuant to the order of its
Board of Directors, has executed this Severance Pay Plan for Key Employees of
Cleveland-Cliffs Inc (as Amended and Restated as of February 1, 1997) at
Cleveland, Ohio, this 26th day of June, 1997
CLEVELAND-CLIFFS INC
By /s/ R.F. Novak
--------------------------------------
Vice President - Human Resources