UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant | ¨ | |||||
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¨ | Preliminary Proxy Statement | ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||
þ | Definitive Proxy Statement | |||||
¨ | Definitive Additional Materials | |||||
¨ | Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 |
AK STEEL HOLDING CORPORATION
(Name of Registrant as Specified In Its Certificate)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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AK Steel Holding Corporation 9227 CENTRE POINTE DRIVE WEST CHESTER, OHIO 45069 |
James L. Wainscott CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER |
April 13, 2015
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To our Stockholders: | |
It is my pleasure to invite you to the 2015 Annual Meeting of Stockholders of AK Steel Holding Corporation. The meeting will be held at 1:30 p.m., Eastern Daylight Saving Time, on Thursday, May 28, 2015, at the Hilton Columbus at Easton, located at 3900 Chagrin Drive, Columbus, Ohio 43219. Registration will begin at 1:00 p.m. | ||
Attendance at the Annual Meeting is limited to stockholders of record as of the close of business on March 30, 2015, or their duly appointed proxies, and to guests of Management. If you cannot attend the meeting in person, I strongly urge you to participate by voting your proxy in one of the methods explained in the Notice of 2015 Meeting of Stockholders that you received in the mail. | ||
This year we have once again elected to furnish proxy materials to our stockholders on the Internet. We believe this allows us to provide our stockholders with the information they need in an accessible format, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting. Please review the instructions with respect to each of your voting options as described in the Proxy Statement and the Notice.
Please read the Notice of 2015 Meeting of Stockholders and Proxy Statement carefully. Your vote is important. There are five proposals included in the Proxy Statement. The Board of Directors recommends that you vote your shares FOR all of the proposals in the Proxy Statement, as follows:
1. FOR the election of each of the nominee Directors (Proposal No. 1).
2. FOR the ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm (Proposal No. 2).
3. FOR the approval of Named Executive Officer compensation (Proposal No. 3).
4. FOR the re-approval of the material terms of the performance goals under the Companys Long-Term Performance Plan (Proposal No. 4).
5. FOR the re-approval of the material terms of the performance goals under the Companys Stock Incentive Plan (Proposal No. 5). | ||
If you cannot attend in person, you may listen to the Annual Meeting via the Internet. To listen to the live webcast, log on at www.aksteel.com and select the link on the homepage for the webcast of the 2015 Annual Meeting of Stockholders. The webcast will begin at 1:30 p.m. and will remain on the Companys website for one year. Please note, however, that you cannot record your vote on this website. In order to vote by proxy, you must use one of the methods explained in the Notice of 2015 Meeting of Stockholders that you received in the mail. | ||
Your continuing interest in our company is greatly appreciated. I look forward to seeing you at the Annual Meeting. |
Sincerely,
James L. Wainscott
AK STEEL HOLDING CORPORATION
9227 Centre Pointe Drive
West Chester, Ohio 45069
NOTICE OF 2015 ANNUAL MEETING OF STOCKHOLDERS
OF AK STEEL HOLDING CORPORATION (THE COMPANY)
Date: | Thursday, May 28, 2015 | |
Time: |
Registration will begin at 1:00 p.m., Eastern Daylight Saving Time The meeting will begin at 1:30 p.m., Eastern Daylight Saving Time | |
Place: |
Hilton Columbus at Easton 3900 Chagrin Drive Columbus, Ohio | |
Purposes: |
1. To elect as Directors of the Company the eleven candidates nominated by the Board; | |
2. To ratify, by a non-binding advisory vote, the Audit Committees appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for 2015; | ||
3. To vote on a non-binding advisory resolution to approve the compensation of our Named Executive Officers; | ||
4. To re-approve the material terms of the performance goals under the Companys Long-Term Performance Plan; | ||
5. To re-approve of the material terms of the performance goals under the Companys Stock Incentive Plan; and | ||
6. To transact such other business as properly may come before the meeting. | ||
Who Can Vote: | AK Steel stockholders of record as of the close of business on March 30, 2015. | |
How You Can Vote: |
You may vote in person at the meeting or you may vote in advance of the meeting via the Internet, by telephone, or by using the proxy card that will be enclosed with those materials. If you intend to use the proxy card, please mark, date and sign it, and then return it promptly in the postage-paid envelope that comes with the card. If you intend to vote over the telephone or via the Internet, please follow the instructions on the proxy card that you received. If you intend to vote in person at the meeting and your shares are held at a broker, bank or other institution, you must obtain a legal proxy from your broker, bank or other institution in advance of the meeting in order to vote your shares at the meeting. Please vote regardless of whether you plan to attend the Annual Meeting. | |
Right to Revoke Your Proxy: |
You may revoke your proxy at any time before it is voted by submitting a new proxy card with a later date or by submitting a subsequent vote via the Internet or by telephone. If you are a stockholder of record, you also may attend the Annual Meeting and revoke your proxy in person. | |
Who May Attend: |
Attendance at the Annual Meeting is limited to stockholders of record as of the close of business on March 30, 2015, or their duly appointed proxies, and to guests of Management. | |
How Do I Prove I Am a Stockholder of Record: |
If your shares are registered in your name, you will need to present personal photo identification. If your shares are not registered in your name (if, for instance, your shares are held in street name for you by your broker, bank or other institution), you must present (1) personal photo identification, and (2) proof of stock ownership. We will accept as proof of stock ownership either a copy of your account statement or a letter from your broker, bank or other institution reflecting the number of shares of common stock you owned as of March 30, 2015. | |
No Recording of Meeting; Packages Subject to Inspection: |
Please note that you may not record the meeting using a video or audio electronic device of any kind. To enforce this rule and for your safety, we reserve the right to inspect all packages prior to admission at the Annual Meeting and to prohibit certain electronic devices from being brought into the meeting room. |
By Authorization of the Board of Directors, |
David C. Horn, Secretary |
West Chester, Ohio
April 13, 2015
PROXY STATEMENT
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AK STEEL HOLDING CORPORATION
9227 Centre Pointe Drive
West Chester, Ohio 45069
This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors of AK Steel Holding Corporation (the Company or AK Steel) of proxies to be voted at the 2015 Annual Meeting of Stockholders (Annual Meeting) of the Company to be held on May 28, 2015, and at any and all postponements or adjournments thereof.
On or about April 13, 2015, we mailed to stockholders of record a notice containing instructions on how to access our 2015 Proxy Statement and 2014 Annual Report to Stockholders on the Internet and on how to vote online. That notice also contains instructions on how you can receive a paper copy of the Proxy Statement and Annual Report to Stockholders via the United States mail or an electronic copy via e-mail if you prefer either of those alternatives.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q. | What is a proxy? |
A. | A proxy is a person or entity authorized to act for another person. In this instance, the Board of Directors has appointed a Proxy Committee to vote the shares represented by proxy forms submitted by stockholders to the Company prior to the Annual Meeting. Giving the Proxy Committee your proxy means that you authorize the Proxy Committee to vote your shares on your behalf at the Annual Meeting as you specifically instruct on your proxy card with respect to each proposal, or if a matter that is not raised on the proxy card comes up for a vote at the Annual Meeting, in accordance with the Proxy Committees best judgment. |
Q. | Whom am I appointing as my proxy? |
A. | The Proxy Committee consists of James L. Wainscott, David C. Horn and Roger K. Newport. |
Q. | What is a Proxy Statement? |
A. | The document you are reading is a Proxy Statement. It is intended to provide the Companys stockholders with information necessary to vote in an informed manner on matters to be presented at the Annual Meeting. It is sent in conjunction with a solicitation of your proxy. |
Q. | Why did I receive more than one Proxy Statement or proxy card? |
A. | You may receive more than one Proxy Statement and proxy card if you hold AK Steel stock in different ways (e.g., joint tenancy, in trust, or in a custodial account) or in multiple accounts. |
Q. | Why is the Company soliciting my proxy? |
A. | The Board of Directors is soliciting your proxy to vote at the Annual Meeting because, at the close of business on March 30, 2015, the record date, you were: (1) a stockholder of record, which means that you were shown on the Companys records as the owner of common stock of the Company, or (2) the beneficial owner of shares held in street name. All stockholders of record are entitled to vote at the meeting. It is important that as many stockholders as possible vote, either in person or by proxy, on the issues to be decided at the Annual Meeting. The process of soliciting proxies is intended to increase the number of stockholders who vote on those issues. In addition, stockholders who vote by proxy are deemed to be in attendance at the meeting for purposes of determining if there is a quorum. |
Q. | What is the difference between a stockholder of record and a beneficial owner of shares held in street name? |
A. | Stockholder of Record. If your shares are registered directly in your name with the Companys transfer agent, Computershare Investor Services, LLC (Computershare), you are considered the stockholder of record with respect to those shares. |
Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a bank, broker or other institution, then you are the beneficial owner of shares held in street name. The entity holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to instruct that entity on how to vote the shares held in your account.
Q. | How do I obtain voting instructions if my stock is held in street name? |
A. | If your stock is held in street name, you will receive a notice, typically entitled Voting Instruction Form or something similar, either electronically or by mail from the bank, broker or other institution holding your stock. This notice contains instructions regarding how to access the proxy materials and how to vote. |
Q. | If I hold my stock in street name and fail to provide specific voting instructions to the bank, broker or other institution holding it on my behalf, will my stock still get voted? |
A. | Not on all matters. If you hold your shares in street name and want a vote to be cast on your behalf for all proposals described in this Proxy Statement, you must submit your specific voting instructions to the bank, broker or other institution holding the stock on your behalf in response to the notice you receive from it. |
Q. | If I hold my stock in street name and do not provide specific voting instructions to the bank, broker or other institution holding it on my behalf, for which proposals will a vote not be cast on my behalf? |
A. | If you are a holder of shares in street name and you fail to provide specific voting instructions to the bank, broker or other institution holding the stock on your behalf, a vote will not be cast on your behalf with respect to the following proposals: |
| the election of Directors (Proposal No. 1); |
| the advisory vote on Named Executive Officer compensation (Proposal No. 3); |
| the re-approval of the material terms of the performance goals under the Companys Long-Term Performance Plan (Proposal No. 4); and |
| the re-approval of the material terms of the performance goals under the Companys Stock Incentive Plan (Proposal No. 5). |
Q. | If I hold my stock in street name and do not provide specific voting instructions to the bank, broker or other institutions holding it on my behalf, for which proposals may a vote be cast on my behalf? |
A. | If you are a holder of shares in street name and you fail to provide specific voting instructions to the bank, broker or other institution holding the stock on your behalf, that entity may cast a vote on your behalf only with respect to the ratification of the appointment of the independent registered public accounting firm (Proposal No. 2). |
Q. | What are broker non-votes and how are they counted for voting purposes? |
A. | Broker non-votes occur when a broker (or a bank or other institution holding someones shares) returns a proxy, but does not vote the shares represented by that proxy on a particular proposal, usually because the beneficial owners of those shares have not provided direction to the holder on how to vote them and the holder does not have discretionary voting power with respect to the proposal. Broker non-votes do not count for voting purposes, but are considered present at the meeting and are counted to determine whether there is a quorum present at the meeting. |
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Q. | What documentation must I provide to be admitted to the Annual Meeting? |
A. | If your shares are registered in your name, you will need to present personal photo identification. If your shares are not registered in your name (if, for instance, your shares are held in street name for you by your broker, bank or other institution), you must present (1) personal photo identification, and (2) proof of stock ownership. We will accept as proof of stock ownership either a copy of your account statement or a letter from your broker, bank or other institution, as long as such statement or letter reflects the number of shares of common stock you owned as of March 30, 2015. |
Q. | What documentation must I provide to vote in person at the Annual Meeting? |
A. | Upon admission, if you are a stockholder of record, you may vote all shares registered in your name in person at the Annual Meeting. If you are not a stockholder of record as to any of your shares (i.e., instead of being registered in your name, all or a portion of your shares are registered in a street name and held by your broker, bank or other institution for your benefit), you must obtain and bring with you to the meeting a legal proxy from the broker, bank or other institution in whose name any of your shares are held in order to vote those shares in-person at the meeting. You should contact the bank, broker or other institution that holds those shares for specific information on how to obtain a legal proxy in order to vote them at the meeting. |
Q. | Is there any way for me to vote other than in person or by proxy at the Annual Meeting? |
A. | Yes. If you are a stockholder of record, you may vote over the telephone or via the Internet. The proxy card from the Company you received in the mail contains instructions for voting by these methods. If you hold your shares in street name, you must follow the instructions contained in the voting instruction card provided to you by the broker, bank or other institution holding your shares on your behalf. |
Q. | Do I vote only once regardless of how many shares I own? If not, how many votes do I get to cast? |
A. | You are entitled to one vote for each share of common stock in the Company which you held as of the close of business on March 30, 2015. |
Q. | What is a quorum and why is it important? |
A. | In the context of the Annual Meeting, a quorum is the presence at the meeting, either in person or by proxy, of stockholders holding the minimum number of shares of the Companys stock necessary to make the proceedings of that meeting valid under the Companys By-laws and applicable law. |
More specifically, the presence of stockholders at the meeting, in person or represented by proxy, holding a majority of the Companys issued and outstanding shares constitutes a quorum. As of March 30, 2015, there were 177,787,440 issued and outstanding shares of the Companys common stock, which is the only class of stock outstanding. Thus, the number of shares necessary to constitute a quorum in the context of the Annual Meeting is 88,893,721.
Q. | What are my choices when voting on a particular proposal? |
A. | You may vote FOR, AGAINST or ABSTAIN with respect to each proposal. |
Q. | How many votes are needed for the proposals to pass? |
A. | Election of Directors (Proposal No. 1). The affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy is required for election as a Director. The affirmative vote of a majority of the votes cast means that the number of votes cast FOR a Director Nominees election exceeds the number of votes cast AGAINST such Director Nominees election. Abstentions and broker non-votes are not counted as votes in this context. |
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Advisory Vote to Ratify Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm (Proposal No. 2) and Advisory Vote to Approve Named Executive Officer Compensation (Proposal No 3). Each of these proposals can be approved by the affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy. In this context, the affirmative vote of a majority of the votes cast means that the number of votes cast FOR a proposal exceeds the number of votes cast AGAINST such proposal. Abstentions and broker non-votes also are not counted as votes in this context. Please note, however, that the results of the votes regarding the appointment of the independent registered public accounting firm (Proposal No. 2) and the approval of Named Executive Officer compensation (Proposal No. 3) are non-binding.
Re-approval of the Material Terms of the Performance Goals Under the Companys Long-Term Performance Plan (Proposal No. 4) and Re-approval of the Material Terms of the Performance Goals Under the Companys Stock Incentive Plan (Proposal No. 5). Each of these proposals can be approved by the affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy In this context, the affirmative vote of a majority of the votes cast means that the number of votes cast FOR a proposal exceeds the number of votes cast AGAINST such proposal. Abstentions and broker non-votes are not counted as votes in this context.
Q. | What does it mean to ABSTAIN from voting and what impact does that have? |
A. | If you indicate on your proxy card that you wish to ABSTAIN from voting with respect to a particular proposal, your shares will not be voted with respect to that proposal. Your shares, however, will be considered present and entitled to vote at the meeting and will be counted to determine whether there is a quorum present at the Annual Meeting. Beyond being counted for purposes of establishing a quorum, the practical effect of voting to ABSTAIN may vary depending upon the proposal for which you submit it. Voting to ABSTAIN will have no effect on the outcome of any of the proposals because the outcome of the vote on each proposal will be based upon the number of votes cast and votes to ABSTAIN are not counted as votes cast. However, with respect to Proposal No. 2 (ratification of the appointment of the independent registered public accounting firm) and Proposal No. 3 (approval of Named Executive Officer compensation), the vote is advisory in nature and, to the extent that the Board considers and gives weight to the voting results when considering future action on the subject of the proposal, a vote to ABSTAIN provides no input to the Board with respect to your preference on that subject. |
Q. | Who will count the votes? |
A. | The votes will be counted by an inspector of election appointed by the Board. The Board has appointed Jeanine Simon of Computershare as the inspector of election and Michael Lang, also of Computershare, as an alternate inspector of election in the event Ms. Simon is unable to serve. |
Q. | What happens if I return my proxy card but do not mark how I want my votes to be cast? |
A. | If you timely return a signed and dated proxy card, but do not mark how your shares are to be voted, those shares will be voted by the Proxy Committee as recommended by the Board of Directors. |
Q. | How does the Board of Directors recommend that I vote? |
A. | The Board of Directors recommends that you vote your shares: |
1. | FOR the election of each of the nominee Directors (Proposal No. 1). |
2. | FOR the ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm (Proposal No. 2). |
3. | FOR the approval of Named Executive Officer compensation (Proposal No. 3). |
4. | FOR the re-approval of the material terms of the performance goals under the Companys Long-Term Performance Plan (Proposal No. 4). |
5. | FOR the re-approval of the material terms of the performance goals under the Companys Stock Incentive Plan (Proposal No. 5). |
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Eleven of the Companys incumbent Directors will stand for election at the Annual Meeting. One of them Ms. Shirley D. Peterson has decided not to stand for re-election after more than ten years of distinguished service on the AK Steel Board of Directors. If elected, each nominee will serve as a Director of the Company for a term expiring on the date of the next succeeding Annual Meeting and until his or her successor is duly elected and qualified. If any nominee is unable to serve, or determines prior to his or her election that he or she will be unable to serve, proxies may be voted by the proxy holders for another person designated by the Board of Directors. The Company has no reason to believe that any nominee will be unable to serve.
Overview
The Company is proud to have a Board of Directors comprised of a diverse group of distinguished and highly accomplished individuals, all of whom are independent except for Mr. Wainscott, the Companys President and Chief Executive Officer. Collectively, they bring a wide range of viewpoints and backgrounds to the Board, rooted in a broad base of complementary experience and expertise. They share a record of substantial achievements and extraordinary service in the public and private sectors and in charitable endeavors.
The Boards members include current and former top executives of leading American companies. Having overseen successful companies themselves, these Directors are able to assist the Companys Management in reaching and implementing key tactical and strategic decisions, leveraging experiences from their combined decades of leadership and experience. In many instances, the companies with which the Directors are or were formerly executives conduct business in areas that either are related to the Companys ongoing business or operations (such as the steel, iron ore or automotive business), or else share similar characteristics with the Companys business or operations (such as operating in the manufacturing sector).
Many of the Companys Directors also have served and currently serve on other boards of directors, including the boards of some of the worlds top companies, premier academic institutions and leading charitable organizations. Their experiences on these other boards enhance their base of experience and facilitate their ability to provide strategic oversight and direction to the Companys Management.
As with all boards of directors, the composition of the Companys Board changes over time, as new Directors replace those whose service to the Company has ended. The Nominating and Governance Committee, comprised entirely of independent Directors, is responsible for identifying, screening and recommending persons for nomination by the Board to serve as a Director. Directors are selected on the basis of, among other things, the following criteria listed in the Companys Corporate Governance Guidelines:
| personal qualities and characteristics, such as judgment, integrity, reputation in the business community and record of public service; |
| business and/or professional expertise, experience and accomplishments; |
| ability and willingness to devote sufficient time to the affairs of the Board and of the Company; |
| diversity of viewpoints, backgrounds and experience they will bring to the Board; and |
| the needs of the Company at the time of nomination to the Board and the fit of a particular individuals skills and personality with those of other Directors in building a Board that is effective and responsive to the needs of the Company. |
One of the explicit criteria listed above for selection as a Director nominee is the diversity of viewpoints, backgrounds and experience the potential nominee will bring to the Board. Thus, the Nominating and Governance Committee specifically considers diversity in discharging its duty to identify, screen and review individuals qualified to serve as Directors of the Company. In addition, pursuant to its Charter, the Committee
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also annually reviews the size and composition of the Board as a whole to consider whether the Board reflects the appropriate balance of skills, experience and other characteristics, including diversity. The Committee does not, however, apply a narrow definition of diversity that would limit it to an individuals gender, race, ethnic background or other such personal characteristics. Rather, the Committee views diversity as an expansive criteria that encompasses differing backgrounds, perspectives, personal qualities, technical skills, professional experience, expertise, education and other desired qualities. It utilizes this inclusive view in the context of identifying and evaluating nominees whose viewpoints, attributes and experiences, taken as a whole, will complement the existing Board and facilitate its ability to be effective and responsive to the needs of the Company and its stockholders.
The Nominating and Governance Committee may solicit input and/or recommendations from other members of the Board and/or independent advisors. After the Committees deliberations are completed, it reports its findings and recommendations to the Board. The Board then proposes a slate of nominees to the stockholders for election to the Board at the annual stockholders meeting. Between annual stockholders meetings, the Board (based on the recommendations of the Nominating and Governance Committee) may elect Directors to serve until the next annual meeting. Using this methodology, the Board nominates candidates whom the Board feels are the best available choice to complement the experience and expertise of the existing Directors and to represent the interests of the Company and its stockholders.
As a matter of good corporate governance, the Board includes a mandatory retirement age of 74 for Directors in its Corporate Governance Guidelines. As part of the Boards succession planning process, the Nominating and Governance Committee monitors when Directors are approaching that mandatory retirement age and takes appropriate action to be prepared for Director retirements. Toward that end, the Nominating and Governance Committee initiated a review process in 2014 to identify one or more potential new members of the Board of Directors. During this process the Nominating and Governance Committee evaluated potential new Directors utilizing the criteria discussed above. It also considered how candidates would complement the existing strengths and fulfill the needs of the Board, while contributing new and diverse viewpoints and experience to its overall makeup. At the conclusion of the process, the Nominating and Governance Committee recommended, and the Board approved, the election of one new member to the Board of Directors effective August 1, 2014. That new Director, Ms. Sheri H. Edison, is a Director nominee for the 2015 Annual Meeting.
Set forth below is a description of the particular experience, qualifications, attributes and skills of each Director nominee including Ms. Edison that led the Board to conclude that he or she should be nominated to serve as a Director of AK Steel. While each nominee, of course, has many other traits and qualifications to serve as a Director of AK Steel, the descriptions set forth below are intended to articulate the most significant of them and the ones to which the Board gave the most attention in its evaluation of who should be nominated to serve as a Director of AK Steel. As discussed above, however, the Board also gave consideration to the overall composition of the Board and to ensuring that the Board continues to have a broad diversity of viewpoints, backgrounds and experience.
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Information Concerning Nominees for Directors
Richard A. Abdoo |
Age: | 71
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AK Steel Director Since: | April 19, 2001
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AK Steel Committees: | Management Development and Compensation (Chair), Nominating and Governance
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Current Principal Occupation:
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President, R. A. Abdoo & Co., LLC
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Prior Significant Positions Held: | Served as Chairman and Chief Executive Officer of Wisconsin Energy Corporation from May 1991 to April 2004, and as President from May 1991 to March 2003
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Other Public Directorships Held:* | NiSource Inc. (2008 present), ZBB Energy Corporation (2009 present)
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Education: | Bachelor degree in electrical engineering from the University of Dayton; Master of Arts degree in economics from the University of Detroit
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Other Information: | Member of the American Economic Association and a registered professional engineer in Michigan, Ohio, Pennsylvania and Wisconsin
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Narrative Description of Experience, Qualifications, Attributes and Skills: | By virtue of his former positions as Chairman and Chief Executive Officer of Wisconsin Energy Corporation, as well as his current positions as a member of the Boards of Directors of two other energy-related companies, Mr. Abdoo has extraordinary expertise and experience pertaining to energy issues. Because the steel industry is an intense user of energy, his depth of knowledge of the energy industry is of particular note with respect to his qualifications to serve as a Director of AK Steel, though it clearly is not the sole reason for his nomination to the Board. More broadly, by virtue of his diverse background and experience, Mr. Abdoo provides valuable insights with respect to a broad range of business, social and governance issues facing corporations today. As a former Chief Executive Officer, Mr. Abdoo understands well the issues facing executive management of a major corporation. As a registered professional engineer in several states, Mr. Abdoo is able to offer a unique technical perspective to issues under consideration by the Board. By virtue of his long-time role as a champion of humanitarian and social causes, including on behalf of the Lebanese community, he has great expertise with respect to the social issues confronting corporate America. As a result of his commitment to and work on behalf of social causes, he is a recipient of the Ellis Island Medal of Honor, presented to Americans of diverse origins for their outstanding contributions to their own ethnic groups and to American society. |
* | Included in this section for Mr. Abdoo, and similarly for all other nominees below, are all directorships at public companies and registered investment companies held currently or at any time since January 1, 2010. |
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John S. Brinzo |
Age: | 73
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AK Steel Director Since: | January 19, 2007
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AK Steel Committees: | Finance, Management Development and Compensation, Nominating and Governance
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Current Principal Occupation: |
Retired Chairman of the Board of Directors and Chief Executive Officer of Cliffs Natural Resources, Inc. (f/k/a Cleveland-Cliffs Inc)
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Prior Significant Positions Held: | Served as Chairman, President and Chief Executive Officer of Cliffs Natural Resources, Inc. (f/k/a Cleveland-Cliffs Inc) from July 2003 until April 2005; served as Chairman and Chief Executive Officer of Cliffs Natural Resources, Inc. (f/k/a Cleveland-Cliffs Inc) from January 2000 until his retirement as CEO in September 2006 and subsequent retirement as Chairman in May 2007
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Other Public Directorships Held: | Delta Air Lines, Inc. (2007 present), Brinks Home Security Holdings, Inc. (2008 2010)
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Education: | Bachelor of Science degree in business administration from Kent State University; Master of Business Administration degree from Case Western Reserve University
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Other Information: | Chairman of the advisory council of the School of Business, Kent State University. Past Chairman of the National Mining Association. Past director of the American Iron and Steel Institute.
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Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Brinzo brings to the Board a broad knowledge of, and unique insights into, raw materials issues, an area which is and will remain vital to the Companys business. Mr. Brinzo guided Cliffs Natural Resources, Inc. (then known as Cleveland-Cliffs Inc) through some of the most difficult times in the history of the iron ore and steel industries, expanding the company with domestic and international acquisitions, and transforming it into a very successful world-wide enterprise. Mr. Brinzos contribution to the Board, however, is not limited to his industrial expertise and experience. He has years of executive management experience which he is able to draw upon when exercising his oversight responsibilities as a member of the Companys Board. In addition, by virtue of his service on other large company boards, such as Alpha Natural Resources, Inc., Brinks Home Security Holdings, Inc. and Delta Air Lines, Inc., Mr. Brinzo provides valuable experience in dealing with other areas of Board responsibility, including with respect to corporate governance and executive compensation matters. Mr. Brinzo also has an extensive financial background and served as Controller and Chief Financial Officer of Cliffs Natural Resources. He is a member of Delta Air Lines Audit Committee and has served on three other audit committees of publicly traded companies. |
8
Dennis C. Cuneo |
Age: | 65
| ||
AK Steel Director Since: | January 21, 2008
| |||
AK Steel Committees: | Audit, Public and Environmental Issues
| |||
Current Principal Occupation: |
Partner, Washington DC office, Fisher & Phillips LLP and President, DC Strategic Advisors, LLC
| |||
Prior Significant Positions Held: | Served as an attorney at Arent Fox LLP from 2006 to 2010, Senior Vice President of Toyota Motor North America, Inc. from 2000 to 2006, Corporate Secretary and Chief Environmental Officer of Toyota Motor North America, Inc. from 2004 to 2006, and Senior Vice President of Toyota Motor Manufacturing North America from 2001 to 2006
| |||
Other Public Directorships Held:
|
BorgWarner Inc. (2009 present)
| |||
Education: | Bachelor of Science in Business Administration degree from Gannon College; Master of Business Administration degree from Kent State University; Juris Doctor degree from Loyola University
| |||
Other Information: | Serves on the boards of directors for the Center for Automotive Research and SSOE Group. Member of the Visiting Committee of the University of Chicagos Physical Sciences Division. Served as Board Chairman of the Cincinnati Branch of the Federal Reserve from 2003 to 2004. Former member of the executive committee and chair of the human resources group of the National Association of Manufacturers. Previous gubernatorial appointments in California, Kentucky, and Mississippi. Serves on the Advisory Boards of View Inc. and UIEvolution.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Cuneo brings a wealth of experience in, and a deep understanding of, the automotive industry, a key part of the Companys product market and strategy. Mr. Cuneo is a former senior executive and officer at Toyota Motor North America, Inc. and Toyota Motor Manufacturing North America. Mr. Cuneos Toyota career spanned more than 22 years, during which he was responsible for legal affairs, administration, public relations, investor relations, environmental affairs, corporate advertising, government relations, philanthropy, planning, research and Toyotas Latin America Research Group. As one of Toyotas earliest American manufacturing executives, he was instrumental in the launch of the companys manufacturing operations in North America, and led Toyotas site selection team for North America for over 10 years. He continues to consult in the automotive industry, and sits on the Boards of BorgWarner Inc., a publicly-traded automotive supplier, and the Center for Automotive Research, a leading auto industry think tank. Thus, he not only brings to the Board his knowledge of the automotive industry and its trends, he also contributes significantly to its expertise and experience in a broad range of Board oversight areas. Mr. Cuneo also is a licensed attorney, so he is able to provide a legal perspective on issues facing the Board and the Company, particularly with respect to corporate governance and regulatory matters. |
9
Sheri H. Edison |
Age: | 58
| ||
AK Steel Director Since: | August 1, 2014
| |||
AK Steel Committees: | Audit, Management Development and Compensation, Nominating and Governance
| |||
Current Principal Occupation: |
Vice President, General Counsel and Secretary, Bemis Company, Inc.
| |||
Prior Significant Positions Held: | Senior Vice President, Chief Administrative Officer and Assistant Secretary of Hill-Rom, Inc. from 2007 to 2010; Vice President, Global Quality System, General Counsel, and Secretary of Hill-Rom, Inc. from 2006 to 2007; Vice President, General Counsel and Secretary of Hill-Rom, Inc. from 2003 to 2007; Vice President and General Counsel and Secretary of Batesville Casket Company from 2002 to 2003; Assistant General Counsel of LTV Steel Company from 1999 to 2002
| |||
Other Public Directorships Held:
|
None
| |||
Education: | Juris Doctor degree from Northwestern University School of Law, Bachelor of Arts degree in History and Journalism from the University of Southern California
| |||
Other Information: | Member, National Association of Corporate Directors (NACD) and NACD Fellow; Member of Board of Directors, Fox Cities Performing Arts Center; Alumnae, DirectWomen Board Institute
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Ms. Edison brings valuable knowledge and insight to the Board as a current executive officer of a large, publicly-traded manufacturer, as well as by virtue of her prior industry experience. As Vice President, General Counsel and Secretary of Bemis Company, she is able to share with the Board her experience and acumen dealing with the contemporary, evolving issues present in a complex, multinational manufacturer. In addition, Ms. Edisons service at Bemis and her prior roles in the legal department of other large manufacturing companies enables her to contribute a broad and deep understanding of the dynamic environment with respect to the legal, regulatory, enterprise risk and corporate governance issues regularly faced by the Company. Ms. Edison also brings experience in the steel industry, having previously served in a senior management position with LTV Steel Company. |
10
Mark G. Essig |
Age: | 57
| ||
AK Steel Director Since: | November 1, 2013
| |||
AK Steel Committees: | Audit, Finance, Public and Environmental Issues
| |||
Current Principal Occupation:
|
Chief Executive Officer, FKI Security Group
| |||
Prior Significant Positions Held: | Served as Chief Executive Officer of Rathgibson LLC from January 2011 to May 2012; served as President and CEO of Sangamon Industries LLC from May 2008 to January 2011; served as Chief Executive Officer of Aviation, Power & Marine, Inc. from January 2009 to January 2010; served as President and CEO of Barjan LLC from August 2002 to May 2008; served as Chief Executive Officer, President and Chairman of the Board of GS Industries from January 1998 to August 2002; held several positions at AK Steel including Executive Vice President Operations and Sales from 1997 to January 1998, Executive Vice President Sales 1994 to 1997, Vice President Sales and Marketing from 1992 to 1994 and Assistant to CEO and Vice President Human Resources in 1992; served as Chief Financial Officer of Washington Steel Corporation from 1990 to 1992 and as Vice President Finance and Administration from 1988 to 1990.
| |||
Other Public Directorships Held:
|
None
| |||
Education: | Bachelor degree from Loyola University; Master of Business Administration degree from the University of Illinois
| |||
Other Information: | Served on the Board of Directors of Steel Technologies from 2002 to 2008.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | As a current and former chief executive of several companies, Mr. Essig brings to the Board the perspective of a leader facing a dynamic business environment on a daily basis. He is an accomplished senior operating executive with a wealth of finance, sales and administration experience in a number of diverse industries, including significant experience with manufacturing businesses. In light of his past service as an executive officer of AK Steel and of Washington Steel, he brings with him to the Board a deep understanding of the steel industry and its challenges and opportunities. Mr. Essig also has experience heading various portfolio companies of private equity firms, where he maintained a keen focus on operational efficiency and maximizing shareholder value. |
11
William K. Gerber |
Age: | 61
| ||
AK Steel Director Since: | January 1, 2007
| |||
AK Steel Committees: | Finance, Audit (Chair), Public and Environmental Issues
| |||
Current Principal Occupation:
|
Managing Director, Cabrillo Point Capital LLC
| |||
Prior Significant Positions Held: | Served as Executive Vice President and Chief Financial Officer of Kelly Services, Inc. from 1998 to December 2007; served as Vice President-Finance from 1993 to 1998 and Vice President-Corporate Controller from 1987 to 1993 of L Brands Inc. (f/k/a The Limited Brands Inc.)
| |||
Other Public Directorships Held: | Wolverine World Wide, Inc. (2008 present), Kaydon Corporation (2007 2013)
| |||
Education: | Bachelor of Science in Economics degree from the Wharton School at the University of Pennsylvania; MBA degree from the Harvard Graduate School of Business Administration
| |||
Other Information: | Certified Public Accountant
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Gerber brings an impressive background in corporate finance and accounting to AK Steels Board. Mr. Gerber currently is Managing Director of Cabrillo Point Capital LLC, a private investment fund. Prior to that, he was Executive Vice President and Chief Financial Officer of Kelly Services, Inc., a global staffing solutions company. Prior to joining Kelly Services, Mr. Gerber held senior management positions in corporate finance for The Limited, Inc. He also is a Certified Public Accountant. By virtue of these and other positions, Mr. Gerber is one of the Boards audit committee financial experts. He thus contributes a broad and keen understanding of complex financial and accounting matters to the Board and its Audit Committee, which he chairs. The Board also benefits from Mr. Gerbers membership on the audit committee of Wolverine World Wide, Inc., as he is able to share best practices and ideas learned and developed during his service on that committee. |
12
Robert H. Jenkins |
Age: | 72
| ||
AK Steel Director Since: | January 24, 1996
| |||
AK Steel Committees: | Management Development and Compensation, Nominating and Governance (Chair)
| |||
Current Principal Occupation:
|
Lead Director of the Companys Board of Directors
| |||
Prior Significant Positions Held: | Served as the non-executive Chairman of the Board of the Company from October 2003 through December 2005; served as Chairman of the Board of Sundstrand Corporation from April 1997 and as President and Chief Executive Officer of that company from September 1995, in each case until his retirement in August 1999 following the merger of Sundstrand Corporation with and into United Technologies Corporation in June 1999; employed by Illinois Tool Works as its Executive Vice President and in other senior management positions for more than five years prior thereto
| |||
Other Public Directorships Held: | Clarcor Inc. (1999 present), ACCO Brands Corporation (2007 present; Presiding Independent Director 2009 2013; 2014 present), Jason Industries, Inc. (2014 present)
| |||
Education: | Bachelor of Science degree in Business Administration from the University of Wisconsin
| |||
Other Information: | Past member of the board of trustees for the Manufacturers Alliance and the National Association of Manufacturers. Past member of the board of directors of Sentry Insurance and Visteon Corporation.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Jenkins brings to the Board a long and accomplished history of service and leadership on this Board and on the boards of other companies. He was previously selected by Board Alert as one of the years seven Outstanding Directors in the United States. In addition to serving as the Lead Director of AK Steel, he also serves as the Presiding Independent Director of ACCO Brands Corporation. He has a keen understanding of executive management issues by virtue of his own experiences as an executive in the private sector, including as former Chairman and Chief Executive Officer of Sundstrand Corporation and as a senior executive at Illinois Tool Works. His prior experience with Sundstrand and Illinois Tool Works also provided Mr. Jenkins with an in-depth understanding of industrial processes and management of a manufacturing business. The Board and the Companys Management gain valuable strategic and operational guidance from Mr. Jenkins, owing to his depth and breadth of experience in manufacturing companies and his history of board leadership positions. |
13
Ralph S. Michael, III |
Age: | 60
| ||
AK Steel Director Since: | July 20, 2007
| |||
AK Steel Committees: | Finance (Chair), Audit, Management Development and Compensation
| |||
Current Principal Occupation: | President and Chief Executive Officer, Fifth Third Bank, Greater Cincinnati
| |||
Prior Significant Positions Held: | Former President and Chief Operating Officer of the Ohio Casualty Insurance Company from July 2005 until its sale in August 2007; served as Executive Vice President and Manager of West Commercial Banking for U.S. Bank, National Association, and then as Executive Vice President and Manager of Private Asset Management for U.S. Bank, from 2004 through July 2005; served as President of U.S. Bank Oregon from 2003 to 2005; served as Executive Vice President and Group Executive of PNC Financial Services Group, with responsibility for PNC Advisors, PNC Capital Markets and PNC Leasing, from 2001 to 2002; served as Executive Vice President and Chief Executive Officer of PNC Corporate Banking from 1996 to 2001
| |||
Other Public Directorships Held: | Key Energy Services Inc. (2003 present), Arlington Asset Investment Corporation (2006 present), and FBR & Co. (2009 2013)
| |||
Education: | Bachelor of Arts degree in economics from Stanford University; Master of Business Administration degree from the University of California at Los Angeles (UCLA) Graduate School of Management
| |||
Other Information: | Serves on the boards of directors of The Cincinnati Bengals, Inc., the Cincinnati Center City Development Corporation, CSAA Insurance Exchange and AAA-Allied Group. Serves on the board of trustees of Xavier (OH) University, TriHealth, Inc., and the Cincinnati Chapter of The American Red Cross.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Michael brings a strong business, banking and financial background to the Board. Mr. Michael has held executive level positions with several companies in the insurance and financial sectors, including in his current capacity as President and Chief Executive Officer of Fifth Third Bank, Greater Cincinnati. Previously, Mr. Michael held various executive and management positions with Ohio Casualty Insurance Company, U.S. Bank and PNC Financial Services Group. As a result of these years of experience in executive management and financial services, Mr. Michael is one of the Boards audit committee financial experts. His experience and background also enable him to provide valuable insights on a variety of Board oversight matters, including complex banking and financial issues. In addition, the Board and Management benefit from the experience and knowledge Mr. Michael provides from service on other public company boards. These include capital markets and finance matters as a former director for FBR & Co. and energy-related issues as a member of the board and Lead Director of Key Energy Services, Inc. |
14
Dr. James A. Thomson |
Age: | 70
| ||
AK Steel Director Since: | March 18, 1996
| |||
AK Steel Committees: | Audit, Public and Environmental Issues (Chair)
| |||
Current Principal Occupation:
|
Retired President and Chief Executive Officer of The RAND Corporation | |||
Prior Significant Positions Held: | President and Chief Executive Officer of The RAND Corporation from 1989 to 2011. From 1977 to January 1981, Dr. Thomson was a member of the National Security Council staff at the White House. He served on the staff of the Office of the Secretary of Defense from 1974 to 1977.
| |||
Other Public Directorships Held:
|
None
| |||
Education: | Bachelor of Science degree in physics from the University of New Hampshire; M.S. and Ph.D. in physics from Purdue University
| |||
Other Information: | Member of the Council on Foreign Relations, New York; serves on the board of directors of Praedicat, Inc., the International Institute for Strategic Studies, London, the Los Angeles World Affairs Council and the Los Angeles Regional Food Bank. Former member of the National Security Council staff at the White House, where he was primarily responsible for defense and arms-control matters related to Europe, and the staff of the Office of the Secretary of Defense.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Dr. Thomson is the former President and Chief Executive Officer of The RAND Corporation. Dr. Thomson had been President and Chief Executive Officer of The RAND Corporation since 1989 and a member of its staff since 1981. RAND is a nonprofit, nonpartisan institution that seeks to improve public policy through research and analysis. RANDs agenda is broad, including international security, supply chains, health policy, energy and environment, and economics, to name just a sample. Through his position as the top executive of, and years of service with, a think tank providing policy-related research and analysis, Dr. Thomson is able to provide the Board and the Company an unparalleled perspective and depth of knowledge with respect to public policy issues and global trends that affect the Companys business. As a result, Dr. Thomson is extremely well-suited for his position as Chair of the Public and Environmental Issues Committee. As a former CEO, Dr. Thomson also provides a valuable perspective on the current issues confronting executive management. |
15
James L. Wainscott |
Age: | 58
| ||
AK Steel Director Since: | October 16, 2003
| |||
AK Steel Committees: | None
| |||
Current Principal Occupation: | Chairman, President and Chief Executive Officer of the Company
| |||
Prior Significant Positions Held: | President and Chief Executive Officer of the Company from October 2003 to December 2005; Chief Financial Officer from July 1998 to October 2003; Treasurer of the Company from April 1995 to April 2001; elected Senior Vice President of the Company in January 2000, having previously served as Vice President since April 1995.
| |||
Other Public Directorships Held:
|
Parker-Hannifin Corporation (2009 present)
| |||
Education: | Bachelor of Science degree in accounting from Ball State University; Master of Business Administration degree from the University of Notre Dame
| |||
Other Information: | Former Chairman and current member of the board of trustees for the Good Samaritan Hospital Foundation and serves on the board of trustees of Xavier (OH) University; Former Chairman, American Iron and Steel Institute; Certified Public Accountant, Certified Management Accountant, Certified Internal Auditor, Certified Information Systems Auditor and Chartered Financial Analyst.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Wainscott serves as the Chairman of the Board and the Companys Chief Executive Officer and President. Mr. Wainscott began his steel industry career in 1982 with the former National Steel Corporation, holding a number of increasingly responsible positions at plant and corporate headquarters levels. He joined AK Steel as vice president and treasurer in 1995, later advancing to senior vice president and CFO before becoming the Companys President and Chief Executive Officer in 2003. By virtue of this experience, Mr. Wainscott has an extraordinarily broad and deep knowledge of the Company and the steel industry. As the only employee-Director on the Board, he is able to provide the Board with an insiders view of what is happening in all facets of the Company. He shares not only his vision for the Company, but also his hands-on perspective as a result of his daily management of the Company and constant communication with employees at all levels. A former chairman of the American Iron and Steel Institute, Mr. Wainscott is able to furnish the Board with the most recent and relevant information affecting the steel industry. Mr. Wainscotts appointment to the board of directors of the Parker-Hannifin Corporation has further expanded his exposure to other management styles and governance perspectives. |
16
Vicente Wright |
Age: | 62
| ||
AK Steel Director Since: | November 1, 2013
| |||
AK Steel Committees: | Finance, Nominating and Governance, Public and Environmental Issues
| |||
Current Principal Occupation: | Retired President and Chief Executive Officer of California Steel Industries
| |||
Prior Significant Positions Held: | President and Chief Executive Officer of California Steel Industries from July 2008 to July 2012; director of iron ore and pellets sales for VALE SA from January 2007 to June 2008; President and CEO of Rio Doce America Inc. (RDA) and Rio Doce Limited (RDL), a subsidiary of VALE SA, from October 2004 to December 2006; President and CEO of California Steel Industries from March 2003 to June 2004, and as Executive Vice President, Finance and CFO from February 1998 to February 2003.
| |||
Other Public Directorships Held:
|
None
| |||
Education: | Bachelor degree in marketing from Marquette University
| |||
Other Information: | Former Chairman and serves on the board of directors for Childrens Fund; former member of the board of directors of American Iron and Steel Institute; former Chairman of California Steel Industries; former board member of Acominas steel mill in Brazil; former board member of CSN steel mill in Brazil; former Chairman and board member of Nova Era Silicon ferro silicon mill in Brazil; and former board member of SEAS ferro manganese mill in France.
| |||
Narrative Description of Experience, Qualifications, Attributes and Skills: | Mr. Wrights extensive experience in both the steel and iron ore industries enables him to contribute a wealth of strategic and operational knowledge with respect to key issues affecting the Company. As a former Chief Executive Officer of another major steel company, he is able to provide valuable insights into the current challenges and opportunities for the Companys steel business. In addition, by virtue of his experience working for one of the worlds largest iron ore producers, he is able to provide guidance with respect to significant trends and emerging issues pertaining to one of the Companys most significant raw materials. Having served as an executive for several large international metals and mining companies, he brings to the Board a global and diverse perspective to the Companys business. Mr. Wright also is multi-lingual and has worked in various regions of the world throughout his distinguished career. |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE FOREGOING NOMINEES.
17
Committees of the Board of Directors
The Board of Directors has five standing committees: an Audit Committee, a Finance Committee, a Management Development and Compensation Committee, a Nominating and Governance Committee, and a Public and Environmental Issues Committee. The table below shows the current membership for each Board committee.
Director |
Audit Committee |
Finance Committee | Management Development and Compensation Committee |
Nominating and Governance Committee |
Public and Environmental Issues Committee | |||||
Richard A. Abdoo |
ü(Chair) | ü | ||||||||
John S. Brinzo |
ü | ü | ü | |||||||
Dennis C. Cuneo |
ü | ü | ||||||||
Sheri H. Edison |
ü | ü | ü | |||||||
Mark G. Essig |
ü | ü | ü | |||||||
William K. Gerber |
ü(Chair) | ü | ü | |||||||
Robert H. Jenkins(1) |
ü | ü(Chair) | ||||||||
Ralph S. Michael, III |
ü | ü(Chair) | ü | |||||||
Shirley D. Peterson(2) |
ü | ü | ||||||||
Dr. James A. Thomson |
ü | ü(Chair) | ||||||||
James L. Wainscott(3) |
||||||||||
Vicente Wright |
ü | ü | ü |
(1) | Mr. Jenkins is the independent Lead Director of the Board. |
(2) | Mrs. Petersons current Committee membership is shown on the chart above. She will cease to be a member of those Committees following the 2015 Annual Meeting of Stockholders by virtue of the fact that, as previously disclosed, she has elected not to stand for re-election to the Board. |
(3) | Mr. Wainscott is the Chairman of the Board. |
Audit Committee
The Audit Committee currently has seven members and met nine times in 2014. The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibility to oversee Managements conduct of the Companys financial reporting process, including:
| overseeing the integrity of the Companys financial statements; |
| monitoring compliance with legal and regulatory requirements; |
| assessing the independent registered public accounting firms qualifications and independence; |
| assessing the performance of the independent registered public accounting firm and internal audit function; |
| determining annually that one or more of its members meets the definition of audit committee financial expert within the meaning of the Sarbanes-Oxley Act of 2002; and |
| reviewing annually the financial literacy of each of its members, as required by the New York Stock Exchange listing standards. |
In fulfilling these responsibilities, the Audit Committee selects and appoints the independent registered public accounting firm that will serve as the independent auditor of the Companys annual financial statements. As a matter of good corporate governance, the Committee seeks non-binding ratification by the Companys
18
stockholders of the appointment of that firm as the Companys independent registered public accounting firm. The Committee also meets with representatives of that accounting firm to review the plan, scope and results of the annual audit, the Companys critical accounting policies and estimates, and the recommendations of the independent registered public accounting firm regarding the Companys internal accounting systems and controls. The report of the Audit Committee is located on page 83.
At its March 2015 meeting, the Board of Directors determined that all of the members of the Audit Committee are financially literate and that each of Messrs. Essig, Gerber and Michael is an audit committee financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the Exchange Act). The Board further determined that each member of the Audit Committee satisfies the independence requirements of New York Stock Exchange Listed Company Manual Sections 303A.02, 303A.06 and 303A.07 and Rule 10A-3 of the Exchange Act. The Audit Committee and each of its members also satisfy all other requirements of those provisions.
Finance Committee
The Finance Committee currently has five members and met nine times in 2014. The primary purpose of the Finance Committee is to advise and assist the Board in fulfilling its oversight responsibilities with respect to:
| the Companys exposure to short- and long-term financial risk and Managements strategies, plans and procedures to manage such risks, including its hedging strategies; |
| the Companys capital structure and liquidity, including credit facilities; |
| Managements assessment of the Companys cash needs, evaluation of capital market and other options to assist in addressing those needs, and recommendations with respect to those options; and |
| the performance of the members of any Benefit Plans Administrative Committee and any Benefit Plans Asset Review Committee of the Company, and the performance of assets under the direction of the Benefit Plans Asset Review Committee. |
Management Development and Compensation Committee
The Management Development and Compensation Committee currently has five members and met six times in 2014. The primary purpose of the Management Development and Compensation Committee is to assist the Board in overseeing the Companys management compensation policies and practices, including:
| overseeing and reporting to the Board on the development and implementation of the Corporations policies and programs for the development of its senior leadership; |
| overseeing and reporting to the Board on the development and implementation of the Corporations Executive Officer succession plan; |
| determining and approving the compensation of the Companys Chief Executive Officer; |
| determining and approving compensation levels for the Companys other Executive Officers; |
| reviewing and approving management incentive compensation policies and programs; |
| reviewing and approving equity compensation programs for employees; |
| reviewing and approving the Compensation Discussion and Analysis for inclusion in the proxy statement; |
| reviewing and assessing the Corporations compensation program to determine whether any of its aspects encourage excessive or inappropriate risk-taking; |
| reviewing and assessing any stockholder advisory vote on the compensation of the Corporations Named Executive Officers (say-on-pay vote) and considering whether to make any adjustments to the Corporations executive compensation policies and practices in light of such assessment; |
19
| reviewing and recommending to the Board the frequency with which the Corporation should submit to the stockholders a say-on-pay vote; and |
| reviewing the independence of compensation committee consultant(s). |
At its March 2015 meeting, the Board of Directors determined that all of the members of the Management Development and Compensation Committee are non-employee directors as that term is defined in Rule 16b-3(b)(3) under the Exchange Act. The Board also determined that all of the current members of the Committee are outside directors as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The Board further determined that each member of the Management Development and Compensation Committee satisfies the independence requirements of New York Stock Exchange Listed Company Manual Section 303A.02. The Management Development and Compensation Committee and each of its members also satisfy all of the requirements of New York Stock Exchange Rule 303A.05. The Management Development and Compensation Committee and each of its members also satisfy all other requirements of those provisions. For additional information concerning the Management Development and Compensation Committee and its activities, see Compensation Discussion and Analysis beginning on page 32.
Nominating and Governance Committee
The Nominating and Governance Committee currently has six members and met five times in 2014. The primary purpose of the Nominating and Governance Committee is to assist the Board in:
| reviewing the size and composition of the Board as a whole, including whether the Board reflects the appropriate balance of independence, sound judgment, business specialization, technical skills, diversity and other desired qualities; |
| identifying, screening and reviewing individuals qualified to serve as Directors and recommending to the Board candidates for nomination for election at the Annual Meeting of Stockholders or to fill Board vacancies; |
| overseeing the Companys policies and procedures for the receipt of stockholder suggestions regarding Board composition and recommendations of candidates for nomination by the Board; |
| developing, recommending to the Board and overseeing implementation of the Companys Corporate Governance Guidelines; |
| reviewing on a regular basis the overall corporate governance of the Company and recommending improvements when necessary; |
| considering the independence and related qualifying determinations of each Director and nominee for Director and making a recommendation to the Board with respect to such matters; and |
| reviewing the Companys policies and procedures for the review, approval or ratification of reportable transactions with related persons, including reviewing and addressing conflicts of interest of Directors and Executive Officers, and making a recommendation to the Board with respect to such matters. |
At its March 2015 meeting, the Board of Directors determined that all of the members of the Nominating and Governance Committee satisfy the independence requirements of New York Stock Exchange Listed Company Manual Sections 303A.02 and 303A.04. The Nominating and Governance Committee and each of its members also satisfy all other requirements of those provisions.
In fulfilling its responsibility of identifying, screening and recommending persons for nomination by the Board to serve as a Director, the Committee may solicit input and/or recommendations from other members of the Board and/or independent advisors. After the Committee deliberates, it reports its findings and recommendation to the Board. The Board then considers that recommendation and proposes a slate of nominees to the stockholders for election to the Board. In addition to meeting independence requirements, nominees for the
20
Board must not have reached their 74th birthday at the time of their election. The principal criteria used for the selection of nominees, as well as the focus of the Committee on diversity as part of the selection process, is described more fully above at page 5 under Overview.
The Nominating and Governance Committee will give appropriate consideration to candidates for Board membership nominated by stockholders in accordance with the Companys By-laws, or as otherwise recommended, and will evaluate such candidates in the same manner as other candidates identified to the Committee. Any such recommendations may be submitted in writing to the Chairman of the Nominating and Governance Committee, c/o Secretary, AK Steel Holding Corporation, 9227 Centre Pointe Drive, West Chester, Ohio 45069, and should contain all required information and any other supporting material the stockholder considers appropriate. The Committee also will consider whether to nominate any person nominated by a stockholder pursuant to the provisions of the Companys By-laws relating to stockholder nominations as described below at page 97 in Stockholder Proposals for the 2015 Annual Meeting and Nominations of Directors. No such nominee was recommended by any stockholder or stockholder group for election at the 2014 Annual Meeting.
Public and Environmental Issues Committee
The Public and Environmental Issues Committee currently has five members and met five times in 2014. The primary purpose of the Public and Environmental Issues Committee is to review on behalf of the Board, and to advise Management with respect to, significant public policy, environmental, legal, health and safety, and trade issues pertinent to the Company and its policies.
Majority Voting
Section 7(a) of the Companys By-laws provides that each Director in an uncontested election shall be elected by the vote of the majority of votes cast at any meeting for the election of Directors. The By-laws also include a Director resignation procedure consistent with the majority vote standard requiring an incumbent Director who does not receive the requisite affirmative majority of the votes cast for the Directors re-election to tender his or her resignation to the Board within 30 days. The Board, after considering the recommendation of the Nominating and Governance Committee on the matter, will publicly disclose its decision as to whether to accept the tendered resignation within 90 days after the certification of election results.
Director nominees in contested elections will continue to be elected by the vote of a plurality of the votes cast.
Attendance at Meetings
The Board of Directors met twelve times in 2014. The Company expects each Director to make a diligent effort to attend all Board meetings and meetings of those committees of which he or she is a member. During 2014, all Directors attended 100% of the aggregate of the total meetings of the Board and those committees of which he or she was a member except as follows: one Director attended approximately 87% and one other Director attended approximately 96% of such meetings. The Company does not have a formal written policy regarding Director attendance at the Annual Meeting, although Directors are encouraged to attend. Eleven of the twelve Directors in office at that time attended the 2014 Annual Meeting in person.
Director Stock Ownership Guidelines
Under the stock ownership guidelines for non-employee Directors, each such Director is expected to hold at least 25% of the shares of the Companys common stock issued to that Director pursuant to a restricted stock unit award until at least six months following the Directors termination of service on the Board. All of the Directors currently are in compliance with the stock ownership guidelines.
21
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Companys Directors and officers, and persons who own beneficially more than ten percent of a registered class of the Companys equity securities, to file with the Securities and Exchange Commission initial reports of ownership of the equity securities of the Company and reports of changes in that ownership. Exchange Act Rule 16a-3(e) requires officers, Directors and greater-than-ten-percent beneficial owners to furnish the Company with copies of all reports that they file pursuant to Section 16(a). To the Companys knowledge, based upon a review of the copies of the reports furnished to the Company and written representations from its Executive Officers and Directors that no other reports were required, all Section 16(a) filing requirements applicable to the Companys officers and Directors were complied with during 2014.
Board Leadership Structure
The Companys Chief Executive Officer, Mr. James L. Wainscott, currently also serves as the Chairman of its Board of Directors. He has held both roles since first being elected to the position of Chairman in January 2006. In keeping with what the Board views as a best practice for public companies with a combined chief executive and chairperson, since January 2006 the Board also has appointed an independent Director to serve as the Lead Director of the Board. Mr. Robert H. Jenkins has served in that role since it was established in January 2006.
While the Board presently believes that combining the Chief Executive Officer and Chairman roles is the best and most efficient leadership structure for the Company, the Board expressly notes in its Corporate Governance Guidelines that it retains the authority to separate these functions if it deems such action appropriate. Indeed, that was the case immediately prior to combining the roles with Mr. Wainscott. From September 2003 until January 2006, Mr. Jenkins was the non-executive Chairman of the Board while Mr. Wainscott served as the Companys Chief Executive Officer.
In determining in 2006, and annually since then, that the Company and its stockholders would be best served with Mr. Wainscott leading the Board as it oversees the strategic direction, business and other affairs of the Company, the Board has considered many factors. Chief among the factors relied upon by the Board in determining that this leadership structure is appropriate are the following:
| Mr. Wainscotts extensive steel industry and financial experience gained during his career. The Board believes that this experience is particularly valuable in light of the many challenges currently facing the Company and the steel industry. The Company and the cyclical steel industry are continuing to face difficult business and economic conditions and continue to face significant technological, trade, environmental and other significant challenges to their business. Mr. Wainscotts experience provides an extremely valuable and particularly well-suited foundation for developing the business strategies and tactics to meet those challenges; |
| Mr. Wainscotts role in managing the Companys business on a day-to-day basis and the keen awareness of, insights into, and deep understanding of the most important matters affecting the Company which he derives from that role; |
| The combination of Mr. Wainscotts day-to-day management of the business in his role of Chief Executive Officer and his leadership of the Board in its oversight of the strategic initiatives and risk management uniquely enables Mr. Wainscott to assist the Board and Management in identifying potential material items of risk and to develop and implement solutions for addressing or mitigating such risks; |
| Mr. Wainscotts outstanding leadership and performance as Chief Executive Officer, including the extraordinary gains and improvements by the Company since he first became President and Chief Executive Officer in the fall of 2003; and |
| The benefits of centralized and unified Company leadership in one person so that there is no ambiguity as to who is accountable for leading the Company. |
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In making the determination concerning the Boards leadership structure, the Board considered the impact of the structure on its risk oversight role. The Board concluded that its role with respect to risk oversight is fully consistent with, and supported by, a leadership structure that includes a combined Chairman of the Board and Chief Executive Officer for the same reasons articulated above that the Board relied upon in selecting that leadership structure. In addition, there are policies and practices in place at the Company to ensure effective and independent Board oversight of Management and Mr. Wainscotts role as Chairman of the Board, including that: (i) all members of the Board other than Mr. Wainscott are independent Directors; (ii) each of the Boards committees is chaired by and comprised entirely of independent Directors; (iii) the Board, upon the recommendation of its Management Development and Compensation Committee, annually establishes goals and objectives for Mr. Wainscott and reviews his performance; (iv) the Management Development and Compensation Committee annually determines his compensation package; (v) the independent Directors meet in executive session without Mr. Wainscott or any other member of Management present, typically at least once during each regularly scheduled Board meeting and also during most of the meetings of its committees; (vi) the Board retains the authority to separate the roles of Chief Executive Officer and Chairman at its discretion in the future if it determines that the combination of the two is no longer in the best interests of the Board, the Company, or its stockholders; and (vii) the appointment and role of an independent Lead Director of the Board.
In addition, as noted above, the Board also believes that when the roles of Chief Executive Officer and Chairman are combined, it is appropriate to appoint an independent Lead Director. The Lead Director is responsible for presiding over meetings at which the Chair is not present, including when the Board meets in executive session, for coordinating the activities of the other independent Directors, and for performing the duties specified in the Companys Corporate Governance Guidelines. Specifically, the Lead Directors duties may include serving as a liaison between the Chair and/or members of Management and the independent Directors, collaborating with the Chair to schedule Board meetings and structure the agendas for such meetings, availing himself of direct communications from and with the Companys stockholders, and such other duties as the Board assigns.
Communication with the Board of Directors
Stockholders and interested parties may send communications to the Chairman of the Board, to the Lead Director, or to any one or more of the other Directors by addressing such correspondence to the name(s) of any specific Director(s), or to the Board of Directors as a whole, and mailing it to: Secretary, c/o AK Steel Holding Corporation, 9227 Centre Pointe Drive, West Chester, Ohio 45069.
Board Independence
In accordance with the requirements of the New York Stock Exchange (NYSE), the Board has adopted a policy that at least a majority of its members shall be independent, as determined under applicable law and regulations, including without limitation Section 303A of the NYSE Listed Company Manual. The Companys Corporate Governance Guidelines include categorical standards for determining the independence of all non-employee Directors. Those standards are set forth in guidelines attached as Exhibit A to the Companys Corporate Governance Guidelines, which are available on the Companys website at www.aksteel.com. A Director who meets all of the categorical standards set forth in the Corporate Governance Guidelines shall be presumed to satisfy the NYSEs definition of independence and thus be independent within the purview of the Boards policy on Director independence.
At its March 2015 meetings, the Board of Directors reviewed the independence of all current non-employee Directors. In advance of that meeting, each incumbent Director was asked to provide the Board with detailed information regarding his or her business and other relationships with the Company and its affiliates, and with Executive Officers and their affiliates, to enable the Board to evaluate his or her independence.
Upon the recommendation of the Audit Committee with respect to audit committee independence, the Management Development and Compensation Committee with respect to compensation committee
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independence, and the Nominating and Governance Committee with respect to all other aspects of Board independence, and after considering all relevant facts and circumstances with the assistance of legal counsel, the Board has affirmatively determined that none of the current incumbent Directors, except for Mr. Wainscott, has a material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company), other than being a Director, and all such incumbent Directors other than Mr. Wainscott meet the categorical standards of independence set forth in the Companys Corporate Governance Guidelines and therefore are independent as that term is used and defined in Section 303A of the NYSE Listed Company Manual and in Rule 10A-3 under the Exchange Act. The Board further determined that each of the incumbent Directors other than Mr. Wainscott and Mr. Essig is an Outside Director as that term is used in Section 162(m) of the Internal Revenue Code and the associated Treasury Regulations, 26 CFR § 1.162-27 et seq., and that each of the incumbent Directors other than Mr. Wainscott is a Non-Employee Director, as defined in Rule 16b-3(b)(3) promulgated under the Exchange Act.
Under the Companys Corporate Governance Guidelines, Directors have an affirmative ongoing obligation to inform the Board of any material changes that might impact the foregoing determinations by the Board. This obligation includes all business relationships between the Director and/or an immediate family member, on the one hand, and the Company and/or its affiliates and/or Executive Officers, on the other.
Board Oversight of Risk
As an integral part of its oversight function, the Board oversees the material risks facing the Company, both with respect to the relative probability and magnitude of the risks and also with respect to Managements strategies to mitigate those risks. The Board engages in its risk oversight role in a variety of different ways.
The Board as a whole typically discusses and addresses the key strategic risks facing the Company. Specific strategic risks facing the Company are addressed at Board meetings, both as they relate to particular projects or other topics being considered by the Board and in their own right as a separate agenda topic. In addition, at least once annually, the Board has a session devoted exclusively to strategic planning, including identifying and addressing the Companys principal strategic risks.
In addition, the Board delegates responsibility for oversight of specific risk categories to its Committees. Generally, each Committee has responsibility to identify and address risks which are associated with the purpose of and responsibilities delegated to that Committee. For example, the Audit Committee oversees risks related to financial reporting, internal controls, pension accounting and cyber security matters; the Nominating and Governance Committee manages risks related to board composition, director independence, governance, and corporate compliance and reporting obligations; the Management Development and Compensation Committee deals with risks related to senior Management development and succession planning, Management compensation, and employment benefits and policies; the Public and Environmental Issues Committee handles risks with respect to health and safety issues, public policy, international trade and Company reputation; and the Finance Committee oversees the Companys exposure to short- and long-term financial risk, including risks relating to the Companys capital structure, liquidity, hedging strategies, pension and benefit plans, pension fund asset performance and cash needs. Each Committee Chair reports to the full Board with respect to any significant risks which the Committee has discussed. Depending upon the nature and severity of the risk, the Committee may simply report to the Board with respect to that risk or it may make recommendations to the Board which then are discussed and acted upon by the Board as a whole. For those risks that cross several disciplines or which could have impacts across various stakeholder groups, multiple Committees may review the relevant aspects of the risk in the committee setting prior to a discussion at the full Board session.
The Boards oversight of risk is enhanced by the detailed information it receives as a result of the Companys Total Enterprise Risk Management (TERM) program. The Company commenced the TERM program several years ago as a tool for identifying the key risks to the Company and discussing them with the Board in a prompt, logical and efficient manner. The TERM assessment is performed quarterly and involves evaluation of the key risks that the Company currently faces or is likely to encounter in the near- and medium-
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term. During the quarterly TERM assessment, each manager responsible for a significant area of the Companys business will review and, to the extent necessary, update or supplement a list of key risks affecting his or her respective business area. As part of that process, the manager evaluates each risk according to its likelihood of occurrence in the succeeding twelve months and, assuming that the development or event at risk were to occur, its most likely impact on the Companys financial condition, operations, industry or reputation. The most significant risk items identified in each quarterly report are discussed with the Audit Committee. In addition, a complete copy of the full TERM report is distributed to and discussed by the full Board, typically in the Boards regularly scheduled first quarter meeting.
The Boards consideration of risk is not limited to discussions during Board and Committee meetings. Rather, the Board communicates with senior Management as a group, or individually, concerning the Companys most significant risks whenever it deems such communications to be appropriate. In addition, each Director has complete access to all Company employees to the extent he or she may have questions concerning a particular risk.
Risk Assessment with Respect to Compensation Policies and Practices
At its January 2015 meeting, the Management Development and Compensation Committee (for purposes of this section, the Committee) reviewed the various design elements of the Companys compensation program to determine whether any of its aspects encourage excessive or inappropriate risk-taking. The scope of this review included aspects of executive compensation, as well as consideration of the items of the Companys compensation policies and practices that affect all employees. In general, the process used by the Committee to complete its risk evaluation was as follows:
| The Committee identified the most significant risks facing the Company. |
| The Committee identified the material design elements of the Companys compensation policies and practices with respect to all employees. |
| The Committee then evaluated whether there is a relationship between any of those design elements and any of the Companys most significant risks. More specifically, the Committee evaluated whether any of the design elements of the Companys compensation policies and practices encourage the Companys employees to take excessive or inappropriate risks that are reasonably likely to have a material adverse impact on the Company. |
The result of the Committees evaluation was a conclusion that the Companys compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. More specifically, the Committee concluded that the Companys compensation program is designed to encourage employees to take actions and pursue strategies that support the best interests of the Company and its stockholders, without promoting excessive or inappropriate risk.
The design elements of the Companys program (which are described in detail in the Compensation Discussion and Analysis section beginning at page 32) do not include unusual or problematic compensatory schemes that have been linked to excessive risk-taking in the financial and other industries. Furthermore, the design elements of the Companys compensation program that directly tie compensatory rewards to the Companys performance include various counter-balances designed to offset potentially excessive or inappropriate risk-taking. For example, there is a balance between the fixed components of the program and the performance-based components. Similarly, with respect to the performance-based components, there is a balance between annual and longer-term incentives. Thus, the overall program is not too heavily weighted towards incentive compensation, in general, or short-term incentive compensation, in particular. The financial incentives are not based simply upon revenue. Rather, they are tied to performance metrics such as net income and EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) which more closely align the interests of Management with the interests of the Companys stockholders. The performance metrics for incentive payments are established annually (either for the then-current year or for a three-year performance period beginning with
25
the then-current year) and reflect goals that are a stretch, but not so high that they require performance outside of what the Committee believes is reasonable for the Company. There are caps on how much performance-based compensation may be earned in a particular performance period and the Board of Directors has adopted a policy for clawback of performance-based compensation that was paid out as a result of fraudulent or illegal conduct on the part of the employee who received it. In addition, the Committee maintains an ongoing dialogue with the Companys Management to track progress on performance-based goals in order to foresee and avoid any excessive or inappropriate risk-taking that may otherwise be driven by a desire to maximize performance-based compensation.
Related Person Transactions
All related person transactions, as such transactions are defined by Item 404(a) of Regulation S-K under the Exchange Act, must be reviewed and approved or ratified by the Board (or a committee of the Board to which such responsibility is delegated by the Board) for the purpose of determining whether such transactions are in, or not inconsistent with, the best interests of the Company and its stockholders.
Based on information submitted to the Company by Directors and Executive Officers (on an annual basis) and nominees (prior to their election or appointment to the extent practicable), the Company develops a list of related persons, which it distributes annually to individuals in the Company who might reasonably be expected to have responsibility for a transaction or proposed transaction between the Company and a related person. Directors and Executive Officers are expected to timely update the information they submit to the Company in the event of relevant changes or developments.
The recipients of the list must provide prior notice to the Companys General Counsel of any plans or intentions for anyone within their respective business units, departments or areas of responsibility to enter into any agreement by or on behalf of the Company with a related person. If the General Counsel determines that the proposed transaction is a related person transaction, the transaction will be submitted to the Nominating and Governance Committee for its consideration and approval at its next meeting.
The Nominating and Governance Committee considers all available and relevant facts and circumstances in determining whether to approve a related person transaction submitted for its review, including, if applicable:
| the benefits of the transaction to the Company; |
| the impact on a Directors independence in the event the related person is a Director, an immediate family member of a Director, or an entity in which a Director is a partner, stockholder or Executive Officer; |
| the availability of other sources for comparable products or services; |
| the terms of the transaction; and |
| the terms available to unrelated third parties or to employees generally with respect to a comparable transaction. |
The Nominating and Governance Committee approves only those related person transactions that it determines are in, or are not inconsistent with, the best interests of the Company and its stockholders.
In the event that the Company enters into a legally binding related person transaction before approval by the Nominating and Governance Committee, then the Nominating and Governance Committee will review the transaction at its next meeting unless it is subject to an exemption. The Nominating and Governance Committee will determine whether to ratify a related person transaction by applying the same procedures and standards that it would have used to determine whether to approve a related person transaction in advance. In the event that the Nominating and Governance Committee determines that it would not be appropriate to ratify the transaction, the Nominating and Governance Committee will identify the options available to the Company, including but not limited to rescission, amendment or termination of the related person transaction.
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During its 2014 fiscal year, the Company participated in two series of transactions of immaterial size, each of which constituted a related person transaction as defined by Item 404(a) of Regulation S-K under the Exchange Act. The first of these transactions involved routine machine maintenance and repair services provided by Whitt Machine Inc., a company whose sole owner is Mr. Dean Whitt, the father-in-law of Mr. Kirk Reich, the Companys Senior Vice President, Manufacturing. In consideration for these services, the Company paid a total of approximately $665,935 to Whitt Machine in 2014. The transactions were performed under the Companys standard terms and conditions at competitive prices. The second series of transactions involved routine machine maintenance and repair services by Dalton Industries, Inc. on the Companys hot strip mills at its Middletown and Mansfield Works. Mr. Reichs wife is a sales person for Dalton Industries, Inc. In consideration for these services, the Company paid a total of approximately $6 million to Dalton Industries, Inc. in 2014. These transactions also were performed under the Companys standard terms and conditions at competitive prices. In 2014, the Nominating and Governance Committee reviewed the facts and circumstances relevant to each of these series of transactions and, in accordance with the Companys Related Person Transaction Policy and Item 404(a) of Regulation S-K, determined that they were in, or not inconsistent with, the best interests of the Company and its stockholders. The Nominating and Governance Committee then approved these 2014 transactions pursuant to the Companys Related Person Transaction Policy.
Documents Available on the Companys Website
The charters of the Audit, Finance, Management Development and Compensation, Nominating and Governance, and Public and Environmental Issues Committees, as well as the Companys Corporate Governance Guidelines, Code of Business Conduct and Ethics for AK Steel Directors, Officers and Employees, and Code of Ethics for Principal Officers of AK Steel, are posted on the Companys website at www.aksteel.com.
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On July 24, 2014, in consultation with the committees outside advisor, the Board of Directors, upon the recommendation of the Nominating and Governance Committee, approved certain changes to the compensation program for non-employee Directors. The Board approved a $5,000 increase to the cash component of the annual Board retainer fee, from $60,000 to $65,000, and a $15,000 increase in the restricted stock unit (RSUs) component of the annual Board retainer fee, from $90,000 to $105,000. These changes were effective as of August 1, 2014. The Director Compensation Table and its accompanying footnotes, which follow, set forth the Directors respective 2014 compensation in detail.
Each non-employee Director receives an annual Board retainer fee for service on the Board in the amount of $170,000, of which $105,000 is paid in the form of restricted stock units (RSUs) and $65,000 is paid in the form of cash or, at the Directors option, in the form of additional RSUs. RSUs vest immediately upon grant, but are not settled (i.e., paid out in the form of common stock) until one year after the date of the grant, unless a Director elects deferred settlement. As set forth in the Companys Stock Incentive Plan, Directors may elect to defer the settlement of their RSUs until six months following the date their service on the Board has ended. If a Director elects the deferral option, he or she also may elect to take distribution of the shares upon settlement in a single distribution or in annual installments not to exceed 15 years. Prior to settlement, the holder of an RSU is entitled to receive the value of all dividends and other distributions paid or made on the Companys common stock in the form of additional RSUs, but does not otherwise have any of the rights of a stockholder, including the right to vote the shares underlying the RSUs.
Each non-employee Director who chairs a committee of the Board of Directors receives an additional annual retainer. The annual retainer for the chair of the Audit Committee is $20,000. The annual retainer for the chair of the Management Development and Compensation Committee is $15,000. The annual retainer for each of the chairs of the Finance Committee, Nominating and Governance Committee and the Public and Environmental Issues Committee is $10,000. Mr. Jenkins also is paid an annual cash retainer fee in the amount of $60,000 for his service as Lead Director of the Board of Directors. In addition, the Company pays non-employee Directors $2,000 for each meeting that they attend of the Board and of a committee on which they serve as a member. Annual retainers for service as a committee chair and attendance fees are paid in cash or, at the Directors option, in the form of additional RSUs. The Company reimburses all Directors for the expenses they incur in attending meetings.
Director compensation is paid quarterly. Annual retainers are paid prospectively; attendance fees are paid retrospectively. RSUs are issued quarterly at the time the cash compensation is paid and are settled one-for-one (i.e., one RSU equals one share of Company common stock) on the settlement date.
Under the Director Deferred Compensation Plan, each year a Director may elect to defer any portion of his or her annual retainer or other director fees that are not paid in the form of RSUs. There are no preferential or above-market earnings in the Director Deferred Compensation Plan, and the Company does not make any contributions under the plan.
An employee of the Company who serves as a Director receives no additional compensation for such service. Mr. Wainscott currently is the sole employee who also serves on the Board of Directors.
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The following table sets forth the total compensation paid to non-employee Directors during the fiscal year ended December 31, 2014:
Name(1) |
Fees Earned or Paid in Cash ($) |
Restricted Stock Unit Awards ($)(3) |
Option Awards ($)(4) |
All Other Compensation ($)(5) |
Total ($) | |||||||||||||||
Richard A. Abdoo(2) |
$ | 59,271 | $ | 154,063 | $ | 0 | $ | 5,000 | $ | 218,334 | ||||||||||
John S. Brinzo |
126,083 | 96,250 | 0 | 5,000 | 227,333 | |||||||||||||||
Dennis C. Cuneo |
114,083 | 96,250 | 0 | 5,000 | 215,333 | |||||||||||||||
Sheri H. Edison(6) |
33,083 | 73,750 | 0 | 0 | 106,833 | |||||||||||||||
Mark G. Essig |
112,083 | 96,250 | 0 | 5,000 | 213,333 | |||||||||||||||
William K. Gerber |
152,083 | 96,250 | 0 | 5,000 | 253,333 | |||||||||||||||
Bonnie G Hill(7) |
54,000 | 45,000 | 0 | 5,000 | 104,000 | |||||||||||||||
Robert H. Jenkins |
178,083 | 96,250 | 0 | 0 | 274,333 | |||||||||||||||
Ralph S. Michael, III |
144,083 | 96,250 | 0 | 5,000 | 245,333 | |||||||||||||||
Shirley D. Peterson |
114,083 | 96,250 | 0 | 5,000 | 215,333 | |||||||||||||||
Dr. James A. Thomson |
122,083 | 96,250 | 0 | 5,000 | 223,333 | |||||||||||||||
Vicente Wright |
106,083 | 96,250 | 0 | 10,000 | 212,333 |
(1) | Mr. James L. Wainscott, the Companys Chairman, President and Chief Executive Officer, is not included in this table because he is an employee of the Company and thus receives no compensation for his service as a Director and Chairman of the Board of Directors. Mr. Wainscotts compensation from the Company for his service as an employee and Executive Officer is reported in the Summary Compensation Table beginning at page 65. |
(2) | Mr. Abdoo elected to take an additional portion of his compensation in the form of RSUs during 2014, pursuant to the terms of the Companys Stock Incentive Plan. This had the effect of reducing his cash compensation and increasing the value of his RSU awards in the table above. |
(3) | The amounts in this column reflect the aggregate grant date fair value of RSUs granted in 2014, computed in accordance with ASC Topic 718, CompensationStock Compensation (ASC Topic 718). The average of the high and low selling price of the Companys common stock on the date the fee is to be paid is used to calculate the number of RSUs to be issued. The actual number of RSUs granted each quarter is calculated by dividing the quarterly annualized amount (e.g., $26,250) by the average of the high and low sales price of the Companys common stock on the grant date. For 2014, Mr. Abdoo, Mr. Brinzo, Mr. Cuneo, Dr. Hill and Mr. Wright elected to defer settlement of their RSUs until six months following the date they complete their service on the Board. As of December 31, 2014, non-employee Directors had the following aggregate number of RSUs outstanding (rounded to the nearest whole number): Mr. Abdoo, 156,226; Mr. Brinzo, 68,085; Mr. Cuneo, 62,306; Ms. Edison, 12,821; Mr. Essig, 13,872; Mr. Gerber, 13,872; Mr. Jenkins, 13,872; Mr. Michael, 13,872; Mrs. Peterson, 13,872; Dr. Thomson, 19,651; and Mr. Wright, 26,656. |
(4) | No stock options were granted to Directors in 2014. As of December 31, 2014, non-employee Directors had the following aggregate number of options outstanding: Mr. Abdoo, 10,000; Mr. Brinzo, 10,000; Mr. Cuneo, 10,000; Mr. Gerber, 10,000; Mr. Jenkins, 10,000; Mr. Michael, 10,000; Mrs. Peterson, 10,000; and Dr. Thomson, 10,000. |
(5) | The amounts in this column constitute matching charitable gift donations made by the AK Steel Foundation pursuant to a matching gift program. Under this program, employees and Directors of the Company are eligible for matching contributions by the Foundation of up to $5,000 per person per calendar year to qualifying charitable institutions. In certain instances, because of timing issues related to when a contribution is made by a participant in the program and when the participant submits the related matching gift form to the Company, a participant could have matching contributions from the Foundation totaling up to $10,000 paid in a single year relating to contributions by the participant spanning two calendar years. |
(6) | Ms. Edison was elected to the Board effective August 1, 2014, so in 2014 she only received compensation for that remaining portion of the year during which she served. Upon her election, Ms. Edison received a grant of 3,300 RSUs. |
(7) | Dr. Hill retired as a Director on May 29, 2014. |
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Directors and Executive Officers
The table below provides stock ownership information as of March 30, 2015 with respect to the beneficial ownership of the Companys common stock by: (i) each Named Executive Officer listed in the Summary Compensation Table beginning on page 65, (ii) each current Director and each nominee for election as a Director, and (iii) all current and nominee Directors and Executive Officers of the Company as a group:
Directors and Executive Officers |
Shares Owned Beneficially(1) |
Percentage of Outstanding Shares(2) |
||||||
Richard A. Abdoo |
45,000 | * | ||||||
John S. Brinzo |
22,451 | * | ||||||
Dennis C. Cuneo |
25,712 | * | ||||||
Sheri H. Edison |
0 | * | ||||||
Mark G. Essig |
37,784 | * | ||||||
William K. Gerber |
73,548 | * | ||||||
David C. Horn |
438,069 | * | ||||||
Keith J. Howell |
155,526 | * | ||||||
Robert H. Jenkins |
145,681 | * | ||||||
Ralph S. Michael, III |
97,303 | * | ||||||
Roger K. Newport |
211,533 | * | ||||||
Shirley D. Peterson |
76,621 | * | ||||||
Kirk W. Reich |
165,394 | * | ||||||
Dr. James A. Thomson |
74,586 | * | ||||||
James L. Wainscott |
1,658,023 | * | ||||||
Vicente Wright |
20,000 | * | ||||||
All current and nominee Directors and current Executive Officers as a group (22 persons) |
3,603,733 | 2.03 | % |
(1) | A significant portion of the effective equity ownership in the Company by Directors is in the form of RSUs that do not satisfy the definition of shares beneficially owned for purposes of this table and therefore are not included in this table. An RSU is a grant valued in terms of stock, but no actual shares of stock are issued at the time of the grant. Directors had the following aggregate number of RSUs outstanding (rounded to the nearest whole number) as of March 30, 2015: Mr. Abdoo, 156,226; Mr. Brinzo, 68,085; Mr. Cuneo, 62,306; Ms. Edison, 12,821; Mr. Essig, 13,872; Mr. Gerber, 13,872; Mr. Jenkins, 13,872; Mr. Michael, 13,872; Mrs. Peterson, 13,872; Dr. Thomson, 19,651; and Mr. Wright, 26,656. |
The table includes stock options to purchase shares of common stock exercisable before May 28, 2015 as follows: Messrs. Abdoo, Brinzo, Cuneo, Gerber, Jenkins, and Michael, Dr. Thomson, and Mrs. Peterson, 10,000 shares each; Mr. Wainscott, 675,853 shares; Mr. Horn, 137,327 shares; Mr. Howell, 56,171 shares; Mr. Newport 73,940 shares; and Mr. Reich 61,667 shares. All outstanding stock options are included in these totals, regardless of whether their exercise price was above the price of the Companys common stock as of March 30, 2015.
(2) | An asterisk indicates ownership of less than 1%. |
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Other Beneficial Owners
The table below provides information with respect to each person known by the Company as of March 31, 2015 to own beneficially more than 5% of the outstanding common stock of the Company:
Name and Address of Beneficial Owner |
Shares Owned Beneficially |
Percentage of Outstanding Shares |
||||||
BlackRock Inc. |
15,469,243 | (1) | 8.7 | % | ||||
55 East 52nd Street |
||||||||
New York, NY 10022 |
||||||||
The Vanguard Group, Inc. |
11,067,163 | (2) | 6.2 | % | ||||
100 Vanguard Blvd. |
||||||||
Malvem, PA 19355 |
(1) | Based on information contained in a statement on Schedule 13G (Amendment No. 3) dated December 31, 2014 and filed January 22, 2015, BlackRock Inc. has sole investment and dispositive power over 15,469,243 shares and sole voting power over 15,032,882 shares of the outstanding common stock of the Company. |
(2) | Based on information contained in a statement on Schedule 13G (Amendment No. 5) dated December 31, 2014 and filed February 11, 2015, The Vanguard Group, Inc. has sole investment power and sole voting power over 11,067,163 shares of the outstanding common stock of the Company. |
Equity Compensation Plan Information
The table below provides information, as of December 31, 2014, with respect to compensation plans under which equity securities of the Company are authorized for issuance. All such plans have been approved by security holders.
Plan Category |
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) |
|||||||||
Equity compensation plans approved by security holders |
2,696,595 | $ | 11.16 | 5,894,395 |
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Compensation Discussion and Analysis
32
I. | Executive Summary of Pay-for-Performance Components and other Key Elements of the Executive Compensation Program |
Executive Compensation Program Overview
Key Executive Compensation Program Elements
The key elements of the Companys executive compensation program for its Executive Officers are:
| base salary; |
| annual performance-based awards under the Companys Management Incentive Plan (the Annual Incentive Plan); |
| long-term performance-based awards under the Companys Long-Term Performance Plan (the Long-Term Plan); |
| awards of stock options, restricted stock and performance shares under the Companys Stock Incentive Plan (the Stock Plan); and |
| certain employee benefits, perquisites and post-employment benefits. |
Key Company Policies and Practices which Help Link Executive Compensation to Performance
The Company also has adopted a variety of policies and practices that are intended to support the strong link between executive compensation and Company performance and thereby more closely align the interests of Management with the interests of the Companys stockholders. Key examples of such policies include the following:
| Annual say-on-pay shareholder vote; |
| Annual shareholder outreach program; |
| The Committees engagement of its own independent compensation consultant; |
| The use of peer group and other comparative survey data provided by an independent compensation consultant in determining executive compensation levels; |
| The establishment annually of a focus list of items for the CEO and an annual evaluation of the CEOs and the Companys performance that is factored into the annual determination of the CEOs compensation package; |
| The Committee engages in a comprehensive deep dive review of the Companys executive compensation program with the assistance of its independent executive compensation consultant every several years, in addition to its regular annual review of the effectiveness and competitiveness of the program; |
| A policy against re-pricing or replacing underwater options; |
| An executive compensation clawback policy applied to performance-based compensation; |
| Stockholder approval of certain severance agreements with senior executives; |
| Executive Officer stock ownership guidelines; |
| A policy prohibiting employees, including Executive Officers, from engaging in insider trading or hedging transactions, holding Company securities in margin accounts and the pledging of Company securities; |
| No tax gross-ups or single triggers in the change-of-control agreements with its Executive Officers; and, |
| Locking the Companys Executive Minimum and Supplemental Retirement Plan (SERP) in 2014 to then-existing participants and replacing it for officers elected thereafter with a new retirement plan providing a reduced level of benefits. |
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These policies and practices are described in more detail below.
Contextual Information for 2014 Executive Compensation
Impact of 2013 Performance on 2014 Compensation Decisions
The executive compensation data included in this Proxy Statement is for the calendar year 2014. The decisions by the Committee which laid the foundation for such compensation occurred in January 2014 and were based in significant part on the performance of the Company in 2013. Thus, in order to understand the Committees January 2014 compensation decisions, it is important to place them in context with an overview of the performance of the Company in 2013.
In many respects, 2013 was a year of significant improvement for the Company. Its financial performance improved substantially over 2012. However, the challenging economic and business conditions that started with the deep recession in 2008 lingered for the domestic steel industry into 2013. For this and other reasons, despite its improved financial performance, the Company still reported a net loss for 2013. In many other respects, however, it was a very successful year. The Companys pension and other postretirement benefit obligations declined by $719 million. The Companys quality performance continued to be very strong, garnering many awards and establishing several all-time Company records. The Companys safety performance was once again industry-leading and 2013 tied the Companys best year ever. From a customer sales perspective, the Company experienced improved demand for its steel sold to the automotive market and its shipments to that important market increased year-over-year. In addition, from the end of 2012 to the end of 2013 the Companys stock price increased by approximately 78%. Thus, there were substantial achievements by the Company in 2013, many of which laid the foundation for an even better future.
It was in that context that the Committee decided to give the Executive Officers of the Company, including the Named Executive Officers (NEOs)1, the first increase in base salary since 2010 unrelated to any promotions. Specifically with respect to the CEO, the Committee gave Mr. Wainscott an approximate 4% increase, his first increase in base salary in four years. They also gave the NEOs the first increase in target bonus percentages under the Companys incentive plans that they had received (other than in connection with a promotion) since January 2008. The amounts of these increases in base salary and target percentages for the NEOs are reflected in the Summary Compensation Table for 2014 at page 65 and in the discussion of the Annual Incentive Plan at pages 53-54, respectively. The Committee did not change, however, the strong emphasis of the executive compensation program on performance-based compensation. Of the total compensation which could be earned by the CEO in 2014, approximately 76% was tied directly to performance-based metrics and had to be earned. For the rest of the NEOs, the performance-based compensation amounted to approximately 71% of their potential total compensation and likewise had to be earned. (See charts below at page 36).
Impact of 2014 Performance on 2014 Compensation
Safety, quality and productivity are the focal points of AK Steels operations and the hallmarks of its success. In 2014, the Company experienced another year of outstanding safety performance and continued to lead the steel industry in safety (as measured by OSHA recordables) by a wide margin. The Company also continued to perform extremely well with respect to quality, establishing several all-time company best records for internal quality performances. With respect to productivity, the Company set new yield records at several operating units throughout the Company in 2014. Thus, from the standpoint of the Companys core values of safety, quality and productivity, 2014 was a year of great success.
1 | For purposes of this Compensation Discussion and Analysis, the term Named Executive Officers or NEOs, when capitalized, refers to the following in reference to 2014 (with their titles as of December 31, 2014): |
James L. Wainscott Chairman of the Board of Directors, President and Chief Executive Officer |
David C. Horn Executive Vice President, Chief Legal and Administrative Officer and Secretary |
Roger K. Newport Senior Vice President, Finance and Chief Financial Officer |
Kirk W. Reich Senior Vice President, Manufacturing |
Keith J. Howell Vice President, Operations |
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On September 16, 2014, in a transaction that is expected to be transformational for the Company, AK Steel acquired Severstal Dearborn, LLC (Dearborn) for a cash purchase price of approximately $690 million, net of cash acquired. The Company acquired Dearborn to increase scale and enhance its ability to better serve customers, further its automotive strategy, strengthen its carbon steelmaking footprint and achieve additional operational flexibility. The Company made significant strides in 2014 in improving Dearborns productivity even in the brief period during which it owned the plant. For example, in the fourth quarter of 2014 the Company increased the blast furnaces productivity and improved product quality, resulting in a reduction in the cost per ton of production at the facility. The acquisition also is expected to provide significant purchasing, transportation and overhead synergies. The Company originally anticipated annual cost-based synergies in excess of $50 million, with approximately $25 million expected to be realized in 2015. The Company now believes there is the potential for the annual cost-based synergies to be significantly greater, depending upon sufficient demand for the Companys products.
All of these 2014 achievements had relatively little impact on the performance-based compensation paid to the NEOs for 2014. Although the Companys financial performance improved throughout the year, the Company did not reach the threshold necessary to pay the financial performance component or the quality component under the Companys Annual Incentive Plan. Likewise, the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) in 2014, although improved over 2013, was insufficient to drive the cumulative EBITDA over the threshold under the Companys Long-Term Plan. In fact, the only performance-based compensation the Companys Executive Officers received for 2014 under the Companys executive compensation program was 10% of the potential award under the Annual Incentive Plan that related to safety performance. For 2014 and the three-year performance periods ending in 2014:
| There were no payouts under the financial performance components of the Companys Annual Incentive Plan; |
| There were no payouts under the quality performance components of the Companys Annual Incentive Plan despite the outstanding quality performance because achieving the threshold goal for financial performance was a prerequisite to payment of the quality component of the Annual Incentive Plan; |
| There were no payouts under the Companys Long-Term Plan; |
| There were no shares issued pursuant to the performance share awards under the Companys Stock Plan; and, |
| There were no performance-based matches under the Companys thrift plans. |
The Committee did approve special awards to various employees who made significant contributions to the acquisition of Dearborn, including to each of the NEOs other than the CEO, but those awards were specifically to recognize strong individual performance. With the exception of safety performance a core value that the Board wants to incent regardless of financial performance the many significant non-financial achievements by the Company in 2014 had little or no direct impact on executive compensation paid for 2014. In short, 2014 is a clear example of the close relationship between pay and performance that is a bedrock principle of the Companys executive compensation program. It also demonstrates in a very simple and objective way why a vote for the say-on-pay resolution set forth later in this Proxy Statement is appropriate.
2014 CEO / NEO Compensation Overview of Links to Performance
Graphical Illustration of 2014 Performance-Linked Compensation
The Board believes that its executive compensation program does, in fact, link executive pay to performance and that the link is demonstrable. Set forth below are four charts which illustrate the link between (a) the compensation of the Companys NEOs for 2014 and (b) the performance of the Company during 2014 and the three-year performance periods ending in 2014. Included in the performance-based compensation are the following categories of compensation: incentive payments under the Annual Incentive Plan for 2014, incentive payments under the Long-Term Plan for the three-year performance period ending in 2014, and the value of
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stock issued pursuant to performance share awards for the three-year performance period ending in 2014. Included in the non-performance based compensation are the following categories of compensation: salary paid in 2014, discretionary bonus, if any, paid in 2014, the value of restricted stock awards made in 2014, the value of stock option awards made in 2014, and the value of all other compensation paid in 2014.2
Chart Nos. 1 and 2 below demonstrate that just over three quarters of the CEOs total potential compensation for 2014 (and slightly less than that for all NEOs, including the CEO) was directly linked to the performance of the Company.
Composition of Total Potential Compensation for 2014
Chart No. 1 | Chart No. 2 |
Chart Nos. 3 and 4 below demonstrate that there is a direct link between compensation actually received and the Companys performance. When the Company does not achieve the performance goals established by the Committee for the relevant performance periods, there is a direct negative impact on the amount of the performance-based compensation that is actually received by the NEOs. In fact, because of this link, the NEOs collectively received only about 3 to 4% of the total performance-based compensation for which they were eligible in 2014.
2 | The only item referenced in the Summary Compensation Table not included in the referenced charts is the change in pension value for each NEO. That value is excluded because it is not a component of compensation awarded annually by the Committee to the NEOs. Rather, it is a mathematical calculation of the actuarial change in value of the NEOs pension that is attributable to factors outside the control of the Committee and the NEOs, such as a change in the discount rate used to present value the pension benefits or a change in the interest component of the value as a result of the NEOs change in age relative to the NEOs assumed retirement date. The change in value also is not a fair reflection of the NEOs total compensation. That is illustrated by the difference in the change-in-value numbers for Mr. Wainscott. In 2012, the calculated value of his pension increased by approximately $3.6 million. In 2013, it decreased by approximately $0.85 million. In 2014, it increased by approximately $4.4 million. The differences are attributable almost entirely to changes in the discount rate used to determine Mr. Wainscotts future pension value and to re-calculate it to its present value. For each year reported, the value is simply an actuarial calculation. In none of those years did Mr. Wainscott realize any cash benefit (or detriment) attributable to the reported change in value. |
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Performance-based Compensation Actually Received for 2014
Chart No. 3 | Chart No. 4 |
The two tables below show the actual compensation values, and the sources for those values, used in the above charts.
Data Used for Chart Nos. 1 and 2 and Potential Portion of Chart Nos. 3 and 4
Base Pay1 | Bonus1 | Restricted Stock2 |
Stock Options2 |
Other Comp1 |
Total Non- Performance- based |
Maximum Annual Incentive Plan2 |
Maximum Long-Term Plan2 |
Maximum Performance Shares3 |
Total Performance- based |
Total Potential |
||||||||||||||||||||||||||||||||||
Wainscott |
$ | 1,200,000 | $ | 0 | $ | 770,112 | $ | 582,144 | $ | 116,653 | $ | 2,668,909 | $ | 2,880,000 | $ | 2,880,000 | $ | 2,639,558 | $ | 8,399,558 | $ | 11,068,467 | ||||||||||||||||||||||
Newport |
$ | 460,257 | $ | 41,667 | $ | 261,033 | $ | 206,219 | $ | 29,694 | $ | 998,870 | $ | 600,000 | $ | 600,000 | $ | 245,262 | $ | 1,445,262 | $ | 2,444,132 | ||||||||||||||||||||||
Horn |
$ | 692,276 | $ | 43,752 | $ | 188,228 | $ | 109,056 | $ | 49,000 | $ | 1,082,312 | $ | 1,215,000 | $ | 1,215,000 | $ | 495,011 | $ | 2,925,011 | $ | 4,007,323 | ||||||||||||||||||||||
Reich |
$ | 359,872 | $ | 33,334 | $ | 210,151 | $ | 164,266 | $ | 27,790 | $ | 795,413 | $ | 390,000 | $ | 390,000 | $ | 245,262 | $ | 1,025,262 | $ | 1,820,675 | ||||||||||||||||||||||
Howell |
$ | 340,000 | $ | 14,170 | $ | 94,803 | $ | 61,440 | $ | 24,181 | $ | 534,594 | $ | 442,000 | $ | 442,000 | $ | 245,262 | $ | 1,129,262 | $ | 1,663,856 |
Data Used for Received Portion of Chart Nos. 3 and 4
Actual Annual Incentive Plan1 |
Actual Long-Term Plan1 |
Actual Performance Shares4 |
Actual Total Performance- based |
|||||||||||||
Wainscott |
$ | 288,000 | $ | 0 | $ | 0 | $ | 288,000 | ||||||||
Newport |
71,974 | 0 | 0 | 71,974 | ||||||||||||
Horn |
128,720 | 0 | 0 | 128,720 | ||||||||||||
Reich |
51,481 | 0 | 0 | 51,481 | ||||||||||||
Howell |
44,200 | 0 | 0 | 44,200 |
(1) | From Summary Compensation Table for 2014 at page 65. |
(2) | From Grants of Plan-Based Awards Table at page 69. |
(3) | From footnote 2 to Summary Compensation Table for 2014 at page 66. |
(4) | The performance share grants awarded in January 2012 expired in December 2014 with no shares of common stock being issued with respect to those grants. See below at page 40. |
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CEO Realizable Pay
To further illustrate the alignment of the Companys executive compensation program with the performance of the Company, set forth below is an illustration of the CEOs realizable pay. The Committee considers realizable pay and believes that consideration of realizable pay in the context of analyzing pay-for-performance is appropriate for a variety of reasons, including the following:
| A substantial portion of the compensation granted by the Committee to the CEO and reported in the Summary Compensation Table at page 65 represented an incentive for future performance at the time it was awarded, not actual cash compensation. |
| Much of this incentive pay was never actually received for the years reported in the Summary Compensation Table and may not be received for many years in the future, if ever. |
| If and when this incentive pay is realized, the amount realized may differ significantly from the amounts shown in the Summary Compensation Table, depending on how the Company actually performs. |
For purposes of this realizable pay analysis, the term realizable pay has been defined to include the following compensation items:
| Actual base pay; |
| Incentive payouts and discretionary bonuses, if any, actually paid; |
| All other compensation actually paid; and |
| The fair value of all equity grants made, measured at the end of the most recently completed fiscal year. The fair value of stock options was determined using the Black-Scholes model based on year-end assumptions and the maximum remaining life of the options. The fair value of restricted stock and performance shares was determined using the average of the high and the low stock price on the last day of the fiscal year and assumes all vesting considerations were met. |
The graph below compares annual realizable pay for Mr. Wainscott since 2010 and the Companys closing stock price as of the last business day of each year during that period. The graph illustrates the strong link between the Companys executive compensation program and the Companys performance.
Data Used for Average Annual Realizable Compensation Graph
Annual Totals |
Base Pay | Bonus | Annual Incentive Plan |
Long-Term Plan |
Stock Options |
Restricted Shares |
Performance Shares |
Other Comp |
Total for Year |
|||||||||||||||||||||||||||
2014 |
$ | 1,200,000 | $ | | $ | 288,000 | $ | | $ | 553,340 | $ | 683,016 | $ | 1,051,940 | $ | 116,653 | $ | 3,892,949 | ||||||||||||||||||
2013 |
$ | 1,150,000 | $ | | $ | 253,000 | $ | | $ | 955,080 | $ | 941,439 | $ | 1,449,948 | $ | 150,405 | $ | 4,899,872 | ||||||||||||||||||
2012 |
$ | 1,150,000 | $ | | $ | 253,000 | $ | | $ | 356,260 | $ | 513,981 | $ | 791,603 | $ | 163,014 | $ | 3,227,858 | ||||||||||||||||||
2011 |
$ | 1,150,000 | $ | | $ | 581,356 | $ | | $ | 364,010 | $ | 730,245 | $ | 984,600 | $ | 152,146 | $ | 3,962,357 | ||||||||||||||||||
2010 |
$ | 1,150,000 | $ | | $ | 156,620 | $ | | $ | 697,800 | $ | 872,317 | $ | 1,308,476 | $ | 169,317 | $ | 4,354,530 |
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Overview of Key Pay-for-Performance Components and Application to 2014 Executive Compensation
The application of the key pay-for-performance components of the Companys executive compensation program on the 2014 compensation of the Companys NEOs illustrates the strong link between executive compensation and the performance of the Company. Those components and their application to the NEOs under the 2014 executive compensation program are summarized below.
| Annual Incentive Plan |
Overview: The Company provides annual cash performance awards to its employees, including its NEOs, pursuant to its Annual Incentive Plan. Under the terms of the Annual Incentive Plan, a participant can earn a performance award based upon the annual performance of the Company against goals established for three different performance factors: safety, quality and net income (excluding special, unusual and extraordinary items). If paid at the target level, the allocation of the components of an annual incentive award in 2014 would be 20% for safety, 20% for quality and 60% for financial performance. If paid at the maximum level, they would be 10% for safety, 10% for quality and 80% for financial performance. The heavy weighting toward the financial performance component reflects the Committees objective of strengthening the commonality of interests between Management and the Companys stockholders, while still recognizing that safety and quality are core values of the Company. The Committee assigns an annual threshold goal and target goal for each of these performance factors in the first quarter of the year, typically in January. The Committee also assigns an additional annual goal for the financial performance component which, if achieved, would result in payment of the maximum performance award under the Annual Incentive Plan. No award was to be paid with respect to a particular performance factor unless the Company at least met the threshold goal for that performance factor. In addition, no award was to be paid for 2014 with respect to quality unless the Company at least met the threshold goal for financial performance. Because, however, safety is a core value of the Company, the Annual Incentive Plan allowed a payout for safety performance even if the financial performance threshold goal was not achieved.
As applied in 2014: For 2014, the NEOs were paid only the 10% of the maximum available award (or, 20% of target) under the Annual Incentive Plan which related to safety performance. With respect to safety, the Company met its target goal under the Annual Incentive Plan, nearly tying its best year ever with respect to the performance metric of OSHA recordables and continuing to lead the steel industry by a significant margin. With respect to quality, the Company also had an excellent year, exceeding its target goals for two of the quality metrics under the Annual Incentive Plan and establishing several internal records. With respect to financial performance, the Company did not meet its threshold goal in 2014. For 2014, payment of the quality component of the Annual Incentive Plan was tied to achieving at least the threshold of the financial performance component. Therefore, no incentive award was paid with respect to either the financial or the quality components of the Annual Incentive Plan for 2014. For 2014, the NEOs thus were only paid the safety component of the Annual Incentive Plan. Under the terms of the Annual Incentive Plan, each participant is assigned a target bonus percentage which is applied against the award earned under the plan for the relevant performance period. For 2014, the NEOs each received an increase in their target bonus percentage, the first increase (other than in connection with a promotion) since January 2008. Prior to 2014, the target bonus percentages of the NEOs ranged from 55% to 110%. Starting in January 2014, those ranges were increased to 65% to 120%. The dollar value of the award to each NEO under the Annual Incentive Plan for 2014 is set forth in the notes to the Summary Compensation Table at page 66.
| Long-Term Performance Plan |
Overview: The Company also provides cash performance awards to selected employees, including its NEOs, pursuant to its Long-Term Plan. Under the terms of the Long-Term Plan, a participant can earn a performance award based upon the three-year performance of the Company against a performance goal. The Committee establishes threshold, target and maximum performance goals for each three-year performance period. The Committee uses cumulative EBITDA (excluding, in accordance with the terms of the plan, special, extraordinary and unusual items) as the performance metric for the Long-Term Plan.
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As applied in 2014: For awards under the Long-Term Plan that would be reflected in the 2014 compensation of the NEOs, the performance period began January 1, 2012 and ended December 31, 2014. Some of this performance period occurred while the steel industry still was coming out of the worst recession in the United States since the Great Depression. The effects of that recession, as well as very challenging business conditions caused by excess capacity in the global steel industry and a high level of foreign steel imported into the United States, contributed to generally low pricing and even lower margins for many of the Companys products during the three-year performance period ending in 2014. As a consequence, the Companys cumulative EBITDA for the three-year period ending December 31, 2014, was below the threshold level established by the Committee. Accordingly, no performance award was paid to the participants in the Long-Term Plan for that performance period and there is no long-term award to the NEOs reflected in the 2012 2014 Long-Term Plan performance period in the Summary Compensation Table at page 65.
| Performance Shares under the Stock Plan |
Overview: Like most major companies, the Company has a Stock Plan pursuant to which it makes equity grants to its Executive Officers and other key employees. A principal purpose of equity grants under the Companys Stock Plan is to align the interests of Management and the Companys stockholders by linking executive compensation to the Companys performance and to appreciation in the market price of the Companys common stock. The form of equity grant which most directly serves that purpose is the award of performance shares. Each grant of a performance share award is expressed as a target number of shares of the Companys common stock. The number of shares of common stock, if any, actually earned by and issued to an NEO under a performance share award will be based upon the performance of the Company over a three-year performance period with respect to certain threshold, target and maximum performance goals established at the outset of the performance period. Those goals are established using the following performance metrics: (a) the Companys total stockholder return (Total Stockholder Return), defined as price appreciation plus reinvested dividends, if any, during the performance period relative to the total stockholder return during that same period of the companies in the Standard & Poors 400 Midcap Index, and (b) the compounded annual growth rate (the Growth Rate) of the price of the Companys common stock over the performance period, using as the base the average closing price of the Companys common stock for the last 20 trading days during the month of December.
As applied in 2014: For a performance share award under the Stock Plan that would be reflected in the 2014 compensation of the NEOs, the performance period began January 1, 2012 and ended December 31, 2014. Despite the approximately 78% increase in the Companys stock price in 2013, the Companys stock performance with respect to the Total Stockholder Return and Growth Rate metrics for the entire three-year performance period did not meet the threshold performance levels to earn a payout under the Stock Plan. Accordingly, no shares of the Companys common stock were issued with respect to the performance share awards granted in January 2012 for the three-year period ended December 31, 2014.
Overview of Other Key Compensation Components and Application to 2014 Executive Compensation
While the three programs described above represent the most direct links between pay and performance, there are other significant links included in the Companys executive compensation program. Other key components of the Companys compensation program that link pay to performance are summarized below.
| Restricted Stock Grants. An important component of the equity portion of the Companys executive compensation program is the grant of restricted stock to key members of Management, including the NEOs. Though not as direct a link as performance share awards to the performance of the Company, restricted stock grants still are intended to and do link executive compensation to the Companys performance. The restrictions on grants of restricted stock typically will lapse with respect to one-third of the shares on the first anniversary of the date of the award, and with respect to an additional one-third of the shares on each of the second and third anniversaries of the date of the award. With limited exceptions |
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(e.g., death, disability or retirement), these restricted stock awards will have a value to the grantee only if the grantee remains in the Companys employment for the period required for the stock to vest, and the actual value of the award ultimately will depend on the performance of the Companys stock during that period leading up to vesting. The performance of the Companys stock is, of course, linked to the performance of the Company. This portion of executive compensation thus is indirectly linked to the Companys performance. The aggregate grant date fair value of all restricted stock awards to the NEOs in 2014 is set forth in the Summary Compensation Table for 2014 at page 65. |
| Stock Option Grants. Another component of the equity portion of executive compensation is the grant of stock options under the Stock Plan. All such options granted in 2014 will vest in three equal installments on the first, second and third anniversaries of the grant date. With limited exceptions (e.g., death, disability or retirement), these stock options will have a value for a grantee only if the market price of the Companys stock increases above the exercise price (i.e., the market price on the date the option was granted), subject to continued service through the applicable vesting date. Thus, this portion of executive compensation is inherently performance based. The aggregate grant date fair value of all stock option awards to the NEOs in 2014 is set forth in the Summary Compensation Table for 2014 at page 65. |
| Thrift Plan Matches. The Company has a thrift plan (the Thrift Plan), which is a qualified retirement plan under Section 401(k) of the Internal Revenue Code and a supplemental thrift plan (the Supplemental Thrift Plan) which is a non-qualified retirement plan. Participation in these plans includes the NEOs, but is not limited to them. Under these plans, the Company matches employee contributions up to a total of 5% of base salary (collectively, for both plans). Half of that Company match is dependent upon the Companys net income. In addition, the Company will make a supplemental contribution when its net income exceeds $150 million. Thus, this component of executive compensation also is linked to the Companys performance. In 2014, there were no performance-based matching or supplemental contributions by the Company to the participants in these plans. There were, however, contributions made by the participants themselves and matching contributions by the Company not dependent on the Companys performance. |
Summary of Actual Payment of Pay-for-Performance Components of Executive Compensation
Set forth below is a chart which summarizes the actual payouts under the Annual Incentive Plan, the Long-Term Plan and the Stock Plan performance shares by year from 2010 through 2014 as a percentage of the maximum potential award for each year and the three-year performance period ending that year.
Year |
Annual Incentive Plan | Long-Term Plan | Performance Shares | |||||||||
2010 |
6 | % | 0 | % | 0 | % | ||||||
2011 |
23 | % | 0 | % | 0 | % | ||||||
2012 |
10 | % | 0 | % | 0 | % | ||||||
2013 |
10 | % | 0 | % | 0 | % | ||||||
2014 |
10 | % | 0 | % | 0 | % |
II. | Full Discussion and Analysis of Executive Compensation Program |
The summary in the preceding section was intended to provide an overview of the key components of the Companys executive compensation program, with a particular focus on its pay-for-performance components. Set forth below is a more-detailed description of the total program, organized in a questions-and-answer format, with a brief summary of key takeaways at the outset of each question-and-answer section.
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Who has the direct responsibility for determining executive compensation?
Summary of Key Takeaways: The Committee has the direct responsibility for determining the compensation of all of the Companys Executive Officers, including the NEOs, and for establishing, and periodically reviewing, the Companys executive compensation philosophy and policies. The Committee also is responsible for overseeing the Companys policies and programs with respect to succession planning and the development of senior Management personnel. The Committee is comprised entirely of Directors who have been determined by the Board of Directors to meet the independence standards of the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE). The Committee has the power to retain outside counsel and compensation consultants or other advisors to assist it in carrying out its responsibilities. The Committee routinely engages an independent executive compensation consultant who reports directly to the Committee to assist the Committee in determining executive compensation in any given year, as well as in designing and making changes to the executive compensation program.
Discussion: The Committee has the direct responsibility for determining the compensation of the Companys Executive Officers. When the Committee deems it appropriate, it may, at its discretion, seek ratification of its determinations by the Board. The Committee also is responsible for establishing, and periodically reviewing, the Companys executive compensation philosophy and policies and, as appropriate, will recommend changes in such philosophy and policies to the Board.
Committee Membership
The Committee is comprised entirely of Directors who have been determined by the Board of Directors to meet the independence standards of the SEC and the NYSE. Each member of the Committee currently is also an outside Director for purposes of Section 162(m) of the Internal Revenue Code. There currently are five members of the Committee. They are Richard A. Abdoo, John S. Brinzo, Sheri H. Edison, Robert H. Jenkins and Ralph S. Michael, III. Mr. Abdoo is the Chair of the Committee.
Committee Charter and Responsibilities
The general function of the Committee is to oversee the Companys policies and program with respect to executive compensation, succession planning and the development of senior Management personnel. The Committee operates under a written charter reviewed and approved by the full Board of Directors of the Company. The Committees Charter describes its specific responsibilities and is available at www.aksteel.com.
Committee Support and Use of Executive Compensation Consultant
In discharging its responsibilities, the Committee is empowered to inquire into any matter that it considers appropriate to carry out its responsibilities. The Committee has the power to retain outside counsel and compensation consultants or other advisors to assist it in carrying out its responsibilities. The Company is required to, and does, provide adequate resources to support the Committees activities, including compensation of the Committees counsel, compensation consultant and other advisors. The Committee has the sole authority to retain, compensate, direct, oversee and terminate such counsel, compensation consultants, and other advisors hired to assist the Committee and all such advisors are ultimately accountable to the Committee.
The Committee typically engages an independent executive compensation consultant who reports directly to the Committee to assist the Committee in determining executive compensation in any given year, as well as in designing the executive compensation program. In connection with the 2014 executive compensation program, the Committee retained Frederic W. Cook & Co., Inc. (Cook) as its independent consultant for executive compensation matters. As appropriate, the Committees consultant also works with Management on behalf of the Committee, in particular with the Companys Vice President, Human Resources, and at times the Boards Secretary, to develop internal compensation data and to implement compensation policies, plans and programs.
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The consultant, at the Committees request, also works with Mr. Wainscott to assist him in developing his recommendations to the Committee for non-CEO Executive Officer compensation packages. The consultant provides analytical assistance and data to the Committee with respect to the design, implementation and evaluation of the Companys compensation program for Executive Officers. This includes providing assistance to the Committee in identifying similarly-situated companies to be included in a peer group to be used to develop competitive data. That data is used as one reference point of many in the annual determination of base salary, annual and long-term incentives, and equity grants. The consultant also periodically compiles survey data from that peer group and, if appropriate, other companies. The consultant further assists the Committee in developing, evaluating and administering incentive plans, agreements addressing post-termination benefits, and other ongoing compensation-related arrangements or benefits. On request, the consultant also provides consulting services to the Board with respect to Director compensation matters. Except as described above, the consultant does not provide any other services to the Company.
The Committee annually assesses the performance and independence of its compensation consultant. In March 2014, the Committee considered various factors bearing upon Cooks independence in connection with its engagement of Cook, including, but not limited to, the following: (1) the amount of fees received by Cook from AK Steel is less than 1% of Cooks total revenue, (2) Cook has adopted policies and procedures which appear to be reasonably and effectively designed to prevent conflicts of interest, (3) neither Cook nor any member of its consulting team serving AK Steel owns any stock or equity derivative in AK Steel, (4) Cook does not provide any services to AK Steel other than as described in this Proxy Statement in its capacity as an independent advisor with respect to Executive Officer and Director compensation, and (5) after reasonable and appropriate inquiry, AK Steel has not identified any business or personal relationships between Cook and any Executive Officer of AK Steel or any member of the Committee. After reviewing these and other factors, the Committee determined that Cook is independent and that its engagement does not present any conflicts of interest. Cook also separately determined, and affirmed in a written statement delivered to the Chair of the Committee, that it is independent and that its engagement does not present any conflicts of interest.
What is the Companys compensation philosophy?
Summary of Key Takeaways: The Companys compensation philosophy, as determined by the Committee and approved by the Board, is that an executive compensation program should strengthen the commonality of interests between Management and the Companys stockholders, while at the same time enabling the Company to attract, motivate and retain executives of high caliber and ability who will drive the Companys success. Consistent with that objective, the Committee believes that a significant portion of the overall compensation package for each of the Companys Executive Officers should be performance-based, including performance-based vesting provisions for a significant portion of the equity incentives awarded to each Executive Officer. The Committee believes that a well-designed executive compensation program also includes both annual and long-term performance incentives. The Committee further believes that the Companys compensation program should be designed to reward superior performance and to provide financial consequences for below-market performance.
Discussion: The Companys compensation philosophy, as determined by the Committee and approved by the Board, is that an executive compensation program should strengthen the commonality of interests between Management and the Companys stockholders, while at the same time enabling the Company to attract, motivate and retain executives of high caliber and ability who will drive the Companys success. Consistent with that objective, the Committee believes that a significant portion of the overall compensation package for each of the Companys Executive Officers should include components that link the executives compensation to the Companys performance.
The Committee believes that a well-designed executive compensation program includes both annual and long-term performance incentives. While annual incentive awards are an important factor in motivating executives for the short-term, the Committee believes that long-term incentives reduce the impact of volatility in
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business conditions on the performance-related components of the executive compensation program and also establish a stronger link between the executives earnings opportunity and the long-term financial performance and growth of the Company.
The Committee further believes that the Companys compensation program should be designed to reward superior performance and to provide financial consequences for below-market performance. Consistent with that design objective, and the goal of attracting, motivating and retaining executives of high caliber and ability who will drive the Companys success, the Committee attempts to establish a fair and reasonable compensation package for each Executive Officer that reflects not only the relative performance of the Company against its peers, but also is competitive relative to the Executive Officers peers, both inside and outside the Company. The Committee does not target a specific market percentile for each executive. Also, the percentage of total compensation that is performance-based generally will increase with the level of seniority and/or responsibility of the executive. There is no set formula or policy, however, with respect to the allocation between performance-based and non-performance-based compensation. Nor is there any set formula or policy with respect to the allocation between cash and non-cash compensation.
Does the Committee review the Companys executive compensation program periodically to determine if it still effectively implements the Companys compensation philosophy?
Summary of Key Takeaways: Yes. Each year the Committee routinely reviews the effectiveness and competitiveness of the Companys executive compensation program with the assistance of its executive compensation consultant. The consultant provides data which enables the Committee to compare the Companys program, as well as the specific compensation packages of each of its Executive Officers, to the Companys peers and other survey data.
Discussion: Each year the Committee routinely reviews the effectiveness and competitiveness of the Companys executive compensation program with the assistance of its independent executive compensation consultant. The consultant provides data which enables the Committee to compare the Companys program, as well as the specific compensation packages of each of its Executive Officers, to the Companys peers and other survey data. In addition, every several years, the Committee engages in a more comprehensive deep dive review of the program. The Committee last engaged in such a more-comprehensive review in 2013. More specifically, with the assistance of its executive compensation consultant in 2013 the Committee reviewed the design of each of the Companys incentive and retirement plans for its Executive Officers and others, evaluated them in the context of the Companys peer group and recent executive compensation trends as provided by the Committees executive compensation consultant, and solicited (and duly considered) input from the Companys largest shareholders with respect to their views of the executive compensation program. As a result of that comprehensive review, the Committee made several changes to the executive compensation program, the most significant of which was to close participation in the SERP to the then-existing officers and to establish a new executive retirement plan referred to as the AK Steel Executive Retirement Income Plan (the Retirement Plan) with a reduced level of benefits for all new officers elected after March 2014.
Does the Company reach out to shareholders to solicit their views on its executive compensation program?
Summary of Key Takeaways: Yes. Each year, the Company reaches out to a significant number of its shareholders to solicit their direct input with respect to its executive compensation program.
Discussion: Each year, the Company reaches out to a significant number of its shareholders to solicit their direct input with respect to its executive compensation program. In 2014, Management contacted shareholders who owned approximately 66 million shares, or almost half of the Companys then-outstanding common stock, and requested an opportunity to have calls with them. Ultimately, eight large shareholders who owned approximately 10 million shares, or approximately 7.4% of the Companys then-outstanding common stock, accepted Managements offer and participated in calls during which they provided their comments on the Companys executive compensation program. Their comments were summarized, provided to, and then
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discussed by the Committee. In addition, from time to time, the Company similarly reaches out to its largest shareholders and offers an opportunity for each of them to have a direct call with Mr. Abdoo, the Chair of the Committee, concerning the Companys executive compensation program.
What changes did the Committee make to the executive compensation program in 2014?
Summary of Key Takeaways: During 2014, the Committee made several changes to the executive compensation program, certain of which were in response to shareholder feedback. The most significant was to close the Companys existing SERP to new participants and to replace it for newly elected Executive Officers with a new retirement plan that will pay out a reduced level of benefits. The second was to amend the Companys Stock Plan to codify an existing policy by explicitly prohibiting, in the absence of stockholder approval, the re-pricing or replacing of outstanding options. The Committee also made a change to the form of the Executive Officer severance and change-in-control agreements to broaden the non-compete provision. Lastly, with the assistance of its executive compensation consultant, the Committee reviewed and updated the Companys peer group in 2014 and used the new peer group to assist in determining 2015 executive compensation.
Discussion: During the course of the Companys annual shareholder outreach program in 2014, some shareholders communicated to the Committee that they considered the Companys SERP to provide too high a level of benefits to the Companys Executive Officers. After considering this comment and discussing it with the Boards executive compensation consultant, the Committee determined that it should address the issue. The Committee decided at its March 2014 meeting to close the Companys SERP to any new participants and to replace it for those who become officers in the future with the Retirement Plan. The terms of the Retirement Plan were established by the Committee and recommended to and approved by the Board at their March 2014 meetings after discussions with the Committees executive compensation consultant. Of the Companys current eleven Executive Officers, eight were grandfathered into the SERP and three are participants in the Retirement Plan. The Retirement Plan is expected to reduce the retirement benefits provided to its participants as compared to benefits under the SERP. For example, if the terms of the Retirement Plan had been utilized to prepare the Pension Benefits Table on page 74 for NEOs who are grandfathered participants in the SERP, the Retirement Plan would have resulted in retirement benefits that are approximately 40% lower on average than earned under the SERP. The terms of the SERP and the Retirement Plan are described below at pages 58-59.
During 2014, the Committee became aware of the position of certain proxy advisory firms that even companies which have disclosed a policy of not re-pricing or replacing options should explicitly codify the prohibition on re-pricing or replacing options in their stock incentive plans. Accordingly, at its March 2014 meeting, the Committee recommended to the Board, and the Board approved subject to stockholder approval, an amendment to the Companys Stock Plan which explicitly prohibits, in the absence of stockholder approval, the re-pricing or replacing of outstanding options. That amendment essentially codified within the Stock Plan a policy that already existed in the Companys Corporate Governance Guidelines. The proposed amendment subsequently was approved by the Companys stockholders at the May 2014 annual meeting. More specifically, Section 6.3 of the Stock Plan was amended to provide that, except in limited circumstances, the Company may not, without obtaining stockholder approval: (a) amend the terms of outstanding stock options to reduce their exercise price; (b) cancel outstanding stock options in exchange for stock options with an exercise price that is less than the exercise price of the stock options as originally granted; or (c) cancel outstanding stock options with an exercise price above the current market price of the Companys common stock in exchange for cash, common stock or other consideration.
At its March 2014 meeting, the Committee also reviewed and determined to modify the form of the Companys severance agreements and change-of-control agreements entered into with each of the Executive Officers. The only material change from the prior form of the agreements was to broaden the non-compete provision to reflect changes in competitive landscape for the industry. The new forms of these agreements were recommended by the Committee and approved by the Board at its March 2014 meeting. All of the Companys Executive Officers are now subject to this broadened non-compete provision.
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At its May and July 2014 meeting, with the assistance of its executive compensation consultant, the Committee evaluated the peer group used in connection with the Companys executive compensation program to determine whether any changes to it were appropriate. In engaging in the evaluation, the Committee worked with its executive compensation consultant to establish criteria to assist in determining the appropriateness of companies in the existing peer group and in identifying potential new companies to add to the peer group. After thoroughly discussing the subject over the course of several months and two meetings, the Committee recommended to the Board, and the Board approved, several changes to the peer group. The Committee used the new peer group in 2014 to assist in determining 2015 executive compensation packages. The specific companies which now make up the peer group are set forth below at page 48.
What specific policies does the Company have which impact executive compensation?
Summary of Key Takeaways: The Company has many policies which impact executive compensation. They are designed to protect the Company and to align the interests of the Executive Officers with those of the Companys stockholders. Those policies include: a Policy Against Re-Pricing or Replacing Underwater Options, a Compensation Clawback Policy, a policy requiring Stockholder Approval of Certain Severance Agreements with Senior Executives, Stock Ownership Guidelines for Executive Officers, and a Policy Prohibiting Insider Trading, Hedging Transactions and Pledging of Securities. It also has a mandatory retirement policy for Executive Officers.
Discussion: Set forth below is a brief description of the Companys principal policies which impact executive compensation.
Policy against Re-Pricing or Replacing Underwater Options
The Company has long had a practice of not re-pricing or replacing stock options because the Companys stock is at a price below which such options are exercisable. The Company first formalized this practice into a policy in January 2012. The policy was incorporated at that time in the Companys Corporate Governance Guidelines at Section II(N). Those guidelines are available at www.aksteel.com/governance. In May 2014, the Companys stockholders approved an amendment to the Companys Stock Plan which also explicitly prohibits, in the absence of stockholder approval, the re-pricing or replacing of outstanding options.
Compensation Clawback Policy
The Board has adopted a compensation clawback policy, which provides that the Company may recoup performance-based, incentive compensation from officers covered by the policy if the Board determines that (i) the officer has engaged in knowing or intentional fraudulent or illegal conduct which (ii) resulted in the achievement of financial results or the satisfaction of performance metrics that increased the amount of such compensation.
Stockholder Approval of Certain Severance Agreements with Senior Executives
The Board also has adopted a policy concerning stockholder approval of certain severance agreements with the Companys senior executives, including its NEOs. That policy provides that the Board should seek stockholder approval or ratification of severance agreements with the Companys senior executives entered into on or after May 13, 2003 (the date the policy was adopted) if such agreements require payment of benefits attributable to severance in an amount exceeding 2.99 times the sum of the senior executives annual base salary plus annual and long-term incentive bonuses payable for the then-current calendar year. For purposes of this policy, the term severance agreement means an employment agreement, retirement agreement or change-of-control agreement which contains a provision for payment of benefits upon severance of employment with the Company, as well as renewals, modifications or extensions of such agreements. The term senior executive means the Chief Executive Officer, President, principal financial officer, principal accounting officer and any elected Vice President of the Company. The term benefits means lump-sum cash payments (including cash
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payments in lieu of medical benefits) and the estimated present value of future periodic cash payments to be paid to a senior executive in excess of what he or she otherwise would be entitled to receive under the terms of any qualified or non-qualified Company pension or employee benefit plan.
Stock Ownership Guidelines for Executive Officers
The Board also has a policy concerning stock ownership guidelines for Executive Officers. The principal objective of the policy is to enhance the linkage between the interests of stockholders and Management through a minimum level of stock ownership. The policy establishes a target ownership guideline for the Companys common stock for each Executive Officer, including the NEOs. The guideline typically is expressed as a number of shares equal in market value to a multiple of the Executive Officers annual base salary. The target ownership guideline set for each Executive Officer varies in amount based upon that persons relative level of seniority and responsibility. Among the NEOs, the target ownership guideline varies from a number of shares equal in market value to three times applicable annual base salary to one times applicable annual base salary, with Mr. Wainscott at three times. The applicable base salary is the one in effect at the time the officer first became subject to the policy, or if the officer subsequently is promoted, it is the one in effect at the time of the promotion. Once established, an Executive Officers target ownership guideline does not adjust automatically as a result of changes in his or her base salary or changes in the price of the Companys stock, but it is reset in the event of a promotion. In addition, the Committee may reevaluate and revise a particular Executive Officers target ownership guideline in its discretion. For purposes of the policy, stock ownership includes shares of Company stock held directly by an Executive Officer or by an Executive Officers family member living in the same household, as well as shares of Company restricted stock held directly by an Executive Officer. Ownership does not include options, whether vested or unvested, to purchase stock or unearned performance shares. Executive Officers are expected to attain the minimum level of target ownership within a period of three years from the date his or her target ownership guideline was last established. Currently, each of the NEOs is in compliance with the stock ownership policy, although one of them is not yet at his target ownership level. He is expected to timely reach that level within the allowed three-year period.
Policy Prohibiting Insider Trading, Hedging Transactions and Pledging of Securities
The Company has long had a formal policy which prohibits Directors and employees, including the Executive Officers, who have material, non-public information about the Company from trading in the Companys securities. The policy also explicitly prohibits such insiders from engaging in hedging or monetization transactions, pledging the Companys securities as collateral for loans, holding Company securities in margin accounts and engaging in short sales.
Mandatory Retirement Age of Executive Officers
In July 2013, the Committee recommended, and the Board approved, a policy mandating that Executive Officers of the Company shall be required, subject to certain qualifying conditions, to retire from employment with the Company by the end of the calendar month in which he or she reaches age 65. The policy further provides that the Board of Directors, upon the recommendation of the Committee, may make an exception to this policy when it concludes that it would be in the best interests of the Company to permit an Executive Officer to continue working beyond the age of 65.
How does the Committee determine executive compensation?
Summary of Key Takeaways: Each year, the Committees executive compensation consultant develops competitive compensation data based upon publicly available information from a peer group of the Company, as well as other survey data. The Committee uses this competitive data to assess the reasonableness of any compensation package the Committee is considering for an Executive Officer. The CEO is involved in the process with respect to the annual compensation packages for all of the Executive Officers other than himself. The CEO works with the Chair of the Committee and the
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Committees executive compensation consultant to develop recommendations to the Committee for the Executive Officers other than himself. With respect to the CEOs compensation, the Chair of the Committee works with the executive compensation consultant to develop recommendations to the Committee and the Committee, after discussing the matter with the executive compensation consultant, then develops and approves the CEOs compensation package. The CEO is not involved in that process.
Use of Competitive Data in the Compensation Determination Process
Each year, the Committees executive compensation consultant develops competitive compensation data based upon publicly available information from a peer group of comparable companies, as well as other survey data. The Committee relies upon and considers this data as a factor in its determination, but it does not have a policy or practice of utilizing a particular market compensation percentile as a benchmark for purposes of determining compensation levels for the various components of executive pay. Rather it uses this competitive data principally in two respects. First, it provides one measure for assessing the reasonableness of any compensation package the Committee is considering for an Executive Officer. Second, it assists the Committee in implementing its goal of attracting and retaining executives of high caliber by enabling the Committee to better understand what competitors or other potential employers may pay to entice away an existing Executive Officer of the Company and what the Company must pay to attract and retain new Executive Officers.
Peer Companies
The competitive data used by the Committee include compensation data from a peer group of industrial companies with sales, size and scope reasonably comparable to those of the Company, as well as other large publicly-owned, United States-based companies in the steel industry. Among other factors, the members of this peer group are selected because the Company directly or indirectly competes with them for employees, business, capital and/or investors, whether as a result of its status as an industry competitor or as a manufacturing company with a similar range of market capitalization, geographic location, manner of operations, and/or other relevant characteristics.
The peer group used by the Committee in January 2014 for purposes of determining 2014 executive compensation consisted of the following companies:
Allegheny Technologies Incorporated |
Precision Castparts Corp. | |
American Axle & Manufacturing Holdings |
Reliance Steel & Aluminum Co. | |
Cliffs Natural Resources Inc. |
Schnitzer Steel Industries, Inc. | |
Commercial Metals Company |
Steel Dynamics, Inc. | |
Eaton Corporation |
Tenneco Automotive Inc. | |
MeadWestvaco Corporation |
The Timken Company | |
Meritor Inc |
United States Steel Corporation | |
Nucor Corporation |
Worthington Industries, Inc. |
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The Committee periodically reviews the peer group to evaluate whether it remains reasonable and appropriate. The Committee last engaged in such a review at its July 2014 meeting. At that meeting, the Committees executive compensation consultant presented a report in which it recommended several changes to the Companys then-existing peer group. The Committee recommended those changes to the Board and the Board approved them at its July 2014 meeting. As a result, the Companys peer group currently consists of the following:*
Alcoa Inc. |
Nucor Corporation | |
Allegheny Technologies Incorporated |
Reliance Steel & Aluminum Co. | |
Carpenter Technologies Inc. |
Schnitzer Steel Industries, Inc. | |
Cliffs Natural Resources Inc. |
Steel Dynamics, Inc. | |
Commercial Metals Company |
The Timken Company | |
General Cable Corporation |
Trinity Industries Inc. | |
Huntsman Corporation |
United States Steel Corporation | |
Meritor Inc |
Worthington Industries, Inc. |
* | Italics indicate that a company is a new member of the peer group from the prior year. |
Use of Tally Sheets
The Committee utilizes tally sheets to review the amounts payable under each element of an NEOs compensation, as well as the aggregate value of such compensation, in the event of a circumstance that would trigger payment of post-termination compensation. These tally sheets are prepared by the Companys executive compensation consultant, with the assistance of the Companys independent outside actuary. The Committee also uses tally sheets as a measure for assessing the reasonableness of the compensation packages approved by the Committee for an Executive Officer, including the NEOs. This assessment of reasonableness includes a comparison of the compensation packages of each Executive Officer for internal equity between and among the Executive Officers, as well as a comparison of the compensation packages of each Executive Officer to relevant executive positions in the Companys peer group.
Managements Role in the Compensation Process
After consulting with the Committees executive compensation consultant, Mr. Wainscott makes recommendations to the Committee with respect to the annual compensation packages for all of the Executive Officers other than himself. The Committee discusses those recommendations with Mr. Wainscott and the Committees executive compensation consultant before it makes the final determination of the non-CEO executive compensation packages. Mr. Wainscott is not involved in the process for determining his own compensation package. Mr. Abdoo, as Chair of the Committee, works with the Committees executive compensation consultant to develop recommendations to the Committee with respect to Mr. Wainscotts compensation. The Committee discusses those recommendations with its executive compensation consultant without Mr. Wainscott present and then makes the decision with respect to Mr. Wainscotts compensation.
Other than Mr. Wainscott, the only member of Management who provides a recommendation to the Committee with respect to any aspect of the annual executive compensation program is Ms. Stephanie Bisselberg, who serves as Vice President, Human Resources. In this role, she makes a recommendation to the Committee each year with respect to the goals to be used for purposes of determining performance awards in the next performance cycle under the Companys Annual Incentive Plan, Long-Term Plan and with respect to performance shares. The recommendation with respect to such goals principally takes into consideration the Companys performance against the goals of the prior performance cycle, consultation with Mr. Wainscott and other Management personnel concerning the anticipated performance of the Company in the next performance cycle with respect to those goals, an evaluation of what would be a realistic, but appropriately demanding, performance level for each specific goal, and consultation with the Committees independent executive
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compensation consultant. Ms. Bisselberg further evaluates and makes recommendations to the Committee with respect to the design and implementation of the various incentive plans, retirement plans, and other ongoing compensation-related arrangements and benefits for the Executive Officers.
How did the Committee determine the 2014 executive compensation package for Mr. Wainscott?
Summary of Key Takeaways: In connection with the determination of Mr. Wainscotts 2014 compensation package in January 2014, the Committee evaluated his performance as CEO and President of the Company during 2013. Each Director completed and submitted to the Committee Chair a written evaluation of Mr. Wainscotts 2013 performance. In addition, the Boards executive compensation consultant provided competitive compensation data with respect to the Companys peer group and other survey data. The Committee evaluated that data, as well as the Companys financial, safety and quality performance, its stock performance, and other significant performance factors involving the Company and/or the steel industry in 2013, all in the context of the Companys compensation philosophy and goals. The Committee, after consulting with its executive compensation consultant, then developed and approved the 2014 compensation package for Mr. Wainscott at its January 2014 meeting.
Key Factors Considered by the Committee during the 2014 Compensation Process
In January 2014, in connection with the determination of Mr. Wainscotts 2014 compensation package, the Committee evaluated his performance as CEO and President of the Company during 2013. For that purpose, the Committee approved prior to its January 2014 meeting a written performance evaluation form to be completed by all members of the Board. Mr. Wainscott completed a self-evaluation using the same evaluation form. All of these completed forms were returned to Mr. Abdoo, the Chairman of the Committee, who then summarized and presented them to the full Board. In addition, each year Mr. Wainscott prepares a list of proposed annual goals and objectives for himself and the Company and provides that list to the Committee. Mr. Wainscott prepared such a list for 2013 and the Committee approved it at the Committees January 2013 meeting. The Board considered that list of 2013 personal goals and objectives in connection with its January 2014 evaluation of Mr. Wainscotts 2013 performance. Those 2013 goals and objectives addressed the following subjects: improving the Companys financial performance, including EBITDA and net income; continuing to provide the best customer service in the industry; focusing on margin enhancement, including progress on major strategic initiatives for that purpose; management development, succession planning and diversity enhancement; successful completion of certain labor negotiations; enhancing personal visibility with various constituents; improving certain fundamental operating measures which represent core values of the Company; enhancing long-term shareholder value; evaluating certain assets; and certain personal development goals.
In addition, as part of its normal deliberative process for all of the Executive Officers, including the CEO and other NEOs, the Committee principally considered the following factors in establishing 2014 base salaries and target performance award opportunities, and determining awards of restricted stock, performance shares and stock options:
| a report prepared by Cook, which analyzed competitive peer group compensation data to assess executive target compensation levels and annual share usage, total overhang and aggregate costs related to long-term incentive awards; |
| the Boards evaluation of each Executive Officers relative contribution to the Companys performance during the relevant performance periods; |
| the performance of the Companys publicly-traded securities; |
| the Companys financial performance in 2013 and its projected financial performance in 2014; |
| the Companys safety, quality and financial performance in 2013 and the trends associated with these performance metrics over the last few years; |
| the extent to which performance goals incent appropriate conduct and do not encourage inappropriate or excessive risk that would not be in the best interests of the Company and its stakeholders; |
| the highly competitive nature of the steel industry; and, |
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| the need to retain and motivate the Management team to continue the Companys financial improvement and compete effectively. |
Committee Conclusion and Action with Respect to 2014 Compensation Packages
After following its stated compensation process and discussing the factors set forth above, the Committee concluded that the 2014 compensation packages under consideration for each of the Companys then-existing Executive Officers, including the CEO and other NEOs, were consistent with the Companys compensation philosophy and were reasonable, competitive and appropriate, both individually and taken as a whole. The Committees conclusion with respect to these compensation packages, though based in part on subjective factors and reference to each individuals compensation package in recent prior years, also was based on the Committees evaluation of the performance of the Company in 2013, the year preceding the January 2014 meeting at which the Committee determined the 2014 compensation packages for the Executive Officers.
In its evaluation of the performance of the Company in 2013, the Committee considered numerous factors, including that, in many important respects, it was a very successful year for the Company. The Companys quality performance continued to be very strong, garnering many awards and establishing several all-time Company records. The Companys safety performance was once again industry leading in 2013 and nearly tied its best year ever. From a customer sales perspective, the Company experienced improved demand for its steel sold to the automotive market and its shipments to that important market increased year-over-year. The Companys stock price increased by approximately 78% and its financial performance improved significantly over 2012. Its pension and other postretirement benefit obligations declined by $719 million. However, despite its improved financial performance, the Company still reported a net loss for 2013, which the Committee also considered.
Ultimately, the Committees decisions with respect to 2014 compensation packages for the Executive Officers, including the NEOs, were primarily founded upon the Committees recognition of the high level of performance by each Executive Officer and the Committees confidence that the compensation packages provide proper incentive for these Executive Officers to remain employed by the Company and to continue to focus on serving the best interests of the Company and its stockholders. The Committee further concluded that these packages were appropriate in light of the Companys recent financial performance and reflected then-current conditions at the Company and in the industry. The Committee also concluded that the compensation packages would provide adequate and appropriate incentives to the Executive Officers to work diligently and effectively to improve its performance, not only in 2014 but for years to come.
The Committee therefore approved the Executive Officer compensation packages for 2014, including those for the NEOs that are reflected in the Summary Compensation Table beginning on page 65. The Committee then reported its action to the Board and recommended that the Board ratify the compensation packages approved by the Committee. After consideration and discussion by the Board as a whole, the Board ratified those packages. The approval and ratification of the 2014 compensation packages with respect to all of the NEOs occurred in January 2014.
What specific actions did the Committee take in 2014 with regard to the key elements of the Companys executive compensation program for the NEOs and what were the principal reasons for those actions?
Summary of Key Takeaways: Although still putting great emphasis on performance-based compensation, in January 2014 the Committee increased the base salary of the CEO for the first time since January 2010 and the base salaries of the rest of the NEOs for the first time since January 2010 excluding promotional increases. The Committee also increased the target bonus percentages for the NEOs under the Companys annual and long-term incentive plans for the first time since 2008 (again, excluding promotional increases). The increases were to recognize their contribution to the significant improvement in the financial performance of the Company and the Companys outstanding performance with respect to safety and quality in 2013. They also reflected the Companys significantly improved stock price during 2013. The Committee also made routine grants of equity (restricted stock, stock options and performance shares) to each of the NEOs and established the Companys performance goals and the participants target bonus percentages under the Companys
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incentive plans. Throughout this process, the Committee acted in accordance with its philosophy that a compensation program should strengthen the commonality of interests between Management and the Companys stockholders, while at the same time enabling the Company to attract, motivate and retain executives of high caliber and ability who will drive the Companys success. Consistent with that philosophy, the Committee established in January 2014 compensation packages for Mr. Wainscott and the NEOs as a group in which 76% and 71%, respectively, of their total available compensation was performance-based. (See charts at pages 36-37). Later in the year, the Committee recommended to the Board, and the Board approved, promotions of three of the NEOs Messrs. Horn, Newport and Reich and provided (to varying degrees) base salary increases and equity awards in connection with those promotions. In November, the Committee also awarded the NEOs (other than Mr. Wainscott) a special bonus to recognize their individual contributions to the acquisition of Dearborn. The Committee did not include Mr. Wainscott among those special recognition award recipients solely because of his status as the CEO of the Company. The special bonus was paid half in cash and half in restricted stock.
Non-Performance Based Cash Compensation
Base Salary
The salary level for an Executive Officer is assigned initially based upon experience, expertise, job responsibilities and competitive data, including a review of the salary levels for comparable positions at other similarly-situated major corporations as disclosed in competitive data presented by the Committees executive compensation consultant. The individual performance of each NEO other than Mr. Wainscott is reviewed by the Committee with Mr. Wainscott. Mr. Wainscotts individual performance is reviewed by the Committee based upon a written evaluation by the Board of Mr. Wainscotts performance against various goals and objectives. The Committee also reviews the base salary levels of the Executive Officers for internal consistency and equity relative to each other. The principal factors in determining whether to increase, maintain, or decrease an annual base salary for an NEO are individual performance, Company performance, changes in job responsibility, and competitive market compensation data and trends, including with respect to the Companys peer group. The Committee does not rely on any specific formula, nor does it assign specific weights to the various factors used in determining base salaries. Strong individual performance and strong Company performance would generally result in above-market increases. Below-market increases, no increases, or even decreases may occur in years when either individual performance or Company performance has been below expectations.
In January 2014, after considering all of the above factors and consulting with the Committees executive compensation consultant, the Committee determined to increase the base salaries of the Executive Officers, including the NEOs. The principal factors in this decision were the following: (1) the Companys financial performance improved significantly over 2012; (2) the Companys quality performance continued to be very strong, garnering many awards and establishing several all-time Company records; (3) the Companys safety performance was once again industry leading and nearly tied its best year ever; (4) the Companys stock price increased by approximately 78%; and (5) except for certain increases associated with promotions, the Executive Officers had not received base salary increases since 2010. In addition, in May 2014, Messrs. Horn, Newport and Reich each received promotions and received base salary increases in connection with such promotions. The amounts of the base salary increases for the NEOS, including the cumulative increases for Messrs. Horn, Newport and Reich, are reflected in the Summary Compensation Table for 2014 at page 65.
Dearborn Acquisition Special Recognition Awards
On September 16, 2014, the Company acquired Severstal Dearborn, LLC (Dearborn). The Dearborn assets acquired by the Company include highly modernized and upgraded integrated steelmaking equipment and facilities located in Dearborn, Michigan, the Mountain State Carbon, LLC cokemaking facility located in Follansbee, West Virginia, and interests in joint ventures that process flat-rolled steel products. The acquisition is
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expected to be transformational in nature to the Company and to provide substantial benefits to its shareholders and customers. Among other things, the acquisition increases the Companys scale, furthers its automotive strategy, strengthens its carbon steelmaking footprint, achieves additional operational flexibility and enhances the Companys ability to serve its customers. In addition, the acquisition provides the Company with the opportunity to achieve significant cost-based synergies. On November, 7, 2014, in recognition of the successful completion of the acquisition and integration of the Dearborn assets into the Company, the Committee approved special awards to certain employees that made significant contributions to the various aspects of the acquisition and integration process, including to each of the Companys NEOs other than the CEO. Despite his exceptional leadership with respect to the Dearborn transaction, the Committee did not include Mr. Wainscott among the special recognition award recipients solely because of his status as the CEO of the Company. The size of the awards ranged from one to two months of base salary, depending on each recipients contribution and criticality to the transaction. To balance immediate recognition with the success of the acquisition and long-term value creation for shareholders, 50% of the award value to each executive was provided in cash and the remaining 50% was provided in restricted shares that vest ratably over two years. The cash portion of the award to the four NEOs is disclosed in the Bonus Column of the Summary Compensation Table for 2014 at page 65 and the time-vested shares are disclosed in the Stock Awards Column of the Summary Compensation Table for 2014, as well as in the Grants of Plan Based Awards Table at page 69.
Performance Based Compensation Cash and Equity
Annual Incentive Awards Cash
The Company provides annual cash performance awards to its employees, including its NEOs, pursuant to its Annual Incentive Plan. This component of an NEOs compensation is intended to motivate the NEO to focus on both financial and non-financial annual performance-based goals that directly impact stockholders. Under the terms of the Annual Incentive Plan, a participant can earn a performance award based upon the annual performance of the Company against goals established for performance at a threshold, target and maximum level. The three performance metrics used for the goals are safety, quality and net income.
For 2014, a performance award at the target level would be paid under the Annual Incentive Plan to the CEO in an amount equal to 120% of base salary and a performance award at the maximum level may be paid in an amount equal to 240% of base salary. For the other NEOs, and depending upon the NEOs title and position, a performance award at the target level for 2014 would be paid in an amount equal to between 65% and 95% of base salary and a performance award at the maximum level may be paid in an amount equal to between 130% and 190% of base salary. Performance awards between the threshold and the target level are determined by a straight-line interpolation between those two levels, starting from a base of zero at the threshold level.
Under the terms of the Annual Incentive Plan, the Committee weights each performance factor as a percentage of the whole. For 2014, the Committee approved the weighting of the three performance factors at 20% for safety, 20% for quality and 60% for financial performance for purposes of determining the portion of a performance award paid up to the target level. Payment of a performance award beyond the target level is based solely upon financial performance. Since payment beyond the target level is predicated solely on financial performance, this has the effect of reducing the percentage of the whole award attributable to safety and quality. For example, if a performance award had been earned for 2014 at the maximum level under the Annual Incentive Plan, the relative weightings would have been 10% for safety, 10% for quality and 80% for financial performance.
With respect to the safety performance factor, the metric selected by the Committee to measure performance was the number of OSHA-recordable cases. That metric was selected because there is no higher priority at the Company than the safety of its employees and it is a standard metric reported to a federal government agency. It also is commonly used in the steel industry as a measure of safety performance. For the safety component of the 2014 Annual Incentive Plan, at its January 2014 meeting the Committee established a target level goal of no more than 22 OSHA-recordable injuries on a Company-wide basis and a threshold level goal equal to 125% of
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that number. (The threshold goal in this instance is higher than the target goal because that reflects more injuries and therefore less successful performance.) These goals were chosen because they represented challenging, but achievable goals, which if achieved were expected to constitute industry leading performance. For 2014, the Company had a total of 17 OSHA-recordable injuries. In 2014, the Company thus performed better than the target level performance goal for safety under the Annual Incentive Plan and the safety portion of the Annual Incentive Plan was paid in full (i.e., at 10% of the maximum available annual incentive award).
With respect to the quality performance factor, the Committee selected three metrics: internal rejections, internal retreats and external customer claims. Those metrics were selected because they also are commonly used in the steel industry to measure both internal and external quality performance. In addition, there is a direct relationship between the Companys performance with respect to each of those metrics and the Companys costs attributable to quality. At its January 2014 meeting, the Committee established a 2014 target level goal of no more than 0.36% for the internal rejection rate, 0.51% for the internal retreat rate, and 0.20% for the customer claim rate. Again, the threshold goals for each of those metrics were set at 125% of the target goals. (As with the safety performance factor, a higher number reflects less successful performance). These goals were chosen because they represented challenging, but achievable goals, which if achieved were expected to continue the Companys recognized industry leading quality performance. In 2014, the Company performed at a level better than the target level performance goals with respect to two of the quality metrics used to measure its performance under the Annual Incentive Plan, but because it did not achieve the threshold goal of the financial performance component of the Annual Incentive Plan, there was no payout with respect to the quality component of the plan for 2014.
With respect to the financial performance factor, the Annual Incentive Plan establishes net income (excluding, in accordance with the terms of the plan, special, unusual and extraordinary items) as the performance metric and that was the performance metric used for 2014. This metric was established because it is a widely recognized and accepted measure of a companys financial performance and the Committee believes it helps to align the interests of Management and the Companys stockholders. The net income threshold goal typically is set at a level which would represent a minimum acceptable performance by the Company in the context of the business conditions and other challenges facing the Company. The target goal typically is set at a level which would represent performance that is demanding, but still reasonably attainable. The maximum goal is set at a level which would represent extraordinary performance. At its January 2014 meeting, the Committee established threshold, target and maximum net income performance goals for 2013 under the Annual Incentive Plan of $3 million, $44 million and $73 million, respectively (excluding, in accordance with the terms of the plan, special, unusual and extraordinary items). In 2014, the Company recorded a net loss for purposes of the Annual Incentive Plan financial component. In accordance with the terms of the plan, there thus was no payout with respect to the financial performance component of the plan for 2014.
In January 2015, the Committee approved the payment of performance awards for the 2014 performance period to the participants in the Annual Incentive Plan based upon the performance metrics described above. For the Executive Officers, including the NEOs, that payment was equal to 10% of the maximum potential incentive award under the Annual Incentive Plan, all of which was attributable to the Companys outstanding safety performance in 2014. The amount of the Annual Incentive Plan performance awards to each of the NEOs for 2014 is included in the Summary Compensation Table for 2014 beginning on page 65.
Long-Term Incentive Awards Cash
The Company also provides cash performance awards to its employees, including its NEOs, pursuant to its Long-Term Plan. The fundamental purposes of the Companys Long-Term Plan are to:
| align the interests of Management more closely with the interests of the stockholders; |
| link a portion of Managements compensation to the performance of the Company; |
| increase the focus of Management on the Companys long-term performance by establishing performance goals that support long-term strategies; and |
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| assist the Company in recruiting, retaining and motivating a highly talented group of managers who will successfully manage the Company to the long-term benefit of all of its stakeholders. |
Under the terms of the Long-Term Plan, a participant can earn a performance award based upon the three-year performance of the Company against a goal established by the Committee at the start of that three-year period. For 2014, the Committee used cumulative EBITDA (excluding, in accordance with the terms of the plan, special, unusual and extraordinary items) as the performance metric for the Long-Term Plan. The Committee selected this metric because the Committee believes it creates value and provides a strong incentive for Management to achieve the Companys objective of sustainable profitability. Accordingly, the Committee believes the use of this metric will more closely align the interests of Management with the interests of the Companys stockholders over the long term.
Pursuant to the terms of the Long-Term Plan, the Committee establishes cumulative EBITDA threshold, target and maximum payout goals in the first quarter of each three-year performance period. In determining the Long-Term Plan goals, the Committee attempts to establish a target goal that will be challenging to achieve and that is not likely to be satisfied with respect to every three-year performance period. As with respect to the Annual Incentive Plan goals, the threshold goal would be set at a level that would represent a minimum acceptable performance by the Company and the maximum goal would be set at a level that represents extraordinary performance. The threshold goal must be met before any payout is made.
A performance award at the target level may be paid under the Long-Term Plan to the CEO in an amount equal to 120% of base salary and a performance award at the maximum level may be paid in an amount equal to 240% of base salary. For the other NEOs, and depending upon the NEOs position, a performance award at the target level may be paid in an amount equal to between 65% and 95% of base salary and a performance award at the maximum level may be paid in an amount equal to between 130% and 190% of base salary. If the threshold performance goal is achieved, then each participant would receive a performance award equal to one half of the target amount. There is a linear progression of the payout for achievement of cumulative EBITDA between the threshold, target and maximum payout goals. All payouts earned, if any, are paid in cash. For the three-year period ending December 31, 2014, the Committee established at its January 2012 meeting cumulative EBITDA goals of $1.0 billion as the threshold to reach for any incentive payment, $1.25 billion for payment at the target level, and $1.5 billion for payment at the maximum level. For the three-year period ending in 2014, the Company did not achieve the threshold performance level of cumulative EBITDA. Thus, no incentive payment was paid to the participants in the Long-Term Plan for the 2012 to 2014 performance period and the Summary Compensation Table beginning on page 65 does not include any payouts for 2014 to the NEOs under the Long-Term Plan.
Performance Share Awards Equity
Performance share grants are an important element of an NEOs annual compensation package because they closely align the interests of the NEOs and the Companys stockholders by directly linking to the performance of the Companys common stock over a three-year performance period how many shares, if any, ultimately are earned by an NEO. Each grant of a performance share award is expressed as a target number of shares of the Companys common stock. The number of shares of common stock, if any, actually earned by and issued to the NEO under a performance share award will be based upon the performance of the Company over the applicable performance period. By way of example, the performance period applicable to the performance share awards granted in January 2012 started on January 1, 2012 and ended on December 31, 2014. Depending upon the Companys performance with reference to the performance categories described below, an NEO ultimately may earn from 0% to 150% of the target number of shares granted. The performance categories used to determine how many performance shares ultimately will be earned and issued are:
| the Companys Total Stockholder Return, defined as share price appreciation plus reinvested dividends, if any, during the performance period relative to the total stockholder return during that same period of the companies in the Standard & Poors 400 Midcap Index, and |
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| the Companys Growth Rate, defined as the compounded growth rate of the price of the Companys common stock over the performance period, using as the base the average closing price of the Companys common stock for the last 20 trading days during the month of December. |
One-half of the total target number of shares awarded may be earned based on the Growth Rate performance and the other half may be earned based on the relative Total Stockholder Return performance. The Committee chose the Growth Rate metric as an objective measure of the value created for shareholders over time. The Committee chose the relative Total Stockholder Return metric because it facilitates a comparison between the growth rate of the Companys common stock over time and a broad-based market index. The Committee considered that the collective use of Growth Rate and relative Total Stockholder Return as performance metrics for the performance share awards created a balance between two commonly used internal and external metrics, both being recognized measures that are aligned to create shareholder value.
For each performance category, levels have been established to provide threshold, target and maximum payouts as follows:
Payout (Stated as a % of Categorys Target Shares) |
Total Stockholder Return |
Annual Stock Price Growth Rate |
||||||
Threshold (50%) |
25th percentile | 5.0 | % | |||||
Target (100%) |
50th percentile | 7.5 | % | |||||
Maximum (150%) |
75th percentile | 10.0 | % |
If the threshold performance level is not achieved in a performance category as of the end of the performance period, then none of the target shares related to that category will be earned or issued. If at least the threshold is achieved in a performance category, then shares will be earned and issued in an amount equal to the number of the awards target shares related to that category, multiplied by a percentage determined by a straight-line interpolation between the actual level of the Companys performance and the above-stated payout percentages. For the three-year performance period ending in 2014, the Companys stock performance with respect to the Total Stockholder Return and Growth Rate metrics did not meet the threshold performance levels. Accordingly, no shares of the Companys common stock were issued with respect to the three-year performance period that ended in 2014.
Other Equity Awards
Another key component of an NEOs annual compensation package is the grant of restricted stock and option awards under the Companys Stock Plan. A principal purpose of such equity grants under the Companys Stock Plan is to enhance the commonality of interests between Management and the Companys stockholders by linking executive compensation to the Companys performance and to appreciation in the market price of the Companys common stock. Equity grants also are intended to encourage executives to remain in the employ of the Company.
Restricted Stock Awards
Restricted stock generally has a value for an NEO only if the NEO remains in the Companys employment for the period required for the stock to vest, thus providing an incentive for the NEO to remain in the Companys employment. However, an exception to the requirement of continued employment occurs with respect to death, disability or retirement. Vesting occurs immediately upon death or disability. Upon qualification for retirement, the restricted stock will continue to vest in the normal course after the date of retirement.
Restrictions on grants of common stock to the Companys employees typically will lapse with respect to one-third of the shares on the first anniversary of the date of the award, and with respect to an additional one-third of the shares on each of the second and third anniversaries of the date of the award. That is the case with all of the restricted stock grants to the NEOs which occurred in January 2014 at the time the Committee determined
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the 2014 compensation packages for the NEOs. It is also the case with respect to restricted stock awards to Messrs. Newport and Reich in connection with promotions they received in May 2014. As noted above, special awards of restricted stock granted to NEOs in connection with the Companys Dearborn acquisition vest ratably over a two year period.
Stock Option Awards
Stock option awards serve the purposes of the Stock Plan because they generally have a value to the grantee only if the grantee remains in the Companys employment for the period required for the option to become exercisable, and then only if the market price of the Companys stock increases above its price on the date the option was granted. This provides an incentive for the grantee to remain employed by the Company and to take actions that, over time, are intended to enhance the value of the Companys stock. As with restricted stock, an exception to the requirement of continued employment is made in the event of death, disability or retirement. In addition, for stock options an exception is made for involuntary termination without cause. For each NEO, stock options are a part of the determination of the NEOs overall compensation package for that year. All options granted to employees under the Stock Plan, including the NEOs, must be exercised within a ten-year period from the grant date and typically vest in three equal installments on the first, second and third anniversary of the grant date.
Under the terms of the Stock Plan, the exercise price for a share of the Companys common stock underlying an option may not be less than the fair market value of the Companys stock on the date on which such option was granted. It has been the uniform practice of the Committee to establish an option exercise price equal to the fair market value of the underlying common stock. Under the terms of the Stock Plan, that fair market value is the average of the highest and lowest sales price for the Companys common stock on the grant date (or if there were no sales of the Companys common stock on the grant date, then the weighted average of the mean between the highest and lowest sales price for the Companys common stock on the nearest preceding trading day during which there were sales of such stock). It is both the policy and practice of the Committee only to grant options to its employees, including its NEOs, as of the date of the meeting at which the grants were made. This typically occurs at the regularly-scheduled January Committee meeting. Generally, the Committee only grants options at a meeting other than the January meeting in a situation in which an employee is being promoted (e.g., to a new key management or officer position) or is first hired. Under those circumstances, the grant may occur at a meeting other than the regularly-scheduled January Committee meeting, but the grant date for the options still would be the date of the meeting at which the grant was approved. The exercise price for such options also still would be the fair market value of the Companys common stock determined as described above under the terms of the Stock Plan. The Company has not had, and does not have, a practice of backdating stock options. In addition and as noted above, under the terms of the Stock Plan, the price of an option shall not be less than the fair market value of the shares on the date of the grant. Neither the selection of Committee meeting dates nor option grant dates is timed in any way to try to maximize gain or manipulate the price of an option. Management does not have a role in determining the timing of option grants.
2014 Equity Grants to NEOs
The Committee engaged Cook, the Companys independent executive compensation consultant, to provide assistance in determining appropriate equity awards to the Executive Officers, including the NEOs, for 2014. In January 2014, Cook developed and provided to the Committee competitive compensation data based upon publicly available information from the Companys peer group, as well as other survey data. The Committee considered this data as a factor in its determination of equity grants, but it did not utilize a particular compensation percentile as a benchmark for purposes of determining such grants. Rather, this competitive data was used by the Committee to help it assess the reasonableness of the grant awards under consideration by the Committee for an Executive Officer.
While there is no express policy with respect to the allocation of each type of equity award, the total value of shares at the grant date of the January 2014 equity grants to the CEO (as well as the other NEOs) was
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allocated approximately as follows: 23% stock options, 31% restricted stock, and 46% performance shares at target. In addition to these January grants as part of the normal process for determining annual compensation packages for the NEOs, the Committee also made equity grants to certain of the NEOs in connection with their promotions in May 2014 and to certain of the NEOs in November 2014 in connection with the special award related to the Companys Dearborn acquisition. All of the grants of stock options, restricted stock and performance shares made during 2014 to the NEOs are reflected in the Grants of Plan-Based Award Table beginning on page 69.
What pension, post-termination and other benefits are provided to Executive Officers?
Summary of Key Takeaways: The Company has two supplemental retirement plans for its Executive Officers and each Executive Officer participates in one of these plans. Certain of the Companys officers, including all of its NEOs, are eligible to participate in an unfunded nonqualified deferred compensation plan known as the SERP. At its March 2014 meeting, however, the Committee recommended to the Board, and the Board approved, locking the SERP and replacing it for future officers with another unfunded nonqualified deferred compensation plan referred to as the Retirement Plan. The Retirement Plan is expected to provide a lower level of benefits than the SERP. In addition, the Company has entered into severance agreements and change-of-control agreements with each of the Executive Officers that provide post-termination benefits. None of those agreements include terms providing for single triggers or gross up payments.
Pension and Other Retirement Benefits
Non-Contributory Pension Plan
Prior to January 31, 2009, the Companys full-time, non-represented salaried employees, including its NEOs, could elect to participate in a qualified benefit plan known as the Non-Contributory Pension Plan. Effective January 31, 2009, however, no new participants were allowed to enter the Non-Contributory Pension Plan and all benefit accruals under the plan for existing participants were frozen. For those who entered the Non-Contributory Pension Plan prior to January 31, 2009, retirement benefits are calculated using one of two formulas: (1) a cash balance formula, or (2) a final average pay formula. Eligibility for coverage under a particular formula is typically determined by the date on which a participant commenced employment with the Company. The compensation taken into account in determining benefits under either formula is subject to the compensation limits imposed by the Internal Revenue Code. A description of the terms of the Non-Contributory Pension Plan, including the formulas used to calculate a participants retirement benefits, is set forth in footnote (1) to the Pension Benefits Table beginning at page 74.
Supplemental Retirement Plans
The Company has two supplemental retirement plans for its Executive Officers. The Committee has determined that the supplemental retirement plans provide a retirement benefit that is a key competitive element of the overall compensation package and, therefore, important to recruiting and retaining key management members. Certain of the Companys existing officers, including all of its NEOs, are eligible to participate in an unfunded nonqualified deferred compensation plan called the SERP. At its March 2014 meeting, however, the Committee recommended to the Board, and the Board approved, closing the SERP and replacing it for future officers with a new retirement plan referred to as the Retirement Plan. The terms of the Retirement Plan were established by the Committee and recommended to and approved by the Board at its March 2014 meetings. The terms of each of these plans are described below.
SERP (locked as of March 2014)
Each of the NEOs is a participant in the Companys SERP. The Companys SERP provides (1) a make up of qualified plan benefits that were denied as a result of limitations imposed by the Internal Revenue Code, and
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(2) supplemental benefits to vested participants. As part of its annual review of retirement benefits provided to Executive Officers, including the NEOs, the Committee has determined that the retirement benefit provided by the SERP continues to be a key element of a competitive compensation package and, therefore, important to retaining Executive Officers.
The benefits for participants in the SERP, including the NEOs, vest under a form of graded vesting. More specifically, a participant will vest in 50% of his or her accrued benefit after a minimum requirement of five years of service as an officer of the Company and as a participant in the SERP, and in an additional 10% of such benefit for each year of service as an employee of the Company in addition to such five years, up to 100% vesting after ten years of total service. Vesting also will occur upon the effective date of a change of control (as defined in the SERP). In addition, vesting occurs upon the participants death or disability with respect to a participant who has completed at least five years of service with the Company. The form of payment is a lump sum payment to be made within 30 days after the later of attainment of age 55 or termination of employment, subject to a six-month delay for specified employees, including the NEOs. A participant whose employment with the Company terminates after his or her benefit has vested, but before the participant reaches the age of 60, is entitled to an early retirement benefit, reduced to its actuarial equivalent based on the participants age.
Benefits paid under the SERP are subject to an offset for any benefit received under the Companys qualified defined benefit plan, as well as the actuarial equivalent of certain Company-provided vested benefits accumulated under the Thrift Plan. A participants benefit under the SERP, prior to giving effect to such offset, is equal to the greater of: (1) 50% of his or her average covered compensation (base salary and bonus under the Annual Incentive Plan) during the employees highest three calculation years of eligible earnings over the participants last ten years of consecutive service, or (2) the participants benefit under the applicable qualified plan in which he or she participates without regard to the limitations imposed by the Internal Revenue Code. The present value of accumulated benefits for each of the NEOs under the SERP is set forth in the Pension Benefits Table beginning on page 74.
Retirement Plan (for new officers after March 2014)
The Retirement Plan provides (1) a make up of qualified plan benefits that were denied as a result of limitations imposed by the Internal Revenue Code, and (2) supplemental benefits to vested participants. The Committee has determined that the retirement benefit provided by the Retirement Plan is a key element of a competitive compensation package to attract and retain future officers.
The benefits for participants in the Retirement Plan will vest under a form of graded vesting. A participant will vest in 50% of his or her accrued benefit after a minimum requirement of five years of service as an officer of the Company and as a participant in the Retirement Plan, and in an additional 10% of such benefit for each year of service as an employee of the Company in addition to such five years, up to 100% vesting after ten years of total service. Vesting also will occur upon the effective date of a change of control (as defined in the Retirement Plan). In addition, vesting occurs with respect to a participant who has completed at least five years of service with the Company upon the participants death or disability. The form of payment is a lump sum payment to be made within 30 days after the later of attainment of age 55 or termination of employment, subject to a six-month delay for specified employees, including Executive Officers. A participant whose employment with the Company terminates after his or her benefit has vested, but before the participant reaches the age of 60, is entitled to an early retirement benefit, reduced to its actuarial equivalent based on the participants age.
Benefits paid under the Retirement Plan are subject to an offset for any benefit received under the Companys qualified defined benefit plan, as well as the actuarial equivalent of certain Company-provided vested benefits accumulated under the Thrift Plan. A participants benefit under the Retirement Plan, prior to giving effect to such offset, is equal to the greater of: (1) 40% of his or her average annual base salary during the employees last three years of consecutive service, plus the annual average of any incentive awards received by the participant for the last ten consecutive annual performance periods under the Annual Incentive Plan; or (2) the participants benefit under the qualified plan without regard to the limitations imposed by the Internal Revenue Code. None of the current NEOs participates in the Retirement Plan.
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Thrift Plan and Supplemental Thrift Plan
The Thrift Plan is a qualified retirement plan under Section 401(k) of the Internal Revenue Code. It provides for Company matching contributions with respect to employee contributions up to 5% of base salary, a portion of which is guaranteed and a portion of which is dependent upon the Companys net income. It further provides for supplemental contributions by the Company if the Companys net income exceeds $150 million. At the same time that the Company locked and froze its Non-Contributory Pension Plan (see discussion above), it amended its Thrift Plan to add an automatic contribution by the Company to a participants account in the Thrift Plan. Effective January 31, 2009, the Thrift Plan provides for the Company to make a contribution to the account of each participant in the Thrift Plan equal to 3% of the participants base salary, whether or not the participant makes an elective contribution to the Thrift Plan. This 3% contribution is in addition to the matching contributions described above with respect to the participants elective contributions. All such contributions are subject to the compensation limits imposed by the Internal Revenue Code.
The Supplemental Thrift Plan is an unfunded nonqualified retirement plan. It provides for Company matching contributions with respect to base salary that may not be taken into account under the Thrift Plan due to limits on earnings imposed by the Internal Revenue Code. The Supplemental Thrift Plan thus provides a vehicle to maximize Company matching contributions that otherwise would not be eligible for the Thrift Plan due to the Internal Revenue Codes compensation limits.
The Committee has determined that the Supplemental Thrift Plan provides a retirement benefit that is a key competitive element of the overall compensation package and, therefore, important to recruiting and retaining key management members.
Any member of Management of the Company, including an NEO, is eligible for participation in the Thrift Plan, but participants in the Supplemental Thrift Plan must be selected by the Committee. For 2014, the participants in the Supplemental Thrift Plan included all of the NEOs. The contributions under these plans for 2014 are set forth in the Nonqualified Deferred Compensation Table on page 76. In 2014, all contributions to these plans were fixed contributions that were not dependent upon the Companys net income; there were no performance-based contributions because the Company had a net loss for the year.
Executive Deferred Compensation Plan
The Company has an Executive Deferred Compensation Plan (the Deferred Plan). The Deferred Plan is an unfunded nonqualified deferred compensation arrangement. Participants are always fully vested in their accounts under this plan. Participants direct the investment of their accounts among available investment options (generally the same investment options available under the Companys qualified thrift plan) at market rates. To be eligible to participate in the Deferred Plan, an employee must be an elected officer or other member of the Management of the Company. Eligible employees who desire to participate in the Deferred Plan must be selected by the Chairman and approved by the Committee. In 2014, none of the NEOs chose to participate in the Deferred Plan.
Post-termination Benefits
Severance and Change-of-Control Agreements Rationale
The Company has entered into severance agreements and change-of-control agreements with each of the NEOs that provide post-termination benefits. The descriptions of those agreements in this Proxy Statement are qualified in all respects by reference to the actual documents filed with the Securities and Exchange Commission. The current forms of the changeofcontrol and the severance agreements were attached as exhibits to a Form 8-K filed on March 26, 2014. The only material change from the prior form of the agreements was to broaden the non-compete provision to reflect changes in competitive landscape for the industry.
For each of the NEOs, their initial severance and change-of-control agreements each had a five-year term, and renew automatically thereafter on a year-to-year basis unless written notice of non-renewal is given by either
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party at least 90 days prior to the expiration of the term. The new recently executed agreements continue for the remaining period of that initial five-year term. If the initial five-year term had expired, the agreements continue on a year-to-year basis. The new forms of these agreements were recommended by the Committee and approved by the Board in March 2014.
The severance agreements are provided to the NEOs because they promote the interests of the Company and its stakeholders by, among other things:
| securing a release of claims from the terminated NEO and thereby avoiding the risk and financial exposure of employment litigation; |
| ensuring that for one year after termination of employment the NEO will not compete against the Company; |
| ensuring that for one year after termination of employment the NEO will not solicit any employee of the Company to resign his or her employment; |
| ensuring that for one year after termination of employment the NEO will cooperate with respect to various Company matters in which the NEO was personally involved prior to the NEOs employment termination; and |
| securing an agreement by the NEO to arbitrate all legally arbitrable claims arising not only from the severance agreement, but also from the NEOs employment relationship with the Company. |
The change-of-control agreements are provided to the NEOs because they promote the interests of the Company and its stakeholders by, among other things:
| obtaining the same covenants and commitments as described above with respect to severance agreements; and |
| mitigating an NEOs concerns about personal job security and financial well-being in the event of a change-of-control, thereby eliminating consequences that might prevent the NEO from providing objective advice and information to the Board and stockholders with respect to a proposed change-of-control of the Company, and helping to ensure that the Management team stays intact before and during a proposed change-of-control transaction. |
The Committee annually reviews the form and terms of the Companys severance and change-of-control agreements to evaluate whether they continue to promote the interests of the Company as noted above and were appropriate and competitive under the then-existing circumstances.
Severance Agreements Terms Overview
Under the terms of the existing form of severance agreement with the Companys NEOs, an NEO who voluntarily terminates employment or whose employment is terminated involuntarily for cause would not receive any severance benefits associated with such termination. An NEO who is terminated involuntarily without cause would receive at a minimum a lump sum payment equal to the NEOs base salary for a period of six months. In addition, if the NEO executes an agreement releasing the Company from any liability for claims relating to the NEOs employment with the Company, the NEO also is entitled to receive:
| an additional lump sum severance payment (ranging from 12 to 18 months of base salary); |
| a lump sum payment based upon the NEOs assigned target amount under the Companys Annual Incentive Plan (ranging from 1 to 1.5 times target) and a pro-rated payment of any Annual Incentive Plan award actually earned for the year in which the termination occurs; and |
| continuing coverage under the Companys benefit plans, including life, health and other insurance benefits, for a specified period of time (ranging from 18 to 24 months). |
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Change-of-Control Agreements Terms Overview
An NEO typically is entitled to severance payments and other benefits under the NEOs change-of-control agreement if, within 24 months following a change-of-control of the Company, the NEOs employment with the Company is involuntarily terminated without cause or the NEO voluntarily terminates employment with the Company for good reason.
There are different versions of the change-of-control agreement with respect to the level of benefit payments made in the event of a change-of-control. Generally, the highest level of benefits is provided for Mr. Wainscott. For each NEO, including Mr. Wainscott, the base severance benefit is a lump sum payment equal to the NEOs base salary for a period of six months. In addition, if the NEO executes an agreement releasing the Company from any liability for claims relating to employment with the Company, the NEO would be entitled to receive:
| an additional lump sum severance payment (ranging from 18 to 30 months of base salary); |
| a lump sum payment based upon the NEOs awards under the Companys Annual Incentive Plan equal to two to three times the greatest of (1) the NEOs assigned Annual Incentive Plan target amount for the calendar year in which the termination occurs, (2) the actual Annual Incentive Plan payout for the calendar year immediately preceding the calendar year in which the termination occurs, or (3) the average of the Annual Incentive Plan payouts for the three calendar years immediately preceding the calendar year of termination, reduced in each instance by any amount otherwise paid or payable under the Annual Incentive Plan with respect to the preceding calendar year, plus a prorated Annual Incentive Plan payout at the maximum level for the portion of the then-current calendar year prior to date of termination; |
| a lump sum payment based upon the NEOs awards under the Companys Long-Term Plan equal to the bonus payment with respect to any completed performance period under the Long-Term Plan that has not been paid as of the date of termination (which amount shall not be less than it would be if calculated at the assigned target amount under the Long-Term Plan), plus a prorated Long-Term Plan payment at the target level for all incomplete performance periods as of the date of termination; |
| continuing coverage under the Companys benefit plans, including life, health and other insurance benefits, for a specified period (ranging from 24 to 36 months); |
| additional service credits toward retiree medical coverage (ranging from two to three years); |
| the immediate vesting of all restricted stock awards to the NEO under the Companys Stock Plan and the lapse of all restrictions on such awards; and |
| the right, for a period of three years, to exercise all stock options awarded to the NEO under the Stock Plan without regard to any waiting period required by the Stock Plan (but subject to expiration of the original ten-year period for the option to be exercised). |
Specific Payments and Benefits under Severance and Change-of-Control Agreements
Each of the NEOs change-of-control agreements contains a double trigger which provides that the NEO is entitled to the payments and benefits under the agreement if, within 24 months following a change-of-control of the Company, the Executive Officers employment with the Company is involuntarily terminated without cause or the Executive Officer voluntarily terminates employment with the Company for good reason. None of these agreements include a so-called gross-up provision which would require a payment to the NEO if the NEO becomes subject to the federal excise tax on parachute payments. The specific circumstances that would trigger the payments and other benefits under the severance agreements, the estimated payments and benefits that would be provided in each covered circumstance for each NEO, how the payments and benefits are determined under such circumstances and all material conditions and obligations applicable to the receipt of the payments and benefits are set forth in the Potential Payments Upon Termination or Change-of-Control discussion beginning on page 77.
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Perquisites and Other Personal Benefits
Each of the NEOs receives various perquisites and other personal benefits, which the Committee has determined, based upon information provided by the Committees independent executive compensation consultant, are customary for Executive Officers of a company the size and stature of the Company and appropriate to provide a competitive overall compensation package to the Companys NEOs. These consist principally of reimbursement for tax planning services, financial planning services, mandatory physical evaluations, and limited personal use of the Companys airplane by the CEO. While the value of these perquisites and other personal benefits is not considered by the Committee to be a material component of the overall compensation package of an NEO, the perquisites and personal benefits provided to that NEO are disclosed in the All Other Compensation column of the Summary Compensation Table on page 65. In addition, the executives pay all taxes associated with these perquisites and other personal benefits and their compensation is not grossed up to cover such taxes.
Principally for security reasons, the Company has a policy pursuant to which the Companys CEO has limited use of the Company plane for personal purposes. The convenience of using the Company plane also helps to provide balance to the time he must spend on Company business. Such personal use results in imputed income to Mr. Wainscott. The Company does not reimburse or gross-up payments to Mr. Wainscott with respect to the individual income taxes he incurs as a result of his personal use of the plane.
Other Employee Benefit Plans
Each of the NEOs also participates in various employee benefit plans generally available to all employees on the same terms and conditions as with respect to other similarly situated employees. These include the normal and customary programs with respect to death and disability benefits generally available to all employees on the same terms and conditions of other similarly situated employees. It also includes the normal and customary programs for life insurance, health insurance, prescription drug insurance, dental insurance, vision insurance, pre-tax flexible spending accounts, short- and long-term disability insurance, pension benefits, educational assistance and matching gifts for charitable contributions. While these benefits are considered to be an important and appropriate employment benefit for all employees of the Company, they are not considered to be a material component of an NEOs annual compensation program. Because the NEOs receive these benefits on the same basis as other employees, these benefits are not established or determined by the Committee separately for each NEO as part of the NEOs annual compensation package.
What is the Companys Policy with Respect to Deductibility of Executive Compensation?
Summary of Key Takeaways: The Committee considers the anticipated tax treatment to the Company when determining executive compensation and routinely seeks to structure its executive compensation program in a way that preserves the deductibility of compensation payments and benefits, but the Committee has not adopted a strict policy that all executive compensation must be deductible under Section 162(m). Under certain circumstances, the Committee may choose to award compensation that cannot be deducted under Section 162(m).
Discussion: Section 162(m) of the Internal Revenue Code generally places a $1,000,000 limit on the deductibility for federal income tax purposes of the annual compensation paid to a companys Chief Executive Officer and each of its other three most highly compensated Executive Officers (excluding the Chief Financial Officer). However, qualified performance-based compensation is exempt from this deductibility limitation. Qualified performance- based compensation is compensation paid based solely upon the achievement of objective performance goals, the material terms of which are approved by the stockholders of the paying corporation.
The Committee considers the anticipated tax treatment to the Company when determining executive compensation and routinely seeks to structure its executive compensation program in a way that preserves the deductibility of compensation payments and benefits. It should be noted, however, that there are many factors which are considered by the Committee in determining executive compensation and, similarly, there are many factors that may affect the deductibility of executive compensation. In order to maintain the flexibility to be able
63
to compensate NEOs in a manner designed to promote varying corporate goals, the Committee has not adopted a strict policy that all executive compensation must be deductible under Section 162(m). Under certain circumstances, the Committee may choose to award compensation that cannot be deducted under Section 162(m).
III. | Consideration of shareholder say-on-pay and say-when-on-pay voting results |
In connection with the Companys 2011 Annual Meeting of Stockholders, a majority of the votes cast by shareholders were in favor of holding an advisory vote on executive compensation on an annual basis. In light of those voting results and other matters considered by the Board of Directors, the Board decided to include a stockholder advisory vote on NEO compensation in the Companys proxy materials on an annual basis. In the absence of a subsequent Board action to the contrary, this annual advisory vote decision will remain in effect until the next required stockholder advisory vote on the frequency of future stockholder advisory votes on NEO compensation, which will occur no later than the Companys Annual Meeting of Stockholders in 2017.
In connection with the Companys 2013 Annual Meeting of Stockholders, approximately 76% of the shares voted were in favor of a resolution to approve the compensation of the NEOs as disclosed in the Companys 2013 Proxy Statement. Prior to that meeting and pursuant to the Committees direction, Management reached out to a significant number of the Companys largest shareholders to engage in dialogue with them concerning the Companys executive compensation program. In addition, subsequent to the annual meeting, Mr. Abdoo, as Chair of the Committee, personally engaged in a series of calls with several of the Companys largest shareholders to solicit their views on the Companys executive compensation program. The Committee considered the feedback it received through these shareholder engagement programs, along with the results of the voting by shareholders on the Companys 2013 say-on-pay proposal, at the Committees January 2014 meeting at which it established the 2014 compensation packages for the NEOs described in this Proxy Statement. The Committee also considered the policies and recommendations of proxy advisory firms with respect to executive compensation. In the context of those considerations, at its January 2014 meeting the Committee decided to lock participation in the SERP to then-existing participants and to replace the SERP with the new Retirement Plan for future new officers. The Retirement Plan provides for reduced benefits compared to the SERP.
In connection with the Companys 2014 Annual Meeting of Stockholders, more than 94% of the shares voted were in favor of a resolution to approve the compensation of the NEOs as disclosed in the Companys 2014 Proxy Statement. The Committee considered the results of the voting by shareholders on the Companys 2014 say-on-pay proposal at its January 2015 meeting. At that meeting, the Committee discussed the results of the vote and directed Management to actively engage in dialogue with Company shareholders, as appropriate, to determine why they voted as they did on the say-on-pay issue in 2014 and whether they have particular concerns about the Companys executive compensation program. The Committee also considered the policies and recommendations of proxy advisory firms with respect to executive compensation.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT
The Management Development and Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with Management and, based upon such review and discussion, the Management Development and Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE
Mr. Richard A. Abdoo, Chair
Mr. John S. Brinzo
Ms. Sheri H. Edison
Mr. Robert H. Jenkins
Mr. Ralph S. Michael, III
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SUMMARY COMPENSATION TABLE FOR 2014
The table below summarizes the total compensation paid to or earned by each Named Executive Officer (NEO) for the years ended December 31, 2012, 2013, and 2014:
Name and Principal Position |
Year | Salary ($) |
Bonus ($)(1) |
Stock Awards ($)(2) |
Option Awards ($)(3) |
Non- Equity Incentive Plan Compen- sation ($)(4) |
Change in Pension Value and Nonqualified Deferred Compen- sation Earnings ($)(5) |
All Other Compen- sation ($)(7) |
SEC Total ($) |
Total Not Including Change in Pension Value ($)(8) |
||||||||||||||||||||||||||||||
James L. Wainscott |
2014 | $ | 1,200,000 | $ | 0 | $ | 1,899,712 | $ | 582,144 | $ | 288,000 | $ | 4,358,265 | $ | 116,653 | $ | 8,444,774 | $ | 4,086,509 | |||||||||||||||||||||
Chairman of the Board, President and CEO |
2013 | 1,150,000 | 0 | 1,352,917 | 397,192 | 253,000 | 0 | (6) | 150,405 | 3,303,514 | 3,303,514 | |||||||||||||||||||||||||||||
2012 | 1,150,000 | 0 | 2,803,711 | 689,780 | 253,000 | 3,627,753 | 163,014 | 8,687,258 | 5,059,505 | |||||||||||||||||||||||||||||||
Roger K. Newport |
2014 | 460,257 | 41,667 | 409,513 | 206,219 | 71,974 | 792,003 | 29,694 | 2,011,327 | 1,219,324 | ||||||||||||||||||||||||||||||
Senior Vice President, Finance and Chief Financial Officer |
2013 | 360,000 | 0 | 150,588 | 44,278 | 46,800 | 0 | (6) | 21,896 | 623,562 | 623,562 | |||||||||||||||||||||||||||||
2012 | 335,909 | 0 | 360,074 | 64,155 | 41,307 | 578,178 | 26,023 | 1,405,646 | 827,468 | |||||||||||||||||||||||||||||||
David C. Horn |
2014 | 692,276 | 43,752 | 400,068 | 109,056 | 128,720 | 167,159 | 49,000 | 1,590,031 | 1,422,872 | ||||||||||||||||||||||||||||||
Executive Vice President, Chief Legal and Administrative Officer, and Secretary |
2013 | 637,500 | 0 | 253,759 | 74,408 | 95,625 | 196,137 | 44,210 | 1,301,639 | 1,105,502 | ||||||||||||||||||||||||||||||
2012 | 637,500 | 0 | 525,872 | 129,220 | 95,625 | 0 | (6) | 46,147 | 1,434,364 | 1,434,364 | ||||||||||||||||||||||||||||||
Kirk W. Reich |
2014 | 359,872 | 33,334 | 328,551 | 164,266 | 51,481 | 394,322 | 27,790 | 1,359,616 | 965,294 | ||||||||||||||||||||||||||||||
Senior Vice President, Manufacturing |
||||||||||||||||||||||||||||||||||||||||
Keith J. Howell |
2014 | 340,000 | 14,170 | 213,203 | 61,440 | 44,200 | 497,474 | 24,181 | 1,194,668 | 697,194 | ||||||||||||||||||||||||||||||
Vice President, Operations |
2013 | 320,000 | 0 | 138,033 | 40,610 | 38,400 | 0 | (6) | 21,753 | 558,796 | 558,796 | |||||||||||||||||||||||||||||
(1) | These amounts represent the value of the cash component of special awards made in recognition of significant contributions to various aspects of the acquisition and integration of Dearborn (Dearborn Special Awards). Awards were made to various employees, including to each of the Companys NEOs other than the CEO. Despite his exceptional leadership with respect to the Dearborn transaction, the Committee did not include Mr. Wainscott among the special recognition award recipients solely because of his status as the CEO of the Company. The total size of the awards (including both cash and non-cash components) ranged from one to two months of base salary, depending on each recipients contribution and criticality to the transaction. Fifty percent of the award value to each NEO was provided in cash and the remaining fifty percent was provided in restricted shares that vest ratably over two years. The value of the portion of each award paid in time-vested shares is reflected in the Stock Awards column above, as well as in the Grants of Plan Based Awards Table at page 69. |
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(2) | The amounts in this column reflect the aggregate grant date fair value of awards computed in accordance with ASC Topic 718 for awards of both restricted stock and performance shares pursuant to the Stock Plan. A discussion of the assumptions used to calculate the value of the stock awards reported in this column is located in Note 12 to the consolidated financial statements included in the Companys 2014 Annual Report. The following table sets forth the values for only the performance share awards, as of their respective grant dates, assuming the performance conditions of such awards are achieved at their maximum potential levels: |
Maximum Award Value(a) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
James L. Wainscott |
$ | 1,694,400 | $ | 1,240,355 | $ | 2,639,558 | ||||||
Roger K. Newport |
222,720 | 138,443 | 245,262 | |||||||||
David C. Horn |
317,760 | 232,611 | 495,011 | |||||||||
Kirk W. Reich |
177,600 | (b | ) | (b | ) | |||||||
Keith J. Howell |
177,600 | 126,495 | (c | ) |
(a) | The maximum award values in this table are calculated by multiplying the grant date fair value of performance share grants from the Grants of Plan-Based Awards Table by 1.5. |
(b) | Since Mr. Reich was not an NEO during 2012 and 2013, award values are not included for those years. |
(c) | Since Mr. Howell was not an NEO during 2012, award values are not included for that year. |
Also included in this Stock Awards column are amounts representing the value of the time-vested restricted stock component of the Dearborn Special Awards described in footnote (1) of this Summary Compensation Table.
(3) | The amounts in this column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718 for awards of stock options pursuant to the Stock Plan. A discussion of the assumptions used to calculate the value of the stock options reported in this column is located in Note 12 to the consolidated financial statements included in the Companys 2014 Annual Report. |
(4) | The table below summarizes the payments to each NEO under the Companys Annual Incentive Plan and Long-Term Plan for the fiscal years ended December 31, 2012, 2013, and 2014. Since Mr. Reich was not an NEO during 2012 and 2013 and Mr. Howell was not an NEO during 2012, no award value is included for them for those years. |
Non-Equity Incentive Plan Compensation | ||||||||||||||||
Name and Principal Position |
Year | Annual Incentive Plan ($) |
Long- Term Plan ($) |
Total ($) | ||||||||||||
James L. Wainscott |
2014 | $ | 288,000 | $ | 0 | $ | 288,000 | |||||||||
Chairman, President and CEO |
2013 | 253,000 | 0 | 253,000 | ||||||||||||
2012 | 253,000 | 0 | 253,000 | |||||||||||||
Roger K. Newport |
2014 | 71,974 | 0 | 71,974 | ||||||||||||
Senior Vice President, Finance |
2013 | 46,800 | 0 | 46,800 | ||||||||||||
and Chief Financial Officer |
2012 | 41,307 | 0 | 41,307 | ||||||||||||
David C. Horn |
2014 | 128,720 | 0 | 128,720 | ||||||||||||
Executive Vice President, |
2013 | 95,625 | 0 | 95,625 | ||||||||||||
Chief Legal and Administrative Officer, |
2012 | 95,625 | 0 | 95,625 | ||||||||||||
and Secretary |
||||||||||||||||
Kirk W. Reich |
2014 | 51,481 | 0 | 51,481 | ||||||||||||
Senior Vice President, Manufacturing |
||||||||||||||||
Keith J. Howell |
2014 | 44,200 | 0 | 44,200 | ||||||||||||
Vice President, Operations |
2013 | 38,400 | 0 | 38,400 |
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(5) | The amounts reported in this column represent the change in pension value for each NEO. No NEO received preferential or above-market earnings on deferred compensation. The change in pension value for each NEO principally was the result of three factors: (i) a change in the ordinary course of the qualified earnings of each NEO used to calculate pension values; (ii) a change in the calculation of the interest component as a result of each NEOs change in age relative to the NEOs assumed retirement date; and (iii) a change in the discount rates used to determine the lump sum pension benefit as of the NEOs assumed future payout date following his retirement and then to calculate the present value of the lump sum pension benefit to the reporting date. Another less significant factor which impacts the actuarial increase in pension value is the change in the value of the benefits to which an NEO is entitled under a qualified plan. See footnotes to Pension Benefits Table, below, for further explanation of the methodology used to calculate the present value of accumulated pension benefits for each NEO. |
(6) | In any case where an NEOs change in pension value was negative, the value is reported as $0 in the Summary Compensation Table in accordance with applicable disclosure regulations. The actual negative change in pension values in 2013 were as follows: ($851,580) for Mr. Wainscott, ($283,405) for Mr. Newport, and ($287,598) for Mr. Howell. The actual negative change in pension value in 2012 for Mr. Horn was ($268,240). Pension values at a given point in time for each NEO will vary based upon changes in the discount rate used to calculate the present value of the pension benefits or a change in the interest component of the value as a result of the NEOs change in age relative to the NEOs assumed retirement date. This variation was particularly acute for Mr. Wainscott from 2012 to 2014. In 2012, the calculated value of his pension increased by approximately $3.6 million. In 2013, it decreased by approximately $0.85 million. In 2014, it increased by approximately $4.4 million. The differences are attributable almost entirely to changes in two interest rates used to calculate his pension value as of an assumed payout date for him in the future after he reaches the age of 60 and is entitled to receive his full pension benefits. The first is the discount rate used to determine Mr. Wainscotts future lump sum pension benefit as of that assumed future payout date following his retirement. From December 31, 2011 to December 31, 2012, the discount rate used to determine the lump sum pension benefit of Mr. Wainscotts pension benefit declined, thereby increasing his pension value in 2012. From December 31, 2012 to December 31, 2013, the opposite occurred. The discount rate increased, with a resulting negative change in Mr. Wainscotts pension value for 2013. From December 31, 2013 to December 31, 2014, the discount rate used to determine the lump sum pension benefit of Mr. Wainscotts pension benefit again declined, thereby increasing his pension value in 2014. The second interest rate which changed is the discount rate used to calculate the present value of Mr. Wainscotts lump sum pension benefit to the reporting date and a similar pattern occurred with respect to this rate. Similar effects occurred for Messrs. Newport and Howell in 2013, though to a lesser extent than with respect to Mr. Wainscott, based upon differences in their ages relative to when they would be entitled to receive a full pension benefit and the impact of present valuing that benefit. |
(7) | The compensation shown in this column includes matching contributions made by the Company to a qualified defined contribution plan and a nonqualified supplemental thrift plan, imputed income on Company-sponsored life insurance, dividends on restricted stock and perquisites. A summary of the amounts included in this column is provided in the table below. Perquisites included in this column and provided to the NEOs include: reimbursement for tax planning services, financial planning services, mandatory physical evaluations, use of company-owned tickets to athletic events, and Company contributions to health savings accounts. They also included limited personal use of the corporate aircraft for the CEO and his family. |
(8) | The amounts reported in this column differ substantially from, and are not a substitute for, the amounts reported in the SEC Total column. The amounts reported in this column are solely intended to facilitate an investors understanding of how changes in pension value impact the total compensation reported in this Summary Compensation Table in any given year. To facilitate that understanding, this column shows total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column from the amounts reported in the SEC Total column. The calculation of the pension values and the causes of the significant year-over-year changes in pension value are explained in footnotes 5 and 6, above. |
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Summary of All Other Compensation | ||||||||||||||||||||||||||||||||||||||||
Name |
Year | Company Fixed Contribution to the Qualified Plan |
Company Match to the Qualified Plan |
Company Match to the Non- Qualified Plan |
Imputed Income on Life Insurance |
Dividends on Restricted Stock |
Perquisites | Vacation in Lieu of Time Off |
Severance | Total | ||||||||||||||||||||||||||||||
James L. Wainscott |
2014 | $ | 7,800 | $ | 6,500 | $ | 23,500 | $ | 12,131 | $ | 0 | $ | 66,722 | (a) | $ | 0 | $ | 0 | $ | 116,653 | ||||||||||||||||||||
2013 | 7,650 | 6,375 | 22,375 | 11,615 | 0 | 102,390 | 0 | 0 | 150,405 | |||||||||||||||||||||||||||||||
2012 | 7,500 | 6,250 | 22,500 | 11,615 | 9,595 | 105,554 | 0 | 0 | 163,014 | |||||||||||||||||||||||||||||||
Roger K. Newport |
2014 | 7,800 | 6,500 | 5,006 | 2,397 | 0 | 7,991 | 0 | 0 | 29,694 | ||||||||||||||||||||||||||||||
2013 | 7,650 | 6,375 | 2,625 | 1,211 | 0 | 4,035 | 0 | 0 | 21,896 | |||||||||||||||||||||||||||||||
2012 | 7,500 | 6,250 | 2,148 | 1,138 | 2,178 | 6,809 | 0 | 0 | 26,023 | |||||||||||||||||||||||||||||||
David C. Horn |
2014 | 7,800 | 6,500 | 10,806 | 10,542 | 0 | 13,352 | 0 | 0 | 49,000 | ||||||||||||||||||||||||||||||
2013 | 7,650 | 6,375 | 9,563 | 9,717 | 0 | 10,905 | 0 | 0 | 44,210 | |||||||||||||||||||||||||||||||
2012 | 7,500 | 6,250 | 9,688 | 9,717 | 1,200 | 11,792 | 0 | 0 | 46,147 | |||||||||||||||||||||||||||||||
Kirk W. Reich |
2014 | 7,800 | 6,500 | 2,496 | 1,204 | 0 | 9,790 | 0 | 0 | 27,790 | ||||||||||||||||||||||||||||||
Keith J. Howell |
2014 | 7,800 | 6,500 | 1,999 | 1,139 | 0 | 6,743 | 0 | 0 | 24,181 | ||||||||||||||||||||||||||||||
2013 | 7,650 | 6,375 | 1,625 | 1,067 | 0 | 5,036 | 0 | 0 | 21,753 |
(a) | Valuation of Personal Use of Corporate Aircraft: The value of personal aircraft usage included in the number reported in this column is $58,407 for 2014 and is based upon the incremental cost of the usage to the Company. It includes fuel costs, trip-related crew travel expenses (such as hotels, meals and ground transportation), in-flight meals, landing and ground handling fees and taxes, trip-related engine maintenance service plan costs, and an allocated portion of plane maintenance costs based upon the average per hour flown. The calculation does not include fixed costs that would be incurred regardless of whether there is any personal use of the aircraft (e.g., aircraft purchase costs, depreciation, crew salaries and related benefit costs, and insurance costs). |
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GRANTS OF PLAN-BASED AWARDS TABLE
The table below summarizes equity and non-equity grants to the NEOs during the fiscal year ended December 31, 2014:
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
Estimated Future Payouts Under Equity Incentive Plan Awards(3) |
All Other Stock Awards: Number of Shares or Units (#)(4) |
All Other Option Awards: Number of Securities Underlying Options (#)(5)(6) |
Exercise Or Base Price of Option Awards ($/ Sh)(6) |
Grant
Date Fair Value of Awards ($)(7) |
|||||||||||||||||||||||||||||||||||||||
Grant Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
||||||||||||||||||||||||||||||||||||||
James L. Wainscott |
(1) | $ | 0 | $ | 1,440,000 | $ | 2,880,000 | | | | | | | | ||||||||||||||||||||||||||||||
(2) | 720,000 | 1,440,000 | 2,880,000 | | | | | | | | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | 88,250 | 176,500 | 264,750 | | | | $ | 1,129,600 | |||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | 114,600 | | | 770,112 | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | | 151,600 | $ | 6.720 | 582,144 | |||||||||||||||||||||||||||||||||
Roger K. Newport |
(1) | $ | 0 | $ | 300,000 | $ | 600,000 | | | | | | | | ||||||||||||||||||||||||||||||
(2) | 150,000 | 300,000 | 600,000 | | | | | | | | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | 11,600 | 23,200 | 34,800 | | | | $ | 148,480 | |||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | 15,100 | | | 101,472 | ||||||||||||||||||||||||||||||||||
05/29/14 | | | | | | | 19,000 | | | 117,895 | ||||||||||||||||||||||||||||||||||
11/07/14 | | | | | | | 6,425 | | | 41,666 | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | | 20,000 | $ | 6.720 | 76,800 | |||||||||||||||||||||||||||||||||
05/29/14 | | | | | | | | 36,500 | $ | 6.205 | 129,419 | |||||||||||||||||||||||||||||||||
David C. Horn |
(1) | $ | 0 | $ | 607,500 | $ | 1,215,000 | | | | | | | | ||||||||||||||||||||||||||||||
(2) | 303,750 | 607,500 | 1,215,000 | | | | | | | | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | 16,550 | 33,100 | 49,650 | | | | $ | 211,840 | |||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | 21,500 | | | 144,480 | ||||||||||||||||||||||||||||||||||
11/07/14 | | | | | | | 6,746 | | | 43,748 | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | | 28,400 | $ | 6.720 | 109,056 | |||||||||||||||||||||||||||||||||
Kirk W. Reich |
(1) | $ | 0 | $ | 195,000 | $ | 390,000 | | | | | | | | ||||||||||||||||||||||||||||||
(2) | 97,500 | 195,000 | 390,000 | | | | | | | | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | 9,250 | 18,500 | 27,750 | | | | $ | 118,400 | |||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | 12,000 | | | 80,640 | ||||||||||||||||||||||||||||||||||
05/29/14 | | | | | | | 15,500 | | | 96,178 | ||||||||||||||||||||||||||||||||||
11/07/14 | | | | | | | 5,140 | | | 33,333 | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | | 16,000 | $ | 6.720 | 61,440 | |||||||||||||||||||||||||||||||||
05/29/14 | | | | | | | | 29,000 | 6.205 | 102,826 | ||||||||||||||||||||||||||||||||||
Keith J. Howell |
(1) | $ | 0 | $ | 221,000 | $ | 442,000 | | | | | | | | ||||||||||||||||||||||||||||||
(2) | 110,500 | 221,000 | 442,000 | | | | | | | | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | 9,250 | 18,500 | 27,750 | | | | $ | 118,400 | |||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | 12,000 | | | 80,640 | ||||||||||||||||||||||||||||||||||
11/07/14 | | | | | | | 2,184 | | | 14,163 | ||||||||||||||||||||||||||||||||||
01/22/14 | | | | | | | | 16,000 | $ | 6.720 | 61,440 |
(1) | The amounts reported in this row represent the range of potential awards under the threshold, target and maximum performance objectives established in January 2014 for the 2014 performance period under the Annual Incentive Plan, as described in the Overview of Key Pay-for-Performance Components and Application to 2014 Executive Compensation and Annual Incentive Awards sections of the Compensation Discussion and Analysis. The estimate is based on the NEOs base pay on January 1, 2014. The amounts actually paid to each NEO for 2014 are set forth in the Summary Compensation Table at page 65. |
(2) | The amounts reported in this row represent the range of potential awards under the threshold, target and maximum performance objectives established in January 2014 for the 2014-2016 performance period under the Long-Term Plan, as described in the Overview of Key Pay-for-Performance Components and Application to 2014 Executive Compensation and Long-Term Incentive Awards sections of the Compensation Discussion and Analysis. The estimate is based on the NEOs base pay on January 1, 2014. No payments were earned or made to any NEO for the three-year performance period ending in 2014, as set forth in the Summary Compensation Table. |
(3) | The amounts reported in this column represent the range of the potential number of performance shares representing a right to receive shares of the Companys common stock that may be issued to each NEO for |
69
the 2014-2016 performance period under the Stock Plan. Terms applicable to the performance share grants reported in this column are described in the Overview of Key Pay-for-Performance Components and Application to 2014 Executive Compensation and Equity Awards sections of the Compensation Discussion and Analysis. |
(4) | The amounts reported in this column represent the number of shares of restricted stock granted under the Stock Plan to each NEO in 2014. The restrictions on the transfer of the restricted stock grants made on January 22, 2014 reported in this column will lapse over a three-year period as follows: one-third lapsed on January 22, 2015, one-third will lapse on January 22, 2016 and one-third will lapse on January 22, 2017. The restrictions on the transfer of the restricted stock grants made on May 29, 2014 reported in this column will lapse over a three-year period as follows: one-third will lapse on May 29, 2015, one-third will lapse on May 29, 2016 and one-third will lapse on May 29, 2017. The restrictions on the transfer of the restricted stock grants made on November 7, 2014 reported in this column will lapse over a two-year period as follows: one-half will lapse on November 7, 2015 and one-half will lapse on November 7, 2016. Other terms applicable to the restricted stock grants reported in this column are described in the Overview of Key Pay-for-Performance Components and Application to 2014 Executive Compensation and Equity Awards sections of the Compensation Discussion and Analysis. |
(5) | The amounts reported in this column represent the number of nonqualified stock options granted to each NEO under the Stock Plan in 2014. Each option represents a right to purchase a share of the Companys common stock at a price established in an option award agreement at the time of the grant. The stock options reported in this column that were granted on January 22, 2014 will vest in three equal installments on January 22, 2015, 2016 and 2017. The stock options reported in this column that were granted on May 29, 2014 will vest in three equal installments on May 29, 2015, 2016 and 2017. Other terms applicable to the stock options granted under the Stock Plan are described in the Overview of Key Pay-for-Performance Components and Application to 2013 Executive Compensation and Equity Awards sections of the Compensation Discussion and Analysis. |
(6) | The exercise price for options granted under the Stock Plan equals the average of the high and low sales prices for the Companys common stock on the grant date. If there were no sales of the Companys common stock on the grant date, then the exercise price equals the weighted average of the mean between the high and low sales prices for the Companys common stock on the nearest preceding trading day on which there were sales of the Companys common stock. |
(7) | The grant date fair value of restricted stock awards is calculated by multiplying the total number of shares granted times the fair market value of those shares. The fair market value of restricted stock is the average of the high and low sales prices of a share of the Companys common stock on the grant date. The grant date fair value of stock options and performance shares are valued by the Companys actuary in accordance with ASC Topic 718. A discussion of the assumptions used to calculate the grant date value of stock options and performance shares reported in this column is located in Note 12 to the consolidated financial statements included in the Companys 2014 Annual Report. |
70
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The table below provides information as to all outstanding option awards and restricted and performance share awards held by the NEOs as of December 31, 2014:
Name |
Option Award Grant Date |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Prices ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(5) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(6) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(7) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(6) |
|||||||||||||||||||||||||||
James L. Wainscott |
01/20/05 | 40,000 | 0 | $ | 13.7000 | 01/20/15 | 153,441 | $ | 911,440 | 353,000 | $ | 2,096,820 | ||||||||||||||||||||||||
01/18/07 | 80,000 | 0 | 16.7550 | 01/18/17 | ||||||||||||||||||||||||||||||||
01/17/08 | 36,000 | 0 | 36.5850 | 01/17/18 | ||||||||||||||||||||||||||||||||
01/21/09 | 107,654 | 0 | 9.210 | 01/21/19 | ||||||||||||||||||||||||||||||||
01/20/10 | 60,000 | 0 | 22.9650 | 01/20/20 | ||||||||||||||||||||||||||||||||
01/19/11 | 89,000 | 0 | 14.5700 | 01/19/21 | ||||||||||||||||||||||||||||||||
01/18/12 | 101,066 | 50,534 | (1) | 9.1100 | 01/18/22 | |||||||||||||||||||||||||||||||
01/23/13 | 50,533 | 101,067 | (2) | 4.5900 | 01/23/23 | |||||||||||||||||||||||||||||||
01/22/14 | 0 | 151,600 | (3) | 6.7200 | 01/22/24 | |||||||||||||||||||||||||||||||
Roger K. Newport |
01/19/06 | 1,667 | 0 | $ | 7.8850 | 01/19/16 | 58,047 | $ | 344,799 | 42,900 | $ | 254,826 | ||||||||||||||||||||||||
01/18/07 | 5,000 | 0 | 16.7550 | 01/18/17 | ||||||||||||||||||||||||||||||||
01/17/08 | 2,750 | 0 | 36.5850 | 01/17/18 | ||||||||||||||||||||||||||||||||
01/21/09 | 7,500 | 0 | 9.210 | 01/21/19 | ||||||||||||||||||||||||||||||||
01/20/10 | 4,125 | 0 | 22.9650 | 01/20/20 | ||||||||||||||||||||||||||||||||
01/19/11 | 8,700 | 0 | 14.5700 | 01/19/21 | ||||||||||||||||||||||||||||||||
01/18/12 | 9,400 | 4,700 | (1) | 9.1100 | 01/18/22 | |||||||||||||||||||||||||||||||
01/23/13 | 5,633 | 11,267 | (2) | 4.5900 | 01/23/23 | |||||||||||||||||||||||||||||||
01/22/14 | 0 | 20,000 | (3) | 6.7200 | 01/22/24 | |||||||||||||||||||||||||||||||
05/29/14 | 0 | 36,500 | (4) | 6.2050 | 05/29/24 | |||||||||||||||||||||||||||||||
David C. Horn |
01/20/05 | 10,000 | 0 | $ | 13.7000 | 01/20/15 | 31,403 | $ | 186,534 | 66,200 | $ | 393,228 | ||||||||||||||||||||||||
01/19/06 | 10,000 | 0 | $ | 7.8850 | 01/19/16 | |||||||||||||||||||||||||||||||
01/18/07 | 15,000 | 0 | 16.7550 | 01/18/17 | ||||||||||||||||||||||||||||||||
01/17/08 | 6,750 | 0 | 36.5850 | 01/17/18 | ||||||||||||||||||||||||||||||||
01/21/09 | 20,185 | 0 | 9.210 | 01/21/19 | ||||||||||||||||||||||||||||||||
01/20/10 | 10,093 | 0 | 22.9650 | 01/20/20 | ||||||||||||||||||||||||||||||||
01/19/11 | 18,500 | 0 | 14.5700 | 01/19/21 | ||||||||||||||||||||||||||||||||
01/18/12 | 18,933 | 9,467 | (1) | 9.1100 | 01/18/22 | |||||||||||||||||||||||||||||||
01/23/13 | 9,466 | 18,934 | (2) | 4.5900 | 01/23/23 | |||||||||||||||||||||||||||||||
01/22/14 | 0 | 28,400 | (3) | 6.7200 | 01/22/24 | |||||||||||||||||||||||||||||||
Kirk W. Reich |
10/19/06 | 534 | 0 | $ | 14.6850 | 10/19/16 | 43,239 | $ | 256,840 | 34,900 | $ | 207,306 | ||||||||||||||||||||||||
01/18/07 | 2,334 | 0 | 16.7550 | 01/18/17 | ||||||||||||||||||||||||||||||||
01/17/08 | 2,000 | 0 | 36.5850 | 01/17/18 | ||||||||||||||||||||||||||||||||
01/21/09 | 6,375 | 0 | 9.210 | 01/21/19 | ||||||||||||||||||||||||||||||||
01/20/10 | 3,625 | 0 | 22.9650 | 01/20/20 | ||||||||||||||||||||||||||||||||
01/19/11 | 8,300 | 0 | 14.5700 | 01/19/21 | ||||||||||||||||||||||||||||||||
01/18/12 | 9,400 | 4,700 | (1) | 9.1100 | 01/18/22 | |||||||||||||||||||||||||||||||
01/23/13 | 4,700 | 9,400 | (2) | 4.5900 | 01/23/23 | |||||||||||||||||||||||||||||||
01/22/14 | 0 | 16,000 | (3) | 6.7200 | 01/22/24 | |||||||||||||||||||||||||||||||
05/29/14 | 0 | 29,000 | (4) | 6.2050 | 05/29/24 |
71
Name |
Option Award Grant Date |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Prices ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(5) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(6) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(7) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(6) |
|||||||||||||||||||||||||||
Keith J. Howell |
01/19/06 | 1,250 | 0 | $ | 7.8850 | 01/19/16 | 31,040 | $ | 184,378 | 36,500 | $ | 216,810 | ||||||||||||||||||||||||
01/18/07 | 4,250 | 0 | 16.7550 | 01/18/17 | ||||||||||||||||||||||||||||||||
01/17/08 | 2,375 | 0 | 36.5850 | 01/17/18 | ||||||||||||||||||||||||||||||||
01/21/09 | 6,375 | 0 | 9.210 | 01/21/19 | ||||||||||||||||||||||||||||||||
01/20/10 | 3,625 | 0 | 22.9650 | 01/20/20 | ||||||||||||||||||||||||||||||||
01/19/11 | 8,530 | 0 | 14.5700 | 01/19/21 | ||||||||||||||||||||||||||||||||
01/18/12 | 9,400 | 4,700 | (1) | 9.1100 | 01/18/22 | |||||||||||||||||||||||||||||||
01/23/13 | 5,166 | 10,334 | (2) | 4.5900 | 01/23/23 | |||||||||||||||||||||||||||||||
01/22/14 | 0 | 16,000 | (3) | 6.7200 | 01/22/24 |
(1) | These options became exercisable on January 18, 2015. |
(2) | These options became, or will become, exercisable as follows: one-half on January 23, 2014, one-half on January 23, 2016. |
(3) | These options became, or will become, exercisable as follows: one-third on January 22, 2015, one-third on January 22, 2016 and one-third on January 22, 2017. |
(4) | These options will become exercisable as follows: one-third on May 29, 2015, one-third on May 29, 2016 and one-third on May 29, 2017. |
(5) | The restricted stock awards that had not vested as of December 31, 2014 have vesting dates as follows: |
Mr. Wainscott | Mr. Newport | Mr. Horn | Mr. Reich | Mr. Howell | ||||||||||||||||
01/18/2015 |
22,939 | 3,533 | 4,671 | 3,533 | 3,533 | |||||||||||||||
01/22/2015 |
26,145 | 5,034 | 4,481 | 4,000 | 4,000 | |||||||||||||||
01/23/2015 |
26,034 | 4,233 | 4,397 | 3,533 | 3,900 | |||||||||||||||
05/23/2015 |
0 | 5,523 | 0 | 0 | 5,523 | |||||||||||||||
05/29/2015 |
0 | 6,334 | 0 | 5,167 | 0 | |||||||||||||||
11/07/2015 |
0 | 3,212 | 2,248 | 2,570 | 1,092 | |||||||||||||||
01/22/2016 |
26,145 | 5,033 | 4,481 | 4,000 | 4,000 | |||||||||||||||
01/23/2016 |
26,034 | 4,233 | 4,396 | 3,533 | 3,900 | |||||||||||||||
05/29/2016 |
0 | 6,333 | 0 | 5,166 | 0 | |||||||||||||||
11/07/2016 |
0 | 3,213 | 2,248 | 2,570 | 1,092 | |||||||||||||||
01/22/2017 |
26,144 | 5,033 | 4,481 | 4,000 | 4,000 | |||||||||||||||
05/29/2017 |
0 | 6,333 | 0 | 5,167 | 0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
153,441 | 58,047 | 31,403 | 43,239 | 31,040 |
(6) | The dollar value shown in the column is calculated by multiplying the closing market price of the Companys common stock as of December 31, 2014 ($5.94 per share) by the number of shares set forth in the preceding column. |
(7) | The performance period end dates and vesting dates for Unearned Shares are as follows: |
Mr. Wainscott | Mr. Newport | Mr. Horn | Mr. Reich | Mr. Howell | ||||||||||||||||
12/31/2015 |
176,500 | 19,700 | 33,100 | 16,400 | 18,000 | |||||||||||||||
12/31/2016 |
176,500 | 23,200 | 33,100 | 18,500 | 18,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
353,000 | 42,900 | 66,200 | 34,900 | 36,500 |
72
OPTION EXERCISES AND STOCK VESTED TABLE
The table below provides information for each option exercised and each stock grant that vested during the fiscal year ended December 31, 2014:
Option Awards | Stock Awards | |||||||||||||||
Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(1) |
Number of Shares Acquired on Vesting (#)(2) |
Value Realized on Vesting ($)(2)(3) |
||||||||||||
James L. Wainscott |
| $ | | 106,066 | $ | 721,352 | ||||||||||
Roger K. Newport |
| | 16,190 | 107,807 | ||||||||||||
David C. Horn |
| | 20,501 | 139,459 | ||||||||||||
Kirk W. Reich |
| | 9,834 | 66,882 | ||||||||||||
Keith J. Howell |
| | 15,799 | 105,177 |
(1) | Value realized on exercise is calculated by multiplying the number of shares acquired upon exercise by the difference between (i) the average of the high and low sales prices for the Companys common stock on the exercise date and (ii) the exercise price. There were no options exercised during 2014. |
(2) | The amounts in these columns reflect the gross number of shares acquired upon vesting and the corresponding gross value realized, based upon such gross number of shares. The table below summarizes the net number of shares acquired on vesting and the corresponding net value realized by each NEO from this net number of shares. The net number of shares acquired on vesting has been calculated by subtracting (i) the actual number of shares that were withheld for tax purposes from (ii) the gross number of shares. The net value realized has been calculated by multiplying (a) the net number of shares acquired upon vesting by (b) the average of the high and low sales prices for the Companys common stock on the respective vesting dates for each award of restricted stock that vested during the fiscal year ended December 31, 2014. There were no shares acquired during 2014 from performance share grants. |
Stock Awards | ||||||||
Name |
Net Number of Shares Acquired on Vesting (#) |
Net Value Realized on Vesting ($) |
||||||
James L. Wainscott |
66,787 | $ | 453,920 | |||||
Roger K. Newport |
10,628 | 70,693 | ||||||
David C. Horn |
13,286 | 90,416 | ||||||
Kirk W. Reich |
6,228 | 42,357 | ||||||
Keith J. Howell |
10,379 | 69,018 |
(3) | Value realized on vesting is calculated by multiplying (i) the number of shares acquired upon vesting of restricted stock by (ii) the average of the high and low sales prices for the Companys common stock on the vesting date. |
73
The table below provides the benefit plan name, the number of years of creditable service and the present value of accumulated benefits as of December 31, 2014, and the payments, if any, made to each NEO during the last fiscal year:
Name |
Plan Name |
Number of Years of Credited Service (#) |
Present Value of Accumulated Benefits ($)(3) |
Payments During Last Fiscal Year ($) |
||||||||||
James L. Wainscott |
AK Steel Corporation Non-Contributory Pension Plan(1) | 19.75 | $ | 89,076 | $ | 0 | ||||||||
AK Steel Corporation Executive Minimum and Supplemental Retirement Plan | (2 | ) | 28,003,920 | 0 | ||||||||||
Roger K. Newport |
AK Steel Corporation Non-Contributory Pension Plan(1) | 29.78 | 1,222,381 | 0 | ||||||||||
AK Steel Corporation Executive Minimum and Supplemental Retirement Plan | (2 | ) | 2,169,963 | 0 | ||||||||||
David C. Horn |
AK Steel Corporation Non-Contributory Pension Plan(1) | 14.08 | 48,495 | 0 | ||||||||||
AK Steel Corporation Executive Minimum and Supplemental Retirement Plan | (2 | ) | 10,227,145 | 0 | ||||||||||
Kirk W. Reich. |
AK Steel Corporation Non-Contributory Pension Plan(1) | 25.99 | 718,053 | 0 | ||||||||||
AK Steel Corporation Executive Minimum and Supplemental Retirement Plan | (2 | ) | 1,431,849 | 0 | ||||||||||
Keith J. Howell |
AK Steel Corporation Non-Contributory Pension Plan(1) | 17.83 | 65,593 | 0 | ||||||||||
AK Steel Corporation Executive Minimum and Supplemental Retirement Plan | (2 | ) | 2,392,218 | 0 |
(1) | The Companys full-time, non-represented salaried employees, including its NEOs, who were hired prior to January 31, 2009, are eligible for retirement benefits under a qualified benefit plan known as the Non-Contributory Pension Plan (the NCPP). Retirement benefits are calculated under the NCPP using one of two formulas: (i) a cash balance formula (the Cash Balance Formula) or (ii) a final average pay formula (the Final Average Pay Formula). Eligibility for coverage under a particular formula typically is determined by the date on which a participant commenced employment with the Company. The NCPP was closed to new entrants and benefit accruals were frozen as of January 31, 2009. All of the participants in the NCPP are vested. The compensation taken into account in determining benefits under either formula is subject to the compensation limits imposed by the Internal Revenue Code. |
Under the Cash Balance Formula, a participants account is credited monthly with (i) a service credit based on the participants years of service and eligible compensation for that month (service credits ceased after January 31, 2009, when the Company froze NCPP benefits), and (ii) an interest credit based on the participants account balance as of the beginning of the year and an interest rate as determined and defined in the Cash Balance Formula. For purposes of the Cash Balance Formula, eligible compensation generally includes the participants base salary and incentive compensation.
74
NCPP benefits for three of the NEOs (Messrs. Wainscott, Horn, and Howell) are determined under the Cash Balance Formula. The estimated annual benefits payable to each of the NEOs under the Cash Balance Formula upon retirement at age 65 is: $7,867 for Mr. Wainscott, $3,870 for Mr. Horn, and $8,299 for Mr. Howell. These estimates assume that (i) each NEO continues working for the Company until age 65, (ii) the Cash Balance Formula reflects service credits through January 31, 2009, and (iii) interest credits continue at current rates until age 65.
NCPP benefits for Mr. Newport and Mr. Reich are determined under the Final Average Pay Formula. Under the Final Average Pay Formula, a participants retirement benefits are calculated on the basis of his or her (i) number of years of credited service and (ii) average earnings which include base pay, annual bonuses, long term incentives, and overtime during the 60 consecutive months out of the last 120 months of service that yield the highest annual compensation, all determined as of January 31, 2009. Assuming Mr. Newport continues to work for the Company until he has 30 years of service, his annual benefit accrued to January 31, 2009 would be $60,002 to age 62 and $72,540 after age 62. Assuming Mr. Reich continues to work for the Company until he has 30 years of service, his annual benefit accrued to January 31, 2009 would be $39,915 to age 62 and $47,158 after age 62.
(2) | Credited service is not a component of the calculation of benefits under the Executive Minimum and Supplemental Retirement Plan (the SERP). It is, however, a component of vesting. The SERP uses a form of graded vesting under which a participant vests in 50% of his or her accrued benefit after a minimum requirement of five years of service as an officer of the Company and as an employee of the Company, and vests in an additional 10% of such benefit for each year of service as an employee of the Company in addition to such five years of service, up to 100% vesting after ten years of total service. Under these criteria, Mr. Wainscott, Mr. Horn and Mr. Newport are 100% vested, and Mr. Howell and Mr. Reich are 0% vested in the SERP. A discussion of the SERP is included in the Pension and Other Retirement Benefits section of the Compensation Discussion and Analysis. As discussed in the Compensation Discussion and Analysis, at its January 2014 meeting the Management Development and Compensation Committee locked participation in the SERP to then existing participants and replaced it for officers elected thereafter with the Executive Retirement Income Plan, which provides a reduced level of benefits. |
(3) | The calculation of the present value of accumulated benefits begins with a calculation of the lump sum that would be payable upon the later of age 60 or the full vesting date. This lump sum has been calculated using a discount rate of 1.54% for lump sums paid in 2015, and ranging from 1.38% to 1.56% from 2016 to 2020 and the years after. The lump sums were calculated using the IRS 2015 Unisex Mortality Table. The lump sum determined on these assumptions then is discounted back to December 31, 2014 at a discount rate of 4.10%. The valuation method and all material assumptions applied in quantifying the present value of the current accrued benefit can be found in Note 7 to the consolidated financial statements included in the Companys 2014 Annual Report. |
75
NONQUALIFIED DEFERRED COMPENSATION TABLE
The Companys Supplemental Thrift Plan (the STP) is a nonqualified retirement plan that provides for Company matching contributions with respect to base salary that are not permitted to be taken into account under the Companys Thrift Plan due to limits on earnings imposed by the Internal Revenue Code. The Company also has an Executive Deferred Compensation Plan (the Deferred Plan). None of the NEOs participate in the Deferred Plan. The table below provides information regarding the contributions, aggregate earnings and the total account balance for each NEO as of December 31, 2014 in the STP. The STP and the Deferred Plan are described in more detail in the Overview of Other Key Compensation Components and Application to 2014 Executive Compensation and Pension and Other Retirement Benefits section of the Compensation Discussion and Analysis.
Name |
Plan | Executive Contributions in Last Fiscal Year ($) |
Registrant Contributions In Last Fiscal Year ($) |
Aggregate Earnings in Last Fiscal Year ($)(1) |
Aggregate Balance in Last Fiscal Year End ($) |
|||||||||||||||
James L. Wainscott |
STP | | $ | 23,500 | $ | 7,314 | $ | 346,463 | ||||||||||||
Roger K. Newport |
STP | | 5,006 | 189 | 12,456 | |||||||||||||||
David C. Horn |
STP | | 10,806 | 2,999 | 147,901 | |||||||||||||||
Kirk W. Reich |
STP | | 2,496 | 36 | 3,728 | |||||||||||||||
Keith J. Howell |
STP | | 1,999 | 121 | 7,203 |
(1) | For the STP, the amount shown in this column is calculated based upon assumed earnings on each NEOs account balance using an investment option within the Company-sponsored Thrift Plan known as the Fixed Income Fund. |
76
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-OF-CONTROL
The potential payments and benefits provided to an NEO upon his termination from, or a change-of-control of, the Company will vary depending upon the circumstances and the bases for the payments and benefits. The various bases for payments and benefits and circumstances which will impact the determination of post-termination or change-of-control payments and benefits are described below.
Bases for Determination of Payments upon Termination or Change-Of-Control
The Company has entered into severance and change-of-control agreements with each of the NEOs that provide post-termination and/or change-of-control benefits. The benefits provided under each of these agreements and the material terms of each, including the material conditions and obligations applicable to the receipt of payments and benefits under the agreements, are described in the Post-Termination Benefits section of the Compensation Discussion and Analysis, beginning at page 60. In addition, the termination of an NEOs employment and/or a change-of-control may trigger payments or benefits under the Companys Annual Incentive Plan, Long-Term Plan, Stock Plan, and the SERP or Retirement Plan, each of which is also described in the Compensation Discussion and Analysis.
Circumstances Impacting the Determination of Payments upon Termination or Change-Of-Control
There are various scenarios under which payments upon termination of employment or change-of-control are made. For purposes of the tables that follow, these scenarios are assumed to be as follows:
Normal Retirement
This scenario assumes that the NEO has terminated his employment with the Company as of December 31, 2014 and receives the normal retirement benefits to which he is entitled under the terms of the Companys Non-Contributory Pension Plan (NCPP). The payments and benefits listed in the table below with respect to Normal Retirement represent payments and benefits beyond those to which the NEO is entitled under the terms of the NCPP. Payments to the NEOs under the NCPP that have vested as of December 31, 2014 are set forth above in the Pension Benefits Table, at page 74. Messrs. Newport, Reich and Howell were not eligible to retire as of December 31, 2014 and thus the Normal Retirement scenario is not applicable to them.
Involuntary Termination without Cause (No Change-of-Control)
This scenario assumes that the Company has involuntarily terminated the employment of the NEO without cause as of December 31, 2014. It also assumes that there has been no change-of-control of the Company.
Disability
This scenario assumes that the NEO became permanently and totally disabled, as provided under the Companys long-term disability plan, as of December 31, 2014. Messrs. Wainscott and Horn were retirement eligible as of December 31, 2014 and would have been entitled to the respective benefits provided under the Normal Retirement scenario. As such, because Messrs. Wainscott and Horn would not have received any incremental value in the event of their disability as of December 31, 2014 beyond what is reflected in the Normal Retirement scenario, this Disability scenario is inapplicable to them because they would receive no incremental benefit relative to what they already are entitled to by virtue of being retirement eligible.
Death
This scenario assumes that the NEO died on December 31, 2014, while employed by the Company. Messrs. Wainscott and Horn were retirement eligible as of December 31, 2014 and would have been entitled to the respective benefits provided under the Normal Retirement scenario. As such, because Messrs. Wainscott and Horn would not have received any incremental value in the event of their death as of December 31, 2014 beyond what is reflected in the Normal Retirement scenario, this scenario is inapplicable to them because they would receive no incremental benefit relative to what they already are entitled to by virtue of being retirement eligible.
77
Change-of-Control
This scenario assumes that there has been a change-of-control of the Company and that within 24 months following the change-of-control (a) the Company involuntarily terminated the employment of the NEO without cause, or (b) the NEO voluntarily terminated his employment with the Company for good reason.
Under the terms of the change-of-control agreements entered into between the Company and each of the NEOs, good reason includes the assignment of duties inconsistent with the NEOs qualifications, a demotion or diminution in job responsibilities, a reduction in annual base salary, a requirement that the NEO be based anywhere other than the principal executive offices of the Company as they existed prior to the change-of-control, a failure to pay compensation due to the NEO, a failure of the Company to continue in effect any compensation plan in which the NEO participated at the time of the change-of-control, a material reduction in benefits under the SERP, the failure of the Company to obtain the agreement of any successor corporation to assume and agree to perform the change-of-control agreements, and a failure by the Company to give proper notice or otherwise comply with the procedural requirements for involuntary termination without cause.
The table below summarizes the potential payments resulting from the various scenarios set forth above for each of the NEOs:
Event |
James L. Wainscott |
Roger K. Newport |
David C. Horn |
Kirk W. Reich |
Keith J. Howell |
|||||||||||||||
Normal Retirement |
||||||||||||||||||||
Unvested Stock Options(1) |
$ | 136,440 | $ | | $ | 25,561 | $ | | $ | | ||||||||||
Unvested Stock Awards(2) |
911,440 | | 186,534 | | | |||||||||||||||
Prorated Annual Incentive Plan(3) |
288,000 | | 128,720 | | | |||||||||||||||
Long-Term Plan(4) |
| | | | | |||||||||||||||
Prorated Performance Shares at Target(5) |
1,048,410 | | 196,614 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 2,384,290 | $ | | $ | 537,429 | $ | | $ | | ||||||||||
Involuntary Termination Without Cause (No Change-of-Control) |
||||||||||||||||||||
Unvested Stock Options(1) |
$ | | $ | 15,210 | $ | | $ | 12,690 | $ | 13,951 | ||||||||||
Annual Incentive Plan(6) |
2,160,000 | 440,180 | 657,662 | 351,481 | 265,200 | |||||||||||||||
Long-Term Plan(4) |
| | | | | |||||||||||||||
Health and Welfare Benefits(7) |
60,754 | 44,454 | 44,609 | 47,670 | 41,964 | |||||||||||||||
Cash Severance(8) |
2,400,000 | 750,000 | 1,050,000 | 600,000 | 510,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 4,620,754 | $ | 1,249,844 | $ | 1,752,271 | $ | 1,011,841 | $ | 831,115 | ||||||||||
Death/Disability |
||||||||||||||||||||
Unvested Stock Options(1) |
$ | | $ | 15,210 | $ | | $ | 12,690 | $ | 13,951 | ||||||||||
Unvested Stock Awards(9) |
| 344,799 | | 256,840 | 184,378 | |||||||||||||||
Prorated Annual Incentive Plan(3) |
| 71,974 | | 51,481 | 44,200 | |||||||||||||||
Long-Term Plan(4) |
| | | | | |||||||||||||||
Prorated Performance Shares at Target(5) |
| 123,948 | | 101,574 | 107,910 | |||||||||||||||
Incremental SERP(10) |
| 184,533 | | 220,486 | 304,281 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | | $ | 740,464 | $ | | $ | 643,071 | $ | 654,720 | ||||||||||
Change-of-Control |
||||||||||||||||||||
Unvested Stock Options(11) |
$ | | $ | 15,210 | $ | | $ | 12,690 | $ | 13,951 | ||||||||||
Unvested Stock Awards(11) |
| 344,799 | | 256,840 | 184,378 | |||||||||||||||
Annual Incentive Plan(12) |
6,659,000 | 1,553,200 | 3,100,655 | 1,170,399 | 845,600 | |||||||||||||||
Prorated Performance Shares at Target(13) |
| 123,948 | | 101,574 | 107,910 | |||||||||||||||
Prorated Long-Term Plan at Target(14) |
2,880,000 | 800,000 | 1,330,000 | 600,000 | 442,000 | |||||||||||||||
Incremental SERP(15) |
3,091,021 | 1,587,371 | | 1,316,891 | 1,448,916 | |||||||||||||||
Health and Welfare Benefits(16) |
91,130 | 59,272 | 89,217 | 63,560 | 55,952 | |||||||||||||||
Cash Severance(17) |
3,600,000 | 1,000,000 | 2,100,000 | 800,000 | 680,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 16,321,151 | $ | 5,483,800 | $ | 6,619,872 | $ | 4,321,954 | $ | 3,778,707 |
78
(1) | Under the terms of the Stock Plan, a participant ordinarily may only exercise stock options granted under the Stock Plan while still employed by the Company. If, however, a participant dies, becomes disabled, retires or is involuntarily terminated without cause, the participant (or, in the case of death, his or her beneficiary) has a period of three years after such triggering event to exercise stock options granted under the Stock Plan. The amounts reported in this row represent the value as of December 31, 2014 of the unexercised stock options granted to each NEO. These amounts assume that all of the respective NEOs unexercised stock options as of December 31, 2014 were exercised on December 31, 2014 and were calculated based on the closing market price of the Companys common stock ($5.94) on the last day that stock traded (December 31, 2014) during the Companys 2014 fiscal year, less the option exercise price per share. Stock options that had an exercise price above $5.94 as of December 31, 2014 are treated as having no value for purposes of the amounts reported in this row. Messrs. Wainscott and Horn were retirement eligible as of December 31, 2014 and, therefore, they would not have received any incremental value in the event of their death or disability as of that date beyond what is reflected in the Normal Retirement scenario. |
(2) | Under the terms of the Stock Plan, restrictions remaining with respect to restricted stock held by a participant as of the date of the participants retirement continue to lapse and vest after retirement as provided in the applicable award agreement governing the restricted stock grant to the participant. For purposes of this row, all shares of restricted stock outstanding as of December 31, 2014 are treated as having vested on that day. Amounts were calculated based on the closing market price of the Companys common stock ($5.94) on the last day that stock traded (December 31, 2014) during the Companys 2014 fiscal year. |
(3) | Under the terms of the Annual Incentive Plan, if a participant dies, becomes disabled, or retires during a performance period, the participant (or, in the case of death, his or her beneficiary) is entitled to receive a prorated incentive award for that performance period based upon the portion of his or her participation during the period. For purposes of calculating the amounts reported in this row, the effective date of retirement, disability or death was assumed to have occurred on December 31, 2014. Using this assumption, to the extent that an incentive award was earned under the Annual Incentive Plan, the NEO would be entitled to the full amount of that award and no prorated calculation would be necessary. An incentive award was earned by and paid to each NEO for the 2014 performance period. The amount of that award is also reported in the Summary Compensation Table beginning at page 65. |
(4) | Under the terms of the Long-Term Plan, if a participant dies, becomes disabled, retires or is involuntarily terminated without cause during a performance period, the participant (or, in the case of death, his or her beneficiary) is entitled to receive an amount equal to twice the amount already paid or to be paid to the participant on the performance award date occurring within that calendar year, less the amount of any performance award actually paid to the participant on the performance award date. Because the triggering event for purposes of this table is deemed to have occurred on December 31, 2014, the amount reported is equal to twice the amount of the Performance Award paid to the NEO for the 2011-2013 performance period (which amount would have been paid in 2014), less the amount of the Performance Award for that period which the Company actually paid to the NEO in February 2014 pertaining to such performance period. |
(5) | Under the terms of the Stock Plan, if a participant dies, becomes disabled, or retires while holding performance shares, each performance share held by the participant is deemed to be earned on a prorated basis. The shares will be issued to the NEO (or, in the case of death, his or her beneficiary) at the conclusion of the applicable performance period at the same time that shares are issued to other participants whose employment did not terminate before the end of the period and will be prorated on the basis of the number of months of service by the NEO during the performance period, with the normal adjustment based upon the achievement of the performance goals during the entire performance period. For purposes of calculating the amounts reported in this row, it was assumed that the effective date of retirement, disability or death occurred on December 31, 2014, and that the Company will achieve the target performance level under the 2013-2015 performance period and the 2014-2016 performance period. Under these assumptions, each NEO would be entitled to receive a prorated portion (two-thirds for the 2013-2015 performance period and one-third for the 2014-2016 performance period) of the target payout for both performance periods. The |
79
performance level assumptions used to calculate the amounts reported in this row were selected merely to demonstrate the potential compensation that the NEOs could earn with respect to performance shares following certain triggering events and are not intended to provide any indication regarding future Company performance. |
(6) | Under the terms of the severance agreements entered into between the Company and each NEO, in the event an NEOs employment is terminated without cause and the NEO executes an agreement releasing the Company from any liability for claims relating to the NEOs employment with the Company, that NEO is entitled to receive a lump sum payment separate from and in addition to his assigned target amount under the Annual Incentive Plan for the calendar year in which his date of termination occurs. In addition, each NEO is entitled to receive on a prorated basis the award, if any, under the Annual Incentive Plan to which such NEO would have been entitled with respect to such calendar year during which the termination occurred. The target amount assigned to each NEO under the Annual Incentive Plan for 2014, based on base pay on January 1, 2014, is reported in the Grants of Plan-Based Awards Table beginning at page 69. The payment in this chart has been calculated using each NEOs actual base pay for twelve months ending December 31, 2014. Assuming a termination date of December 31, 2014, Mr. Wainscott would be entitled under his severance agreement to a lump sum payment equal to one and one-half times his assigned target amount under the Annual Incentive Plan for the 2014 performance period and each of the other NEOs would be entitled under their respective severance agreements to a lump sum payment equal to the amount of their assigned target amounts under the Annual Incentive Plan for the 2014 performance period. Each NEO would also receive an additional prorated Annual Incentive Plan award, which because the termination date is assumed to be December 31, 2014, would be equivalent to the award actually made for the 2014 performance period. Absent the application of the severance agreements, an NEO would not be entitled to any payment under the Annual Incentive Plan for the performance period in which he is terminated. |
(7) | Under the terms of the severance agreements entered into between the Company and each NEO, in the event an NEOs employment is terminated without cause the NEO is entitled to continue to receive certain benefits for the duration of his severance period. The term severance period is either six or twenty-four months for Mr. Wainscott and either six or eighteen months for the other NEOs, depending upon whether they execute releases of all claims relating to their employment in favor of the Company. The shorter term applies if the NEO does not execute a release of all claims in favor of the Company relating to his employment and the longer term applies if he does execute such a release. If the NEO executes a release of claims in favor of the Company relating to his employment, he is entitled to receive certain employment benefits for the duration of his severance period. The employee benefits reported in this row include an executive physical, tax preparation and financial planning, life insurance and annual cost of health insurance for the applicable severance period. For purposes of this table, the severance period is assumed to be the maximum period available to each NEO. |
(8) | Under the terms of the severance agreements entered into between the Company and each NEO, an NEO who is involuntarily terminated without cause is entitled to receive cash severance benefits in an amount equal to the NEOs base salary for a period of six months in a single, undiscounted lump sum. If the NEO executes an agreement releasing the Company from any liability for claims relating to the NEOs employment with the Company, the NEO is also entitled to receive an additional lump sum severance payment in an amount equal to 18 months of base salary (in the case of Mr. Wainscott) or 12 months of base salary (in the case of the other NEOs). The amounts calculated for this row assume that the termination occurred on December 31, 2014. |
(9) | Under the terms of the Stock Plan, if a participant dies or becomes disabled, then all outstanding restrictions on his or her unvested restricted stock immediately lapse. The amounts reported in this row represent the value of the unvested restricted stock granted to each NEO under the Stock Plan assuming death or disability occurred on December 31, 2014. Amounts were calculated based on the closing market price of the Companys common stock ($5.94) on the last day that stock traded (December 31, 2014) during the Companys 2014 fiscal year. Messrs. Wainscott and Horn were retirement eligible as of December 31, 2014 and, therefore, they would not have received any incremental value in the event of their death or disability as of that date beyond what is reflected in the Normal Retirement scenario. |
80
(10) | The amounts reported in this row represent the incremental value of the SERP benefit calculated for each NEO, assuming death or disability on December 31, 2014, in excess of the vested amount payable due to retirement as of December 31, 2014. In other words, this row excludes any amounts to which the NEO would be entitled under the terms of the SERP if he left the Company as of December 31, 2014 without assuming death or disability. These amounts are based on the benefits underlying the present values in the Pension Benefits Table beginning on page 74. The SERP benefit payments include an offset in the amounts payable equal to benefits attributable to certain non-elective contributions by the Company to a participants account in a tax-qualified defined contribution plan sponsored by the Company. For participants younger than age 55, the death benefit was reduced actuarially to account for immediate payment as of December 31, 2014, and a 1.66% discount rate was used to calculate the lump sum present value. |
(11) | Under the terms of the change-of-control agreements entered into between the Company and each NEO, upon a triggering event and the execution of a full release of claims in favor of the Company, the NEO is entitled immediately to (a) exercise all stock options awarded to the NEO under the Stock Plan from the effective date of the release until the earlier of the third anniversary of the date of termination or the date the option expires under its own terms, and (b) unrestricted ownership of all shares of restricted stock granted to the NEO under the Stock Plan. Under the terms of the Stock Plan, as of the effective date of a change-of-control of the Company all outstanding stock options become immediately exercisable, all restrictions on the transfer of unvested restricted stock lapse, and all performance shares are deemed earned at the target amount assigned to each award, with payment prorated based upon the number of full months of the performance period with respect to each award that has lapsed as of the effective date of the change-of-control. Messrs. Wainscott and Horn were retirement eligible as of December 31, 2014 and would have been entitled to the respective benefits without a change-of-control of the Company. As such, because Messrs. Wainscott and Horn would not have received any incremental value in the event of a change-of-control as of December 31, 2014 beyond what is reflected in the Normal Retirement scenario, no additional value is reflected in this table. |
(12) | Under the terms of the change-of-control agreements entered into between the Company and each NEO, upon a triggering event and the execution of a full release of claims in favor of the Company, the NEO is entitled to receive a lump sum payment equal to (a) between two and three times the greatest of (i) the NEOs assigned target amount under the Annual Incentive Plan for the calendar year in which the termination occurs, (ii) the amount paid to the NEO under the Annual Incentive Plan for the calendar year immediately preceding the calendar year in which the date of termination occurs, or (iii) the average of the amounts paid or payable to the NEO under the Annual Incentive Plan for each of the three calendar years immediately preceding the calendar year in which the date of termination occurs, less (b) any amounts otherwise paid or payable to the NEO under the Annual Incentive Plan with respect to the calendar year immediately preceding the calendar year in which the date of termination occurs, plus (c) the NEOs assigned maximum amount under the Annual Incentive Plan for the year in which the date of termination occurs, prorated based upon the employment period during such year. For Messrs. Wainscott and Horn, the multiple to be used is three. For Messrs. Newport, Howell and Reich, the multiple to be used is two. The amounts reported in this row assume that the termination occurred on December 31, 2014. Messrs. Wainscott and Horn are retirement eligible at December 31, 2014 and would be entitled to receive the actual bonus earned without a change-of-control. Therefore, the value is excluded from this table. |
(13) | Under the terms of the Stock Plan, if a change-of-control occurs and a participant has outstanding grants of performance shares, each grant held by the participant is deemed to be earned at the target amount assigned to the participant on a prorated basis based upon the number of full months of the performance period with respect to each award that has elapsed as of the effective date of the change-of-control. The prorated payment will be made to the NEO as soon as administratively feasible following the effective date of the change-of-control. The amounts reported in this row assume that the effective date of change-of-control occurred on December 31, 2014. Messrs. Wainscott and Horn are retirement eligible at December 31, 2014 and would be entitled to this provision without a change-of-control. Therefore, the value is excluded from this table. |
81
(14) | Under the terms of the change-of-control agreements entered into between the Company and each NEO, upon a triggering event and the execution of a full release of claims in favor of the Company, the NEO is entitled to receive a lump sum payment equal to the incentive payment with respect to any completed performance period under the Long-Term Plan that has not been paid as of the date of the NEOs termination (which amount shall not be less than it would be if calculated at the NEOs assigned target amount under the Long-Term Plan), plus a prorated amount of the incentive award with respect to any incomplete performance period calculated at the NEOs assigned target amount under the Long-Term Plan for each such performance period. The amounts reported in this row assume that the effective date of the change-of-control occurred on December 31, 2014. |
(15) | The amounts reported in this row represent the incremental value of the SERP calculated under each NEOs change-of-control agreement in excess of the vested amount as of December 31, 2014. In other words, this row excludes any amounts to which the NEO would be entitled if he retired on December 31, 2014 regardless of whether a change-of-control had occurred on or before that date, which amounts are based on the benefits underlying the present values in the Pension Benefits Table beginning on page 74, adjusted to reflect commencement at the earliest possible date on or after December 31, 2014. These adjustments include a payment date of December 31, 2014 or age 55, if later, a reduction in benefits to reflect commencement prior to age 60, and a 1.66% discount rate used to calculate the lump sum present value. Under the SERP, if a participant elects to commence payments early following his or her 55th birthday instead of after his or her 60th birthday, the payments will be reduced to the actuarial equivalent of the regular payments based upon the participants age and certain actuarial assumptions. However, in the event of a change-of-control, there would be no such actuarial reduction for commencement of a participants benefit before age 60. The SERP benefit payments include an offset in the amounts payable equal to benefits attributable to certain non-elective contributions by the Company to a participants account in a tax-qualified defined contribution plan sponsored by the Company. The amounts reported in this row assume that the effective date of the change-of-control occurred on December 31, 2014. |
(16) | Under the terms of the change-of-control agreements entered into between the Company and each NEO, upon a triggering event the NEO is entitled to continue to receive certain benefits, if the NEO executes a full release of claims relating to his employment in favor of the Company, for up to 24 or 36 months. For Messrs. Wainscott and Horn, the period to be used is 36 months. For Messrs. Newport, Howell and Reich, the period to be used is 24 months. The amounts calculated for this row assume that the effective date of the change-of-control and termination occurred on December 31, 2014. The employment benefits reported in this row include an annual executive physical, tax preparation and financial planning, life insurance and annual cost of health insurance for the applicable severance period. For purposes of this table, the severance period is assumed to be the maximum period available to each NEO. |
(17) | Under the terms of the change-of-control agreements entered into between the Company and each NEO, upon a triggering event the NEO is entitled to receive cash severance benefits in an amount equal to six months of the NEOs base salary in a single, undiscounted lump sum payment. If the NEO executes a full release of claims relating to his employment in favor of the Company, the NEO is entitled to receive additional cash severance in a single, undiscounted lump sum in an amount equal to 18 or 30 months of the NEOs base salary. For Messrs. Wainscott and Horn, the period to be used is 30 months. For Messrs. Newport, Howell and Reich, the period to be used is 18 months. The amounts calculated for this row assume that the effective date of the change-of-control and termination occurred on December 31, 2014. |
82
In accordance with its written charter adopted by the Board of Directors, the Audit Committee (the Committee) of the Board assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. During 2014, the Committee met nine times and discussed the interim quarterly financial results with the Companys Chief Financial Officer and its independent registered public accounting firm, Ernst & Young LLP (the independent auditors), prior to public release.
In discharging its oversight responsibility as to the audit process, the Committee obtained from the independent auditors a formal written statement describing all relationships between the independent auditors and the Company that might bear on the independent auditors independence consistent with Public Company Accounting Oversight Board (PCAOB) Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, discussed with the independent auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors independence. In addition, the Committee has received written material addressing the independent auditors internal quality control procedures and other matters, as required by the New York Stock Exchange listing standards. The Committee also discussed with Management, the internal auditors and the independent auditors the quality and adequacy of the Companys internal controls and the organization, responsibilities and staffing of the internal audit function. The Committee reviewed with the Companys independent auditors and its internal auditors their respective audit plans, audit scope and identification of audit risks. The Committee has implemented a formal pre-approval process for non-audit fee spending and it seeks to limit this spending to a level that keeps the core relationship with the independent auditors focused on financial statement audit and evaluation of internal control over financial reporting.
The Committee discussed and reviewed with the Companys independent auditors all communications required by auditing standards of the PCAOB (United States), including those described in PCAOB Auditing Standard No. 16, Communications with Audit Committees, and Rule 2-07, Communication with Audit Committees, of Regulation S-X and, with and without Management present, discussed and reviewed the results of the independent auditors examination of the financial statements. In addition, the Committee has discussed various matters with the independent auditors related to the Companys consolidated financial statements, including all critical accounting policies and practices used, all alternative treatments for material items that have been discussed with Management, and all other material written communications between the independent auditors and Management.
The Committee has discussed and reviewed with Management and the Companys independent auditors the Companys audited consolidated financial statements as of and for the year ended December 31, 2014, Managements assessment of the effectiveness of the Companys internal control over financial reporting, and the independent auditors evaluation of the effectiveness of the Companys internal control over financial reporting. Management has the responsibility for the preparation of the Companys financial statements and for establishing and maintaining adequate internal control over financial reporting and the independent auditors have the responsibility for expressing opinions on the conformity of the Companys audited consolidated financial statements with accounting principles generally accepted in the United States of America and on the effectiveness of the Companys internal control over financial reporting.
Based on the above-mentioned review and discussions with Management and the Companys independent auditors, the Committee recommended to the Board that the Companys audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2014, for filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
William K. Gerber, Chair
Dennis C. Cuneo
Sheri H. Edison
Mark G. Essig
Ralph S. Michael, III
Shirley D. Peterson
Dr. James A. Thomson
83
PRINCIPAL ACCOUNTING FIRM FEES
The table below provides the aggregate fees paid or accrued by the Company to its independent registered public accounting firm Ernst & Young LLP (EY) for the years ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Audit Fees(1) |
$ | 3,053,657 | $ | 2,254,938 | ||||
Audit-Related Fees(2) |
227,600 | 0 | ||||||
|
|
|
|
|||||
Total Audit and Audit-Related Fees |
3,281,257 | 2,254,938 | ||||||
Tax-Related Fees(3) |
30,060 | 73,110 | ||||||
All Other Fees(4) |
315,000 | 0 | ||||||
|
|
|
|
|||||
Total |
$ | 3,626,317 | $ | 2,328,048 | ||||
|
|
|
|
(1) | Includes fees for the integrated audit of annual consolidated financial statements and reviews of unaudited quarterly consolidated financial statements, audits of internal controls over financial reporting, fees for audits required for regulatory reporting by the Companys insurance subsidiaries and consents related to filings with the Securities and Exchange Commission. This category includes services related to capital market transactions. Fees in 2014 include audit services related to the Companys acquisition of Dearborn Works. |
(2) | Includes audit-related fees for due diligence services related to the Companys acquisition of Dearborn Works. |
(3) | Primarily fees for tax compliance-related activities. |
(4) | Primarily fees for permitted advisory services related to the integration of Dearborn Works. |
The Audit Committee annually approves the scope and fees payable for the audit to be performed by the independent registered public accounting firm for the next fiscal year. Management also defines and presents to the Audit Committee specific projects and categories of service, together with the corresponding fee estimates related to the services requested. The Audit Committee reviews these requests and, if acceptable, pre-approves the engagement of the independent registered public accounting firm. The Audit Committee authorizes its Chair to pre-approve all non-audit services on behalf of the Audit Committee during periods between regularly scheduled meetings, subject to ratification by the Audit Committee. For 2014 and 2013, the Audit Committee, either itself directly or through its Chair, pre-approved all fees. The Companys Chief Financial Officer summarizes on an annual basis the external auditor services and fees paid for pre-approved services and reports on a quarterly basis if there are any new services being requested requiring pre-approval by the Audit Committee.
All of the services provided by EY in 2014 and 2013 were approved in accordance with the foregoing policies and procedures.
ADVISORY VOTE TO RATIFY APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
(Proposal No. 2 on the proxy card)
The Audit Committee of the Board of Directors appointed Ernst & Young LLP (EY) as the Companys independent registered public accounting firm for the current fiscal year. The Audit Committee and the Board of Directors seek to have the stockholders ratify this appointment. Representatives of EY are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will respond to appropriate questions.
Although stockholder ratification is not required under the laws of the State of Delaware, the Audit Committee and the Board are submitting the appointment of EY to the Companys stockholders for an advisory vote on ratification at the Annual Meeting as a matter of good corporate governance in order to provide a means by which stockholders may communicate their opinion with respect to this matter. If the appointment of EY is
84
not ratified by the stockholders, the Audit Committee may replace EY with another independent registered public accounting firm for the balance of the year or may decide to maintain its appointment of EY, whichever it deems to be in the best interests of the Company given the circumstances at that time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE AUDIT COMMITTEES APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2015.
As set out more fully above in the Compensation Discussion and Analysis section of this Proxy Statement beginning on page 32, the Board believes that the Companys executive compensation program appropriately includes a substantial pay-for-performance component and that the actual compensation realized by the Companys Executive Officers appropriately reflects their performance and the performance of the Company.
Introduction
For context, it is helpful to recall that the executive compensation data included in this Proxy Statement is for the calendar year 2014. Thus, the decisions by the Management Development and Compensation Committee (for purposes of the discussion of this proposal, the Committee) which laid the foundation for such compensation occurred in January 2014 and were based in significant part on the performance of the Company in 2013. As such, in order to understand the Committees January 2014 compensation decisions, it is important to consider them in connection with an overview of the performance of the Company in 2013.
In many respects, 2013 was a year of significant improvement for the Company. Its financial performance improved substantially over 2012. However, the challenging economic and business conditions that started with the deep recession in 2008 lingered for the domestic steel industry into 2013. For this and other reasons, despite its improved financial performance, the Company still reported a net loss for 2013. In many other respects, however, it was a very successful year. The Companys pension and other postretirement benefit obligations declined by $719 million. The Companys quality performance continued to be very strong, garnering many awards and establishing several all-time Company records. The Companys safety performance was once again industry-leading and 2013 tied the Companys best year ever. From a customer sales perspective, the Company experienced improved demand for its steel sold to the automotive market and its shipments to that important market increased year-over-year. In addition, from the end of 2012 to the end of 2013 the Companys stock price increased by approximately 78%. Thus, there were substantial achievements by the Company in 2013, many of which laid the foundation for an even better future.
It was in that context that the Committee decided to give the Executive Officers of the Company, including the NEOs, the first increase in base salary since 2010 unrelated to any promotions. Specifically with respect to the CEO, the Committee gave Mr. Wainscott an approximate 4% increase, his first increase in base salary in four years. They also gave the NEOs the first increase in target bonus percentages under the Companys incentive plans that they had received (other than in connection with a promotion) since January 2008. The amounts of these increases in base salary and target percentages for the NEOs are reflected in the Summary Compensation Table for 2014 at page 65 and in the discussion of the Annual Incentive Plan at pages 53-54, respectively. The Committee did not change, however, the strong emphasis of the executive compensation program on performance-based compensation. Of the total compensation which could be earned by the CEO in 2014, approximately 76% was tied directly to performance-based metrics and had to be earned. For the rest of the NEOs, the performance-based compensation amounted to approximately 71% of their potential total
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compensation and likewise had to be earned. Of the portion that was performance-based, the goals established by the Committee were appropriately challenging. In fact, with respect to the portion of his compensation which was performance-based, the CEO received only about 3% of the maximum amount which he could have earned. For the NEOs collectively, including the CEO, the percentage was about 4% of the maximum available performance-based compensation.
Chart Nos. 1 and 2 below demonstrate that just over three quarters of the CEOs total potential compensation for 2014 (and slightly less than that for all NEOs, including the CEO) was directly linked to the performance of the Company.
Composition of Total Potential Compensation for 2014
Chart No. 1 | Chart No. 2 |
Chart Nos. 3 and 4 below demonstrate that there is a direct link between compensation actually received and the Companys performance. When the Company does not achieve the performance goals established by the Committee for the relevant performance periods, there is a direct negative impact on the amount of the performance-based compensation that is actually received by the NEOs. In fact, because of this link, the NEOs collectively received only about 3 to 4% of the total performance-based compensation for which they were eligible in 2014.
Performance-based Compensation Actually Received for 2014
Chart No. 3 | Chart No. 4 |
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The majority of the performance-based compensation available to the NEOs was tied to the financial performance of the Company. Significant non-financial achievements made in 2014 had relatively little impact on the performance-based compensation paid to the NEOs for 2014. Even improved financial performance below the goals established by the Committee did not result in payment of performance-based compensation to the NEOs. Although the Companys financial performance improved throughout the year, the Company did not reach the threshold necessary to pay the financial performance component or the quality component under the Companys Annual Incentive Plan. Likewise, the Companys EBITDA in 2014, although improved over 2013, was insufficient to drive the cumulative EBITDA over the threshold under the Companys Long-Term Plan. In light of that financial performance, the only performance-based compensation the Companys Executive Officers received for 2014 under the Companys executive compensation program was 10% of the potential award under the Annual Incentive Plan that related to safety performance. For 2014 and the three-year performance periods ending in 2014:
| There were no payouts under the financial performance components of the Companys Annual Incentive Plan; |
| There were no payouts under the quality performance components of the Companys Annual Incentive Plan despite the outstanding quality performance because achieving the threshold goal for financial performance was a prerequisite to payment of the quality component of the Annual Incentive Plan; |
| There were no payouts under the Companys Long-Term Plan; |
| There were no shares issued pursuant to the performance share awards under the Companys Stock Plan; and, |
| There were no performance-based matches under the Companys thrift plans. |
In short, 2014 is a clear example of the close relationship between pay and performance that is a bedrock principle of the Companys executive compensation program. It also demonstrates in a very simple and objective way why a vote for the say-on-pay resolution in this Proxy Statement is appropriate.
Recommendation
Because your vote on this proposal is advisory, it will not be binding on the Board. The Board, however, respects all stockholder votes, both For and Against this proposal, and remains committed, through the Committee, to continued engagement with stockholders to ensure that the Company maintains an executive compensation program that is effective, appropriate and in the best interests of its stockholders. The Committee will consider the results of the voting on this proposal, as well as the feedback from stockholders discussed above, in establishing the Companys executive compensation program and in determining the executive compensation packages for its Named Executive Officers in the future.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING RESOLUTION TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT:
RESOLVED, that the Companys stockholders approve, on an advisory basis, the compensation of the Companys Named Executive Officers, as disclosed in the Companys Proxy Statement for the 2015 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission.
RE-APPROVAL OF THE PERFORMANCE COMPENSATION TERMS OF THE
COMPANYS LONG-TERM PERFORMANCE PLAN
(Proposal No. 4 on the proxy card)
Introduction
The Management Development and Compensation Committee (for purposes of the discussion of this proposal, the Committee) of the Board of Directors oversees the Companys compensation program, the primary goals of which are to strengthen the commonality of interests between Management and the Companys
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stockholders, link compensation with Company performance, attract, motivate and retain executives of high caliber and ability who will drive the Companys success. Consistent with those goals, the Committee believes that a significant portion of the overall compensation package for each of the Companys Executive Officers should be performance-based and that a well-designed executive compensation program also includes both annual and long-term performance incentives. One component of the Companys executive compensation program that is designed to incentivize a focus by Executive Officers and other key management employees on the longer term is the performance-based awards under the Companys Long-Term Performance Plan (the Long-Term Plan). The Long-Term Plan includes cash-based awards that are directly tied to the Companys performance over a three-year period with respect to cumulative earnings before interest, taxes, depreciation and amortization (EBITDA). The fundamental purposes of the Companys Long-Term Plan are to:
| align the interests of Management more closely with the interests of the stockholders; |
| link a portion of Managements compensation to the performance of the Company; |
| increase the focus of Management on the Companys long-term performance by establishing performance goals that support long-term strategies; and |
| assist the Company in recruiting, retaining and motivating a highly talented group of managers who will successfully manage the Company to the long-term benefit of all of its stakeholders. |
The Company is submitting for stockholder re-approval the performance-based terms of the Long-Term Plan, in accordance with Section 162(m) of the United States Internal Revenue Code (the Code). As further discussed in this Proposal below, stockholder re-approval is necessary for the Company to satisfy the tax deductibility requirements for amounts constituting performance-based awards paid under the Long-Term Plan to certain Executive Officers. These performance goals were most recently approved by stockholders at the Companys Annual Meeting in May 2010.
As discussed further below, the Board of Directors believes that the Companys ability to take advantage of the tax deductibility of performance-based awards granted under the Long-Term Plan benefits the Company and is in the best interests of its stockholders.
Reason for Seeking Shareholder Approval and Explanation of Approval Sought
Section 162(m) of the Code generally places a $1,000,000 limit on the deductibility for federal income tax purposes of the annual compensation paid to a companys chief executive officer and each of its other three most highly compensated executive officers (other than the chief financial officer). However, qualified performance-based compensation, as defined by the Code, is exempt from this deductibility limitation. Qualified performance-based compensation is compensation paid based solely upon the achievement of objective performance goals, the material terms of which are approved by the stockholders of the paying corporation.
The Companys stockholders most recently approved the material terms of the Long-Term Plans performance goals at the Annual Meeting in May 2010 and grants of performance awards under the Long-Term Plan currently may qualify as performance-based compensation that is tax deductible to the Company under Section 162(m). Under Section 162(m), however, in order for performance awards under the Long-Term Plan to continue to qualify as deductible performance-based compensation, the material terms of the plans performance goals must be approved by the shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which the goals last received stockholder approval. Since the last such shareholder approval was received in 2010, the Company is now asking our shareholders to re-approve the Long-Term Plans performance goals in order to preserve the opportunity for the Company to continue to deduct compensation expense related to the awards.
Summary of the Material Terms of Performance-Based Goals and the Other Terms of the Long-Term Plan
The following is a summary of the material terms of the performance goals of the performance-based awards under the Long-Term Plan, as well as the other material features of the Long-Term Plan. This summary
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does not purport to be complete and is qualified in its entirety by reference to the full text of the Long-Term Plan, a copy of which is appended to this Proxy Statement as Annex A. All capitalized terms not defined in the summary are defined in the text of the Long-Term Plan.
Administration. The Long-Term Plan is administered by the Committee, all of the members of which must be (i) non-employee directors within the meaning of and to the extent required by Rule 16b-3 of the Exchange Act, (ii) independent directors under the rules and regulations of the New York Stock Exchange and (iii) outside directors within the meaning of Section 162(m). The Committee selects the Company Executive Officers who will participate in the Long-Term Plan, and the Companys Executive Management Committee selects other management employees as Plan Members. The Committee establishes and administers the performance goals that must be achieved for Plan Members to earn Performance Awards, certifies in writing prior to the payment of any awards that the criteria to receive a Performance Award have been satisfied, determines the terms of the Performance Awards and may remove any Plan Member from further participation in the Long-Term Plan. The Committee and the Board have the authority to amend or terminate the Long-Term Plan at any time.
Eligibility. All Executive Officers and other key management employees of the Company are eligible to be selected for participation in the Long-Term Plan.
Performance Period. A Plan Member has the opportunity to earn a Performance Award based upon the three-year performance of the Company against a goal established by the Committee at the start of that three-year period.
Performance Goals. The Committee assigns each Plan Member who is an Executive Officer a Target Percentage. Plan Members who are not Executive Officers have their Target Percentages assigned to them by the Executive Management Committee. A Plan Members Target Percentage is multiplied by his or her base salary for the last month of the relevant performance period and then annualized to arrive at the Plan Members Target Amount. The Plan Member will be entitled to a certain percentage of his Target Amount if certain performance goals are attained by the Company. The performance goals are objective and based on the Companys EBITDA, determined cumulatively for the three calendar years within the Performance Period and in accordance with generally accepted accounting principles.
For each Performance Period, the Committee assigns, in writing, a Threshold Performance Goal, a Target Performance Goal, and a Maximum Performance Goal with respect to cumulative EBITDA for the Performance Period. If the Threshold Performance Goal is not achieved, no Plan Member will receive a Performance Award for that Performance Period. If the performance level achieved falls between the Threshold and Target Performance Goals, or between the Target and Maximum Performance Goals, applicable Performance Awards will be determined by straight-line interpolation. For Executive Officers, including NEOs, percentage Targets for achievement above the Threshold Performance Goal under the Long-Term Plan vary with the level of seniority and responsibility of the Plan Member. For all other Plan Members, if the Threshold Performance Goal is achieved, then each Plan Member will receive a Performance Award equal to one half of his or her Target Amount. If Target level is achieved, then each Plan Member will receive a Performance Award equal to his or her Target amount. If the Maximum level is achieved, then each such Plan Member will receive a Performance Award equal to two times his or her Target Amount.
At the conclusion of a particular Performance Period, the Committee determines the extent to which the performance goals have been met. The Committee then determines the applicable Performance Awards, if any, to be paid to Plan Members. However, no payout may be made under the Long-Term Plan to a Covered Employee except upon written certification by the Committee that the applicable performance goals have been satisfied. Any Performance Awards will be paid to Plan Members in cash in a single lump sum within 120 days following the applicable Performance Period.
Maximum Benefits and Amounts Received. No Covered Employee may receive a Performance Award under the Long-Term Plan in excess of $5,000,000. It cannot be reasonably determined at this time what benefits or amounts, if any, will be received by or allocated to any eligible persons or group of persons under the Long-
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Term Plan in future years. Such determinations are subject to future performance of the Company. However, the amounts paid under the Long-Term Plan to the Named Executives for each of the past three calendar years are set forth in the tables under Executive Compensation beginning on page 32 of this Proxy Statement.
Termination of Employment. If during a calendar year a Plan Member dies, becomes disabled, retires, or is involuntarily terminated for reasons other than cause, the Plan Member (or his or her estate in the case of death) is entitled under the Long-Term Plan to an amount equal to twice the amount paid or to be paid to the Plan Member on the Performance Award Payment Date occurring within that calendar year, less any amount already paid to the Plan Member on such Performance Award Payment Date.
Events of Forfeiture. If a Plan Member is terminated for cause, or voluntarily terminates his or her employment with the Company prior to any Performance Award Payment Date, no Performance Award may be paid under the Long-Term Plan. If the Long-Term Plan is terminated, no Performance Awards shall be paid to any Plan Member on or after the date of such action, unless the Committee expressly provides otherwise.
Recent Historical Performance Under the Long-Term Plan
The Companys cumulative EBITDA for each of the three-year periods ending December 31, 2010 through December 31, 2014 was below the threshold level established by the Committee for payouts under the Long-Term Plan. Consequently, the Company has made no payouts under the Long-Term Plan in the past five years. This demonstrates that the performance goals established by the Committee under the Long-Term Plan are both realistic and appropriately challenging. The Long-Term Plan thus is truly a performance-based incentive plan.
Federal Income Tax Consequences
The following discussion is intended only as a brief discussion of the federal income tax rules relevant to Long-Term Plan awards. This summary is not intended to be exhaustive and does not address all matters relevant to all circumstances. Because individual circumstances may vary, the Company advises all participants to consult their own tax advisor concerning the tax implications of awards granted under the Long-Term Plan.
Payouts under the Long-Term Plan, if made, are includible in a Plan Members gross income in the year of receipt as compensation income. The Company will withhold appropriate payroll or other taxes from such payout. The Committee typically seeks to comply with the applicable provisions of Section 162(m) of the Code to enable the Company to take a tax deduction for any compensation income taxed to an NEO as a result of a Long-Term Plan incentive award. See Question and Answer on page 63 above for a more complete discussion of the Companys Policy with Respect to Deductibility of Executive Compensation.
Shareholder Vote Required; Board Recommendation
The affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting required to re-approve the material terms of the performance goals of performance-based awards under the Long-Term Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RE-APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE LONG-TERM PERFORMANCE PLAN.
RE-APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE COMPANYS STOCK INCENTIVE PLAN
(Proposal No. 5 on the proxy card)
Introduction
The Management Development and Compensation Committee (for purposes of the discussion of this proposal, the Committee) of the Board of Directors oversees the Companys compensation program. Consistent with the compensation philosophy described in the Introductions to Proposals 3 and 4 of this Proxy
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Statement, particularly as it relates to the need to include performance-based components in the compensation packages for Executive Officers and key management employees, the Committee believes that a significant portion of each Executive Officers overall compensation package should include performance-based components, including equity incentives whose vesting provisions are dependent upon Company performance. The Companys Stock Incentive Plan (the Stock Plan) includes provisions permitting the issuance of equity awards to Executive Officers and other key management employees in the form of performance shares, restricted stock and stock options. The value of each of these types of equity awards is either directly or indirectly tied to the performance of the Companys common stock and, therefore, strongly aligns the interests of the recipient of such award with the interests of the Companys stockholders.
The Company is submitting for stockholder re-approval the performance-based terms of the Stock Plan in accordance with Section 162(m) of the United States Internal Revenue Code (the Code). The performance-based terms of the Stock Plan must be re-approved in order for the plan to continue to meet the deductibility conditions of Section 162(m).
The performance-based goals submitted for stockholder re-approval in this Proposal relate to performance share awards under the Stock Plan. Performance shares are the form of equity grant that most directly strengthens the community of interests between award recipients and the Companys stockholders. Performance shares link the number of shares into which a participant ultimately vests with the Companys performance and to appreciation in the market price of the Companys common stock. With respect to recent historical awards of performance shares, the Company has issued no shares pursuant to the performance share awards under the Companys Stock Plan in the past five years. In recent years, the lingering effects of the global recession on the steel industry, as well as very challenging business conditions caused by excess capacity in the global steel industry and a high level of foreign steel imported into the United States, contributed to generally low pricing and even lower margins for many of the Companys products. As a consequence, the Companys cumulative EBITDA for each of the three-year periods ending December 31, 2010 through December 31, 2014 was below the threshold level established by the Committee. As such, no performance awards were paid to the participants in the Long-Term Plan for any of the 2010 through 2014 performance periods.
As discussed further below, the Board of Directors believes that the Companys ability to take advantage of the tax deductibility of performance-based awards granted under the Stock Plan benefits the Company and is in the best interests of its stockholders.
Reason for Seeking Stockholder Approval and Explanation of Approval Sought
Section 162(m) of the Code generally places a $1,000,000 limit on the deductibility for federal income tax purposes of the annual compensation paid to a companys chief executive officer and each of its other three most highly compensated executive officers (other than the chief financial officer). However, qualified performance-based compensation, as defined by the Code, is exempt from this deductibility limitation. Qualified performance-based compensation is compensation paid based solely upon the achievement of objective performance goals, the material terms of which are approved by the stockholders of the paying corporation.
The Companys stockholders most recently approved the material terms of the Stock Plans performance goals at the Annual Meeting in May 2010 and grants of performance awards under the Stock Plan currently may qualify as performance-based compensation that is tax deductible to the Company under Section 162(m). Under Section 162(m), however, in order for performance awards under the Stock Plan to continue to qualify as deductible performance-based compensation, the material terms of the plans performance goals must be approved by the stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which the goals last received stockholder approval. Since the last such stockholder approval was received in 2010, the Company is now asking our stockholders to re-approve the Stock Plans performance goals in order to preserve the opportunity for the Company to continue to deduct compensation expense related to the awards.
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Summary of the Material Terms of Performance-Based Goals
The following is a summary of the material terms of the goals for the granting of performance shares, which are the performance-based awards made available under the Stock Plan. Neither this summary nor the below Summary of the Material Terms of the Stock Plan purports to be complete and each is qualified in its entirety by reference to the full text of the Stock Plan. A copy of the Stock Plan is appended to this Proxy Statement as Annex B and any capitalized terms not defined in the following summary are defined in the text of the Stock Plan.
Performance Goal Categories. Each grant is expressed as a target number of shares of the Companys common stock. The number of performance shares, if any, actually earned by and issued to the grantee under an award is based on the Companys achievement over a three-year performance period (the Performance Period) of certain objectives with respect to specific performance categories established by the Committee for the Performance Period. Examples of such performance categories include: total stockholder return; earnings; earnings per share; net income; revenues; operating profit; safety and quality standards; growth rates; and other financial, accounting or quantitative criteria, as established by the Committee.
The performance categories for the current Performance Period (i.e., 2014 through 2016), as established by the Committee with respect to these awards, are: (1) the Companys total stockholder return (TSR), defined as appreciation in the price of the Companys common stock plus reinvested dividends, if any, during the Performance Period relative to TSR during this same period of companies in the Standard & Poors 400 Midcap Index, and (2) the compounded annual growth rate (CAGR) of the price of the Companys common stock over the Performance Period, using as the base the average closing price of the Companys common stock for the last twenty trading days of the year prior to the first year of the Performance Period (e.g., December 2013) and as the final comparison price the average closing price of the Companys common stock for the last twenty trading days in the Performance Period (e.g., December 2016). One half of the total target number of shares under the performance share award may be earned based on the relative TSR performance, and the other one half may be earned based on the CAGR performance. For the TSR and CAGR categories, performance levels have been set that will earn Threshold, Target and Maximum payouts as follows:
Payout (stated as a % of categorys target shares) |
TSR | Stock Price CAGR | ||
Threshold (50%) |
25th Percentile | 5.0% | ||
Target (100%) |
Median | 7.5% | ||
Maximum (150%) |
75th Percentile | 10% |
If the threshold performance level is not achieved in a category as of the end of the Performance Period, then none of the target shares tied to that category would be earned or issued. If at least the threshold is achieved in the category, then shares will be earned and issued in an amount equal to (i) the number of the awards target shares tied to that category, multiplied by (ii) a percentage determined by a straight-line interpolation between the level of the Companys actual performance in that category and the above-stated payout percentages.
Limits on transferability and termination of employment. Shares underlying a performance share award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the termination of the applicable Performance Period and issuance of any shares earned under the terms of the award. Upon an award holders death, disability, or retirement during a Performance Period, unless the Committee provides otherwise, payment of a prorated number of shares based on the holders number of full months of employment during the Performance Period, and based on the levels of achievement in each performance category during the entire Performance Period, shall be made to the holder after termination of the Performance Period. If the holders employment terminates during a Performance Period for any other reason, unless the Committee provides otherwise, the award shall be forfeited and no payment shall be made.
Summary of the Material Terms of the Stock Plan
Administration. The Stock Plan is administered by the Committee, all of the current members of which are (i) non-employee directors within the meaning of and to the extent required by Rule 16b-3 under the Exchange
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Act, (ii) independent directors under the rules and regulations of The New York Stock Exchange, and (iii) outside directors within the meaning of Section 162(m) of the Code. Among other functions, the Committee has the authority to determine the allocation of the shares available for issuance under the Stock Plan among options, restricted stock, restricted stock units and performance share awards, the type of awards (options, restricted stock, and/or performance awards, except that Directors may only receive restricted stock units), the number of shares subject to an award (except for awards to Directors, the size and type of which are specified in the terms of the Stock Plan and are subject to certain conditions), and to determine the terms and conditions of awards. The Committee also has the authority to construe and interpret the Stock Plan, establish, amend or waive rules and regulations for its administration, and amend the terms and conditions of any outstanding award (subject to the conditions provided in the Stock Plan).
Eligibility. All Directors and employees of the Company are eligible to participate in the Stock Plan.
Number of Shares. Awards under the Stock Plan may be made with respect to an aggregate of 23,000,000 shares. No person may be granted awards under the Stock Plan with respect to more than 600,000 shares in any calendar year. The number of shares covered by the Stock Plan, including shares subject to outstanding options, will adjust automatically for any stock dividend or split, recapitalization, reclassification, merger, consolidation, combination or exchange of shares, or similar corporate change.
Term. No awards may be made under the Stock Plan on or after December 31, 2019.
Description of Awards
Options. Options granted under the Stock Plan are Nonqualified Options, which are options that do not qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code (Code). Each option grant must be evidenced by a written agreement specifying the grants terms, including the number of shares covered, the exercise price, the first date the option may be exercised, any restriction on the transferability of shares obtained upon exercise of the option and the duration of the option. However, no option may be exercisable later than the tenth anniversary of the date of its grant. The purchase price for each share covered by an option is determined by the Committee at the date of grant but may not be less than 100% of the fair market value of the shares on the date of grant. For purposes of determining the purchase price of an option, the Company deems the fair market value of shares to be the average of the reported high and low sales price on the date of grant. Payment of the exercise price may be made with cash, with previously owned shares or by a combination of these methods. The Committee also may allow the cashless exercise of an option or other means of exercise that the Committee determines to be consistent with the Stock Plans purpose and applicable law.
In May 2014, the Companys stockholders approved the Boards codification of a formal policy prohibiting the repricing or replacing of outstanding stock options that existed in the Companys Corporate Governance Guidelines. Section 6.3 of the Stock Plan was amended to provide that, except in limited circumstances, the Company may not, without obtaining stockholder approval: (a) amend the terms of outstanding stock options to reduce their exercise price; (b) cancel outstanding stock options in exchange for stock options with an exercise price that is less than the exercise price of the stock options as originally granted; or (c) cancel outstanding stock options with an exercise price above the current market price of the Companys common stock in exchange for cash, common stock or other consideration. The Board elected to include this express prohibition in the Stock Plan as a matter of good corporate governance and for the same purposes that it originally adopted a substantially similar provision in the Corporate Governance Guidelines namely, it would be inconsistent with the primary goal of the Companys equity grant program under the Stock Plan, which is to enhance the commonality of interests between management and the Companys stockholders, if the exercise price of stock options granted to Executive Officers and other members of management may be reduced when the market price of the Companys common stock remained flat or declined in the period following the grant of the options.
Restricted Stock. The Stock Plan authorizes the Committee to grant awards of restricted stock to individuals eligible to participate in the Stock Plan. Each award of restricted stock must be evidenced by a written agreement that specifies the period of restriction, the number of shares subject to the award and such
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other provisions as may be determined by the Committee. The restrictions with respect to shares of restricted stock will lapse under the schedules set forth in the Stock Plan and as summarized below in this Proposal.
Restricted Stock Units. Under the Stock Plan, the Committee is authorized to grant restricted stock units to members of the Board of Directors. Each restricted stock unit represents a right to receive a share of the Companys common stock. Each award of restricted stock units must be evidenced by a written agreement specifying its terms, including the number of shares subject to the award, any vesting and forfeiture conditions and the time and form of settlement of the applicable restricted stock units. The Stock Plan mandates that 50% of each Directors annual retainer fee for services on the Board be paid in the form of awards of restricted stock or restricted stock units, as determined by the Board, though each Director may elect prior to each calendar year to have more than 50% of his or her annual retainer fee, and/or a portion of any other fees to be earned in the calendar year for Board services, paid to him or her by such means. The Committee makes awards of restricted stock units throughout the calendar year, as administratively feasible, but not less than quarterly.
Limits on Transferability and Termination of Employment
Options. Except as provided in the Stock Plan, no option granted under the Stock Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In the event of a participants disability, any unvested stock options vest immediately and automatically. Subject to the terms of the Stock Plan and the discretion of the Committee, an option may be exercised only while the holder is employed by the Company. However, upon a holders death, disability, retirement or involuntary termination for reasons other than cause, his or her outstanding options will be immediately exercisable and will remain exercisable for the periods set forth in the Stock Plan.
Restricted Stock. Shares underlying a restricted stock award may not be sold, transferred, assigned, pledged, encumbered or otherwise alienated or hypothecated until the period of restriction has lapsed. With respect to shares underlying a restricted stock award to an employee, the restrictions typically will lapse with respect to one-third of the shares on the first anniversary of the date of the award, and with respect to an additional one-third of the shares on each of the second and third anniversaries of the date of the award. With respect to shares underlying a restricted stock award to a Director, the restrictions typically lapse upon completion of his or her full tenure on the Board or upon the date of his or her mandatory retirement from the Board by reason of age. In the case of retirement by all employee holders of restricted stock, upon a participants retirement the restricted stock shall continue to vest over the normal course of its original vesting schedule. All outstanding restrictions on shares lapse in the case of death or disability of the holder. During the period of restriction, a holder of restricted stock may exercise full voting rights with respect to the underlying shares and is entitled to all dividends (although the Company does not currently maintain a dividend) and other distributions paid on such underlying shares. Upon the lapse of the applicable period of restriction, the shares vest in the holder.
Restricted Stock Units. Shares underlying a restricted stock unit award may not be sold, transferred, assigned, pledged, encumbered or otherwise alienated or hypothecated until the period of restriction has lapsed. The restrictions with respect to restricted stock units will lapse pursuant to the schedule set forth in each award agreement, provided that such schedule may not be inconsistent with the terms of the Stock Plan. A restricted stock unit does not vest in the holder any rights as a stockholder until the date that such individual may receive shares of common stock pursuant to the terms of the award. During the period of restriction, a holder of restricted stock units is entitled to receive dividend equivalents to enable the holder to receive the value of all dividends (although the Company does not currently maintain a dividend) and other distributions paid with respect to shares of common stock in the form of additional restricted stock units, which in turn shall be subject to the same restrictions as the restricted stock unit award to which they relate.
Change of Control. Upon a Change of Control (as defined in the Stock Plan) of the Company, all options, if not then exercisable, become immediately exercisable, any restrictions on the transfer of shares of restricted stock units immediately lapse, and the settlement date with respect to any outstanding restricted stock units may occur immediately or may be deferred to a later date, as elected by the holder in accordance with
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procedures established by the Company to ensure compliance with applicable law, including Section 409A of the Code. Except as otherwise provided in a performance share award, upon a Change of Control, shares underlying such award shall be deemed earned at the holders target amount under the award, and payment of a prorated number of shares based on the number of full months of the applicable Performance Period that have elapsed upon occurrence of the Change of Control shall be made to the holder as soon as feasible after the Change of Control. If the Companys common stock is no longer traded on a national securities exchange at the date of the Change of Control, however, a holder of options, shares of restricted stock, restricted stock units and/or performance shares has the right to require the Company to make a cash payment to such holder in exchange for the surrender of such options, restricted stock, restricted stock units and/or performance shares.
Amendment and Discontinuance. The Stock Plan may be amended, altered or discontinued by the Board, but, except as specifically provided in the Stock Plan, no amendment, alteration or discontinuance may be made that would in any manner adversely affect any outstanding option, restricted stock, restricted stock unit, or performance share award under the Stock Plan without the written consent of the holder. Except as expressly provided in the Stock Plan, the Stock Plan may not be amended without stockholder approval to the extent such approval is required by law or the rules of any securities exchange on which the Companys common stock is then listed.
Federal Income Tax Consequences
The following discussion is intended only as a brief discussion of the federal income tax rules relevant to awards of options, restricted stock, restricted stock units and performance shares. This summary is not intended to be exhaustive and does not address all matters relevant to all circumstances. Because individual circumstances may vary, the Company advises all participants to consult their own tax advisor concerning the tax implications of awards granted under the Stock Plan.
Nonqualified Stock Options. Upon the grant of an option, the recipient will not recognize any taxable income and the Company will not be required to record any compensation expense. Upon the exercise of such an option, the excess of the fair market value of the shares acquired on the exercise of the option over the purchase price (the spread) will constitute compensation taxable to the holder as ordinary income. In determining the amount of the spread, the fair market value of the stock on the date of exercise is used, except that in the case of a holder subject to the six month short-swing profit recovery provisions of Section 16(b) of the Exchange Act (generally executive officers), the fair market value usually will be determined at the expiration of the six-month period, unless the holder elects to be taxed based on the fair market value at the date of exercise. Any such election (a Section 83(b) election) must be made and filed with the Internal Revenue Service within 30 days after exercise in accordance with the regulations under Section 83(b) of the Code. The Company generally will be entitled to a deduction for federal income tax purposes in an amount equal to the compensation taxable to the holder as a result of exercise of the option in the Companys taxable year in which the amount is included as income to the holder.
Restricted Stock. A person who is granted a restricted stock award may make a Section 83(b) election to have the grant taxed as compensation income at the date of receipt, with the result that any future appreciation (or depreciation) in the value of the shares will be taxed as capital gain (or loss) upon a subsequent sale of the shares. However, if the recipient does not make a Section 83(b) election, the grant will be taxed as ordinary income at the full fair market value of the shares on the date that the restrictions imposed on the shares lapse. Unless a holder makes a Section 83(b) election, any dividends paid on shares subject to restrictions are ordinary income to the holder and compensation expense to the Company.
Restricted Stock Units. Unless the grantee of a restricted stock unit award makes a Section 83(b) election to have the grant taxed as compensation income at the date of receipt, the grantee will not be deemed to have received any taxable income at the time the restricted stock unit award is granted. Generally, restricted stock units (and dividend equivalents and other distributions paid with respect to those restricted stock units, if any) will be subject to income taxation based upon the fair market value of the shares underlying such stock units on each date that shares underlying the stock units are delivered or made available after the restriction period has lapsed.
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Performance Shares. The value of shares paid out pursuant to a performance share award will constitute compensation taxable to the recipient as ordinary income.
Deductibility. The Committee typically seeks to comply with the applicable provisions of Section 162(m) of the Code to enable the Company to take a tax deduction for any compensation income taxed to an NEO as a result of an award under the Stock Plan. See Question and Answer on page 63 above for a more complete discussion of the Companys Policy with Respect to Deductibility of Executive Compensation.
Plan Benefits
At this time it cannot be reasonably determined what benefits or amounts, if any, will be received by or allocated to any persons or group of persons under the Stock Plan in future years. Such determinations are subject to the discretion of the Committee. However, recent grants of options, restricted stock, and performance share awards to the NEOs are set forth in the tables under Executive Compensation beginning on page 32 of this Proxy Statement. Grants of restricted stock units to Directors during the last fiscal year are set forth in the Director Compensation Table beginning on page 29 of this Proxy Statement.
Stockholder Vote Required; Board Recommendation
The affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting is required to re-approve the material terms of the performance goals of performance-based awards under the Stock Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RE-APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE STOCK INCENTIVE PLAN.
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STOCKHOLDER PROPOSALS FOR THE 2016 ANNUAL MEETING
AND NOMINATIONS OF DIRECTORS
The Companys By-laws establish an advance notice procedure with regard to certain matters, including stockholder proposals and nominations of individuals for election to the Board of Directors. Notice of a stockholder proposal or Director nomination for the 2016 Annual Meeting must be received by the Company no later than March 30, 2016 and no earlier than February 29, 2016, and must contain certain information and conform to certain requirements specified in the By-laws. If the Chairman determines at the Annual Meeting that a stockholder proposal or Director nomination was not made in accordance with the By-laws, the Company may disregard the proposal or nomination.
If a stockholder intends to present a proposal at the 2016 Annual Meeting of Stockholders and seeks to have the proposal included in the Companys proxy materials in reliance on Rule 14a-8 under the Securities Exchange Act of 1934, the proposal must be submitted in writing and received by the Secretary of the Company no later than December 15, 2015. The proposal must also satisfy the other requirements of the rules of the Securities and Exchange Commission relating to stockholder proposals.
In addition, if a stockholder submits a proposal outside of Rule 14a-8 for the 2015 Annual Meeting, but the proposal complies with the advance notice procedure prescribed by the By-laws, then the Companys proxy may confer discretionary authority on the persons being appointed as proxies on behalf of the Board of Directors to vote on the proposal.
Any proposals, as well as any related questions, should be directed to: Secretary, AK Steel Holding Corporation, 9227 Centre Pointe Drive, West Chester, Ohio 45069.
The Companys audited financial statements as of and for the year ended December 31, 2014, together with the report thereon of Ernst & Young LLP, the Companys independent registered public accounting firm for the year ended December 31, 2014, are included in the Companys 2014 Annual Report under the Securities Exchange Act of 1934. A copy of the 2014 Annual Report on Form 10-K is included in the Companys 2014 Annual Report to Stockholders and is being furnished on the Internet to stockholders together with this Proxy Statement.
This Proxy Statement and the accompanying form of proxy will be furnished on the Internet to stockholders on or about April 13, 2015, together with the 2014 Annual Report to Stockholders. In addition, the Company is requesting banks, brokers and other custodians, nominees and fiduciaries to forward the Notice of Internet Availability of Proxy Materials to the beneficial owners of shares of the Companys common stock held by them of record and will reimburse them for the reasonable out-of-pocket expenses they incur in complying with this request. The Company retained Georgeson Inc. to assist in the solicitation of proxies for a fee estimated to be $90,000 plus out-of-pocket expenses. Solicitation of proxies also may be made by officers and employees of the Company, via personal contacts, telephone or email. The cost of soliciting proxies will be borne by the Company.
The Board of Directors does not know of any matters to be presented at the meeting other than those set forth in the accompanying Notice of Meeting. However, if any other matters properly come before the meeting, it is intended that the holders of proxies will vote on the matter in their discretion.
By order of the Board of Directors, |
David C. Horn |
Secretary |
West Chester, Ohio
April 13, 2015
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ANNEX A
AK STEEL CORPORATION
LONG-TERM PERFORMANCE PLAN
(as amended and restated as of April 12, 2010)
A-1
AK STEEL CORPORATION
LONG-TERM PERFORMANCE PLAN
(as amended and restated as of April 12, 2010)
Introduction
The name of this plan is the AK Steel Corporation Long-Term Performance Plan (the Plan). AK Steel Holding Corporation (the Company) originally adopted the Plan in 1995 to enhance the Companys focus on its long-term performance and to reward certain employees for enhancing the profitability of the Company over extended periods of time. The Plan was last amended and restated as of March 17, 2005 and was amended on October 18, 2007 and is hereby amended and restated as set forth in this document effective as of April 12, 2010.
The Plan is a payroll practice intended to motivate selected employees to meet certain performance goals. The Plan is not intended to be an employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the Plan shall be interpreted, administered and enforced to the extent possible in a manner consistent with that intent. Any obligations under the Plan shall be the joint and several obligations of AK Steel Holding Corporation, the Company, and each of their respective subsidiaries and affiliates. The Plan is designed to comply with the performance-based compensation provisions under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code).
Article 1. Administration of the Plan.
This Plan shall be administered by the Compensation Committee (the Committee) of the Board of Directors (the Board) of the Company. The Committee shall consist of not less than two members of the Board who shall be appointed from time to time by, and shall serve at the discretion of, the Board. Each member of the Committee shall be an outside director within the meaning of Section 162(m) of the Code and related regulations, an independent director as defined in the rules and regulations of the New York Stock Exchange, and a non-employee director as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. The Human Resources Department of the Company shall maintain records of authorized participants for each period described in paragraph 4 below (the Performance Period).
Article 2. Participation.
Executive officers of the Company who are selected by the Committee, and other management employees of the Company or its subsidiaries and affiliates who are selected by the Executive Management Committee (the EMC), shall participate in the Plan (the Plan Members). The EMC shall consist of the Companys Chief Executive Officer, President, Vice PresidentHuman Resources, and such other individuals as may be designated from time to time by the Chief Executive Officer. Notwithstanding the foregoing, any covered employee, as defined in Section 162(m)(3) of the Code (Covered Employee), who is selected to participate in the Plan by the Committee shall be so designated in writing within the time period prescribed by Section 162(m) of the Code and related regulations.
Article 3. Bonus Opportunity Target.
Each Plan Member shall be assigned a Bonus Opportunity Target Percentage (Target Percentage) at the time he or she is selected for participation in this Plan. The Target Percentage of Plan Members who are executive officers shall be determined by the Committee. The Target Percentage of all other Plan Members shall be determined by the EMC. An executive officers Target Percentage may be changed at the discretion of the Committee or, in the case of Plan Members who are not executive officers, by the EMC; provided however, with respect to covered Employees, any such assignment or change by the Committee shall be in writing, within the time period, and in accordance with the anti-discretion and other rules, prescribed by Section 162(m) of the Code and related regulations.
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A Plan Members Target Percentage with respect to any Performance Period is the Percentage of his or her annual base salary (as defined below) that may be awarded to him by the Company as additional compensation if the Company achieves the target level of performance with respect to certain performance goals established by the Committee and approved by the Board as set forth in paragraph 6 below. A Plan Members Target Percentage is multiplied by his or her annual base salary for the final year of the Performance Period for which the calculation of a Performance Award is made in order to arrive at a Performance Award Target Amount (Target Amount). A Plan Members annual base salary for this purpose shall be determined by multiplying his or her monthly rate of base salary for the last month of the relevant Performance Period by twelve.
Any amount awarded to a Plan Member under this Plan shall be referred to herein as a Performance Award. If a Plan Member is designated to participate in the Plan after the commencement of a Performance Period, his Performance Award, if any, will be prorated based on his period of participation in the Plan during such Performance Period.
Article 4. Performance Periods.
Each Performance Period shall consist of a period of three consecutive calendar years, with the first such three-year period commencing on January 1, 2005 and ending on December 31, 2007; provided however, to effect the transition from the Plan as in effect prior to this amendment and restatement to the Plan as amended and restated herein, solely for purposes of this Plan, calendar year 2005 shall be a transitional one-year Performance Period, and calendar years 2005 and 2006 shall be a transitional two-year Performance Period. For purposes that may be relevant to other compensation and benefit plans of the Company, calendar year 2005, and calendar years 2005-2006, shall be considered the last year, and the last two years, respectively, of Performance Periods that began under the provisions of the Plan as in effect prior to this amendment and restatement.
Article 5. Performance Award Payment Date.
The Performance Award Payment Date is the date on which any Performance Awards are paid to Plan Members, which date shall not be later than March 15 immediately following the last day of each Performance Period. Before any Performance Award is paid to a Covered Employee, the Committee shall certify in writing that the criteria for receiving a Performance Award pursuant to the terms of this Plan have been satisfied.
Article 6. Performance Award Determination.
For each Performance Period, the Committee shall assign, in writing, a Threshold Performance Goal, a Target Performance Goal, and a Maximum Performance Goal with respect to the Companys earnings (without consideration of special, extraordinary and unusual items) before interest expense, provision for income taxes, depreciation and amortization (EBITDA), determined cumulatively for the calendar years within the Performance Period and in accordance with generally accepted accounting principles. If the Threshold Performance Goal is not achieved, no Performance Awards shall be made for that Performance Period. If the Target Performance Goal is achieved with respect to a Performance Period, then each Plan Member will receive a Performance Award equal to his or her Target Amount. If the Threshold Performance Goal is achieved, then each Plan Member will receive a Performance Award equal to one half the Target Amount. If the Maximum Performance Goal is achieved, then each Plan Member will receive a Performance Award equal to two times the Target Amount. If the performance level achieved with respect to a Performance Period is between the Threshold Performance Goal and the Target Performance Goal, or between the Target Performance Goal and the Maximum Performance Goal, the Plan Members applicable Performance Award shall be determined by linear interpolation. Such Threshold, Target and Maximum Performance Goals shall be assigned and communicated in writing to Covered Employees within the time period, and in accordance with the anti-discretion and other rules, prescribed by Section 162(m) of the Code and related regulations.
The maximum Performance Award that may be paid to any Covered Employee with respect to any Performance Period shall be $5 million. The Committee may delegate the calculation of Performance Awards to the Companys Chief Financial Officer, subject to the Committees supervision.
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Article 7. Form of Payment.
All Performance Awards with respect to a Performance Period will be paid in a single lump-sum payment in cash. The Company shall withhold such payroll or other taxes as it determines to be necessary or appropriate.
Article 8. Occurrence of Events During Performance Period.
8.1 Termination of Employment.
If during a calendar year a Plan Member dies, becomes totally and permanently disabled, retires, or is involuntarily terminated for reasons other than Cause (as defined in paragraph 8b below), the Plan Member (or the Plan Members estate in the case of death) shall be entitled under this Plan to an amount equal to twice the amount paid or to be paid to the Plan Member on the Performance Award Payment Date occurring within that calendar year, less any amount of any Performance Award already paid to the Plan Member on such Performance Award Payment Date. Any amount payable under this paragraph 8a shall be paid on the next to occur of the Performance Award Payment Date falling within that calendar year or within 60 days following such Plan Members death or other termination of employment. Any such amount shall be paid in cash and in full satisfaction of any claims the Plan Member may have under this Plan.
8.2 Termination for Cause.
If a Plan Member is terminated for Cause, no Performance Award shall be paid under this Plan to such Plan Member. For purposes of this Plan, Cause shall mean: (i) conviction of, or entering a plea of guilty or nolo contendere to, a misdemeanor involving moral turpitude or a felony; (ii) engagement in fraud, misappropriation or embezzlement with respect to the Company or any subsidiary or affiliate thereof; (iii) willful failure, gross negligence or gross misconduct in the performance of assigned duties for the Company or any subsidiary or affiliate thereof; and/or (iv) breach of a fiduciary duty to the Company or any subsidiary or affiliate thereof.
8.3 Voluntary Termination.
Subject to the provisions of paragraph 8a, a Plan Member who voluntarily terminates employment with the Company prior to any Performance Award Payment Date shall forfeit all rights hereunder to any payment that is or may be due on or after such Performance Award Payment Date.
8.4 Removal from the Plan.
An executive officer may be removed from further participation in this Plan by the Committee and any other Plan Member may be removed from further participation by the EMC, and such removal shall be effective as of the date determined by the Committee or the EMC. In such a case, the Plan Member may receive, in the sole discretion of the Committee or the EMC, a prorated Performance Award, if any, based on his or her period of participation during the Performance Period in which his removal occurs.
Article 9. Source of Benefits.
The Company shall make any cash payments due under the terms of this Plan directly from its assets or from any trust that the Company may choose to establish and maintain from time to time. Nothing contained in this Plan shall give or be deemed to give any Plan Member or any other person any interest in any property of any such trust or in any property of the Company, nor shall any Plan Member or any other person have any right under this Plan not expressly provided by the terms hereof, as such terms may be interpreted and applied by the Committee in its discretion.
Article 10. Liability of Officers and Plan Members.
No current or former employee, officer, director or agent of AK Steel Holding Corporation or of the Company shall be personally liable to any Plan Member or other person with respect to any benefit under this Plan or for any action taken by any such person in the administration or interpretation of this Plan.
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Article 11. Unsecured General Creditor.
The rights of a Plan Member (or his or her designated beneficiary in the event of death) under this Plan shall only be the rights of a general unsecured creditor of the Company, and the Plan Member (or the Plan Members designated beneficiary) shall not have any legal or equitable right, interest, or other claim in any property or assets of the Company by reason of the establishment of this Plan.
Article 12. Arbitration.
Any dispute under this Plan shall be submitted to binding arbitration subject to the rules of the American Arbitration Association before an arbitrator selected by the Company and acceptable to the Plan Member. If the Plan Member objects to the appointment of the arbitrator selected by the Company, and the Company does not appoint an arbitrator acceptable to the Plan Member, then the Company and the Plan Member shall each select an arbitrator and those two arbitrators shall collectively appoint a third arbitrator who shall alone hear and resolve the dispute. The Company and the Plan Member shall share equally the costs of arbitration. No Company agreement of indemnity, whether under its Articles of Incorporation, the bylaws or otherwise, and no insurance by the Company, shall apply to pay or reimburse any Plan Members costs of arbitration, including attorneys fees.
Article 13. Amendment or Termination of Plan.
The Board expressly reserves for itself and for the Committee the right and the power to amend or terminate the Plan at any time. In such a case, unless the Committee otherwise expressly provides at the time the action is taken, no Performance Awards shall be paid to any Plan Member on or after the date of such action.
Article 14. Miscellaneous.
14.1 Assignability.
Plan Members shall not alienate, assign, sell, transfer, pledge, encumber, attach, mortgage, or otherwise hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder. No part of the amounts payable hereunder shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony, or separate maintenance, nor shall any person have any other claim to any benefit payable under this Plan as a result of a divorce or the Plan Members, or any other persons bankruptcy or insolvency.
14.2 Obligations to the Company.
If a Plan Member becomes entitled to payment of any amounts under this Plan, and if at such time the Plan Member has any outstanding debt, obligation, or other liability representing an amount owed to the Company, then the Company may offset such amounts against the amounts otherwise payable under this Plan. Such determination shall be made by the Committee or the Board.
14.3 No Promise of Continued Employment.
Nothing in this Plan or in any materials describing or relating to this Plan grants, nor should it be deemed to grant, any person any employment right, nor does participation in this Plan imply that any person has been employed for any specific term or duration or that any person has any right to remain in the employ of the Company. Subject to the provisions of paragraph 8 hereof, the Company retains the right to change or terminate any condition of employment of any Plan Member without regard to any effect any such change has or may have on such persons rights hereunder.
14.4 Captions.
The captions to the paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
A-5
14.5 Pronouns.
Masculine pronouns and other words of masculine gender shall refer to both men and women.
14.6 Validity.
In the event any provision of this Plan is found by a court of competent jurisdiction to be invalid, void, or unenforceable, such provision shall be stricken and the remaining provisions shall continue in full force and effect.
14.7 Applicable Law.
This Plan is subject to interpretation under federal law and, to the extent applicable, the law of the State of Ohio.
AK STEEL HOLDING CORPORATION | ||
AK STEEL CORPORATION | ||
By: |
/s/ David C. Horn | |
David C. Horn Senior Vice President, General Counsel and Secretary |
Adopted 1995
Amended November 21, 1996
Amended and Restated March 19, 1998
Amended and Restated January 16, 2003
Amended and Restated March 17, 2005
Amended October 18, 2007
Amended and Restated April 12, 2010
A-6
ANNEX B
AK STEEL HOLDING CORPORATION
STOCK INCENTIVE PLAN
(as amended and restated as of March 20, 2014)
B-1
AK STEEL HOLDING CORPORATION
STOCK INCENTIVE PLAN
(as amended and restated as of March 20, 2014)
Article 1. Amendment and Restatement, Purpose, and Duration.
1.1 Amendment and Restatement of the Plan. AK Steel Holding Corporation, a Delaware corporation (the Company), previously established an incentive compensation plan known as the AK Steel Holding Corporation Stock Incentive Plan (the Plan). On March 20, 2014, the Board of Directors of the Company adopted this amendment and restatement of the Plan, subject to the approval of the Companys stockholders (the date of such stockholders approval being the Effective Date). For the terms and conditions of the Plan applicable to Awards granted before the Effective Date, refer to the version of the Plan in effect as of the date such Award was granted. The Plan permits the grant of Nonqualified Stock Options, awards of Restricted Stock, awards of Restricted Stock Units, and awards of Performance Shares.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of directors, executive officers and key employees of the Company to those of the Companys stockholders, and by providing these individuals with an incentive for outstanding performance. The Plan is further intended to enhance the Companys ability to motivate, attract, and retain the services of these individuals upon whose judgment, interest, and special effort the successful conduct of its operation is largely dependent.
1.3 Duration of the Plan. The Plan shall remain in effect until all Shares subject to it shall have been purchased or acquired or are no longer available for Awards according to the Plans provisions, subject to the right of the Board to terminate the Plan at any time pursuant to Article 11 herein. In no event may an Award be granted under the Plan on or after December 31, 2019. Termination of the Plan shall not affect the rights of any person under an outstanding Award Agreement unless otherwise specifically provided in such Award Agreement.
Article 2. Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:
(a) Award includes, without limitation, Option Awards, Restricted Stock Awards, Restricted Stock Unit Awards, or Performance Share Awards that are valued in whole or in part by reference to, or are otherwise based on, the Companys stock, performance goals or other factors, each on a stand alone or combination basis, as described in or granted under this Plan.
(b) Award Agreement means the agreement or other writing that sets forth the terms and conditions of each Award, including any amendment or modification thereof. A Participant is bound by the terms of an Award Agreement and this Plan by reason of accepting the benefits of the Award.
(c) Beneficial Owner shall have the meaning ascribed to such term in Rule l3d-3 of the General Rules and Regulations under the Exchange Act.
(d) Beneficiary means the person or persons named by a Participant to succeed to the Participants rights under any then unexpired Award Agreements. Each such designation shall: (i) revoke all prior designations by the same Participant; (ii) be in a form acceptable to the Committee; and (iii) be effective only when delivered to the Committee by the Participant in writing and during the Participants lifetime. No beneficiary shall be entitled to any notice of any change in a designation of beneficiary. In the absence of any such designation, the Participants estate shall be the beneficiary.
(e) Board means the Board of Directors of the Company.
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(f) Cause means: (i) conviction of, or entering a plea of guilty or nolo contendere to, a misdemeanor involving moral turpitude or a felony; (ii) engagement in fraud, misappropriation or embezzlement with respect to the Company or any subsidiary or affiliate thereof; (iii) willful failure, gross negligence or gross misconduct in the performance of assigned duties for the Company or any subsidiary or affiliate thereof; and/or (iv) breach of a fiduciary duty to the Company or any subsidiary or affiliate thereof.
(g) Change of Control shall be deemed to have occurred if:
(i) any person (other than a trustee or other fiduciary holding securities under an employee benefit plan in which employees of the Company participate) becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Companys then outstanding voting securities; or
(ii) during any period of two (2) consecutive years individuals who at the beginning of such period constitute the Board, including for this purpose any new Director of the Company (other than a Director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this Subsection (g)) whose election by the Board or nomination for election by the stockholders of the Company was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or
(iii) there is a merger or consolidation of the Company with any other corporation (other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into voting securities of the surviving entity, at least fifty percent of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation) or there is a complete liquidation of the Company or sale or disposition by the Company of all or substantially all of the Companys assets.
(h) Code means the Internal Revenue Code of 1986, as amended from time to time.
(i) Committee means the Compensation Committee of the Board, or such other committee designated by the Board to administer this Plan. The Committee shall consist of not less than two members of the Board who shall be appointed from time to time by, and shall serve at the discretion of, the Board. The Committee shall be comprised solely of Directors who are: (i) independent directors as defined in the rules and regulations of the New York Stock Exchange; (ii) non-employee directors as defined in Rule 16b-3 promulgated under the Exchange Act; and (iii) outside directors within the meaning of Section 162(m) of the Code and related regulations. The references herein to specific rules, regulations, and statutes shall include any successor provisions thereof.
(j) Company means AK Steel Holding Corporation, a Delaware corporation, or any successor thereto, as provided in Article 14 herein.
(k) Covered Employee means any Participant who is or may be a covered employee within the meaning of Section 162(m)(3) of the Code.
(l) Director means any individual who is a member of the Board and who is not an Employee.
(m) Disability means a physical or mental condition which, in the judgment of the Committee, renders a Director unable to serve or an Employee unable to perform the duties of his position with the Company or, in the case of an Employee, the duties of another available position with the Company for which the Employee is suited by education, background and training. Any Employee found to be qualified for disability benefits under AK
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Steel Holding Corporations long term disability plan or by the Federal Social Security Administration will be considered to be disabled under this Plan, but qualification for such benefits shall not be required as evidence of disability hereunder.
(n) Employee means any common law employee of the Company or any subsidiary or affiliate thereof, including AK Steel Corporation. A Director is not an Employee solely by reason of his position as a Director and, unless otherwise employed by the Company, shall not be considered to be an Employee under this Plan.
(o) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
(p) Fair Market Value shall mean:
(i) if the Shares are traded on an established United States national stock exchange or in the United States over-the-counter market with prices reported on the NASDAQ, the average of the highest and lowest sales prices for Shares on the relevant date (or, if there were no sales of Shares on such date, the weighted average of the mean between the highest and lowest sale prices for Shares on the nearest preceding trading day on which there were sales of Shares); and
(ii) if the Shares are not traded as described in clause (i), the fair market value of such Shares on the relevant date, as determined in good faith by the Board.
(q) Insider shall mean an Employee who is, on the relevant date, an executive officer or ten percent (10%) Beneficial Owner of the Company, as defined under Section 16 of the Exchange Act, or a Director.
(r) Nonqualified Stock Option or Option means an option to purchase Shares from the Company at a price established in an Option Award Agreement. No incentive stock option within the meaning of Code Section 422 may be granted under this Plan.
(s) Option Award means, individually or collectively, a grant under this Plan of a Nonqualified Stock Option.
(t) Option Award Agreement means an agreement setting forth the terms and provisions applicable to an Option Award granted to a Participant under this Plan.
(u) Option Price means the price at which a Share may be purchased by a Participant under the terms of an Option Award Agreement.
(v) Par Value shall mean the designated par value of one Share.
(w) Participant means any Director or Employee who possesses an unexpired Award granted under the Plan.
(x) Performance Share means Shares (or units representing the right to receive Shares) granted to a Participant subject to attainment of certain performance criteria and objectives in accordance with the terms of the Plan.
(y) Performance Share Award means individually or collectively, a grant under this Plan of a Performance Share.
(z) Performance Share Award Agreement means an agreement setting forth the terms and provisions applicable to a Performance Share Award under this Plan.
(aa) Plan means the AK Steel Holding Corporation Stock Incentive Plan as set in this document, and if amended at any time, then as so amended.
B-4
(bb) Restricted Stock means Shares granted to a Participant subject to certain restrictions on the Participants right to sell, transfer, assign, pledge, encumber or otherwise alienate or hypothecate the Shares except in accordance with the terms of this Plan.
(cc) Restricted Stock Award means, individually or collectively, a grant under this Plan of Shares of Restricted Stock.
(dd) Restricted Stock Award Agreement means an agreement setting forth the terms and provisions applicable to a Restricted Stock Award under this Plan.
(ee) Restricted Stock Unit means an Award that represents the right to receive a Share, granted to a Director in accordance with the terms of the Plan.
(ff) Restricted Stock Unit Award means, individually or collectively, a grant under this Plan of Restricted Stock Units.
(gg) Restricted Stock Unit Award Agreement means an agreement setting forth the terms and provisions applicable to a Restricted Stock Unit Award under this Plan.
(hh) Retirement shall mean termination of employment with the Company or any affiliate of the Company with eligibility to immediately commence to receive a pension under the Companys noncontributory defined benefit pension plan as in effect on the Employees termination date, or termination of employment with the Company or any affiliate of the Company after: (1) completion of at least 30 years of employment with the Company, (2) attainment of age 60 and completion of at least 5 years of employment with the Company, or (3) attainment of age 55 and completion of at least 10 years of employment with Company. With respect to an individual who is not a participant in the Companys noncontributory pension plan, Retirement also shall mean any termination of employment with the Company which would have entitled such individual to be eligible to immediately commence to receive a pension under the Companys noncontributory defined benefit pension plan had the individual been a participant.
(ii) Shares means the shares of voting common stock of the Company.
Article 3. Administration.
3.1 The Committee. The Plan shall be administered by the Committee. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. No member or former member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted hereunder.
3.2 Authority of the Committee. The Committee shall have full power, subject to the provisions of this Plan, except as limited by law or by the Articles of Incorporation or Bylaws of the Company: (a) to determine the size and types of Awards (except as to Awards to Directors which shall be limited to the size and shall be subject to the conditions expressly permitted by this Plan); (b) to determine the terms and conditions of each Award Agreement in a manner consistent with the Plan; (c) to construe and interpret the Plan and any agreement or instrument entered into under the Plan; (d) to establish, amend, or waive rules and regulations for the Plans administration; and, (e) subject to the provisions of Article 11 herein, to amend the terms and conditions of any outstanding Award Agreement to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. The Committee may delegate its authority hereunder to the extent permitted by law. In no event shall a Director who is a Participant vote in any matter related solely to such Directors Award under this Plan.
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3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Directors, Employees, Participants, and their estates, beneficiaries or assignees. In all cases, Awards to Directors shall be subject to the same terms, conditions and interpretations applicable generally to Awards to non-Director Participants.
3.4 Arbitration. Each Participant who is granted an Award hereunder agrees as a condition of the Award to submit to binding arbitration any dispute regarding the Plan or any Award made under the Plan, including by way of illustration and not limitation, any decision of the Committee or any action of the Company respecting the Plan. Such arbitration shall be held in accordance with the rules of the American Arbitration Association before an arbitrator selected by the Company and acceptable to the Participant. If the Participant objects to the appointment of the arbitrator selected by the Company, and the Company does not appoint an arbitrator acceptable to the Participant, then the Company and the Participant shall each select an arbitrator and those two arbitrators shall collectively appoint a third arbitrator who shall alone hear and resolve the dispute. The Company and the Participant shall share equally the cost of arbitration. No Company agreement of indemnity, whether under the Articles of Incorporation, the By-Laws or otherwise, and no insurance purchased by the Company shall apply to pay or reimburse any Participants costs of arbitration.
Article 4. Shares Subject to Grant Under the Plan.
4.1 Number of Shares. Subject to adjustment as provided in this Section and in Section 4.3, an aggregate of 23,000,000 Shares shall be available for the grant of Option Awards, Restricted Stock Awards, Restricted Stock Unit Awards, and Performance Share Awards under the Plan (hereinafter called the Share Pool); provided, however, that no Employee may be granted Awards under the Plan in any calendar year with respect to more than 600,000 Shares. The Committee, in its sole discretion, shall determine the appropriate division of the Share Pool as between Option Awards, Restricted Stock Awards, Restricted Stock Unit Awards, and Performance Share Awards. Shares issued pursuant to any Award may be either authorized and previously unissued Shares or reacquired Shares.
The following rules will apply for purposes of the determination of the number of Shares available for grant under the Plan:
(a) the grant of an Award to an Employee shall reduce the Shares available in the Share Pool for grant under the Plan by the number of Shares subject to the Award; and
(b) to the extent that an Option is settled in cash rather than by the delivery of Shares, the Share Pool shall be reduced by the number of Shares represented by the cash settlement of the Option (subject to the limitation set forth in Section 4.2 herein).
4.2 Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires or lapses for any reason, any Shares then subject to such Award again shall be available for grant under the Plan and shall return to the Share Pool.
4.3 Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, to prevent dilution or enlargement of rights, an appropriate adjustment shall be made in an equitable manner by the Committee in the number and class of Shares which may be delivered under the Plan, in the number and class of Shares that may be issued to an Employee with respect to Awards in any given period, and in the number and class of and/or price of Shares subject to any then unexercised and outstanding Awards. The number of Shares subject to any Award shall always be a whole number.
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4.4 Rights as a Stockholder. No person shall have any rights as a shareholder with respect to Shares subject to an Option Award until the date the Company receives full payment of the Option price, including any sum due for withholding pursuant to Section 6.6. A person who has Restricted Stock shall have the rights of an owner of Shares, except to the extent those rights are expressly limited by then applicable restrictions on transfer contained in this Plan and the Restricted Stock Award Agreement. No person shall have any rights as a shareholder with respect to a Restricted Stock Unit Award until such date that the Participant may receive Shares pursuant to the Restricted Stock Unit Award. No person shall have any rights as a shareholder with respect to a Performance Share Award until such date that the Participant may receive the Shares covered by the Performance Share Award.
Article 5. Eligibility and Participation. Directors and Employees shall be eligible to be Participants in this Plan.
Article 6. Stock Options.
6.1 Grant of Options.
(a) Options may be granted to an Employee or Director at any time and from time to time as shall be determined by and in the sole discretion of the Committee, subject to the provisions of Section 4.1.
(b) Prior to July 16, 2009, each Director who was not employed by the Company received Options with respect to ten thousand (10,000) Shares on the date of his or her initial election to the Board. Such Directors may have received additional Options in a similar amount at approximately five year intervals thereafter during their term on the Board as determined by and in the sole discretion of the Committee. The elimination on July 16, 2009 of the provisions for such Option awards was not intended to have, and shall not have, any effect on Options awarded prior to July 16, 2009 under the version of this Section 6.1(b) in effect prior to such date or on the terms and conditions applicable to those Options upon the date of award.
6.2 Option Award Agreement. Each Option shall be granted pursuant to a written Option Award Agreement, signed by the appropriate member of the Committee or its designee, and specifying the terms and conditions applicable to the Options granted including: the Option Price; the period during which the Option may be exercised; the number of Shares to which the Option pertains; the conditions under which the Option is exercisable; and such other provisions as the Committee may from time to time determine. The Option Award Agreement also shall specify that the Option is intended to be a Nonqualified Stock Option whose grant is intended not to fall under the provisions of Code Section 422.
6.3 Option Price. The Option Price for each Share subject to purchase shall be determined by the Committee and stated in the Option Award Agreement but in no event shall be less than the Fair Market Value of the Shares on the date of grant of the Award. Except in connection with adjustments permitted under Section 4.3 of the Plan, the Company may not, without obtaining stockholder approval: (a) amend the terms of outstanding Options to reduce the exercise price of such outstanding Options; (b) cancel outstanding Options in exchange for Options with an exercise price that is less than the exercise price of the Options as originally granted; or (c) cancel outstanding Options with an exercise price above the current Fair Market Value in exchange for cash, common stock or other consideration.
6.4 Duration of Options. Each Option shall be exercisable for such period as the Committee shall determine at the time of grant. No Option shall be exercisable later than the tenth (10th) anniversary of the date of its grant.
6.5 Exercise of Options.
(a) Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. The Committee may provide, by rule or regulation or in any Option Award Agreement, that the exercisability of an Option may be accelerated or extended under various circumstances to a date not later than the latest expiration date permitted in accordance with Section 6.4.
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(b) Each Option shall be exercisable only by delivery to the Committee in care of the Secretary of the Company of a written notice of exercise in such form as the Committee may require. A notice of exercise shall: specify the number of shares to be purchased, shall be signed by the Participant or holder of the Option and shall be dated the date the signature is affixed.
6.6 Payment. Except as hereinafter provided, a written notice of exercise shall be accompanied by full payment for the Shares to be purchased. Subject to the provisions of Article 12, payment shall include any income or employment taxes required to be withheld by the Company from the employees compensation with respect to the Shares so purchased.
(a) The Option Price upon exercise of any Option shall be payable to the Company in full either: (i) in cash or its equivalent, or (ii) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that any Shares so tendered which have been acquired from the Company shall have been held by the Participant for at least six (6) months prior to such tender), in proper form for transfer and accompanied by all requisite stock transfer tax stamps or cash in lieu thereof, or (iii) by a combination of (i) and (ii).
(b) The Committee also may allow cashless exercises as permitted under Federal Reserve Board Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plans purpose and applicable law.
(c) As soon as practicable after receipt of a written notice of exercise and full payment, the Company shall deliver to the Participant, in the Participants name, Share certificates in an appropriate amount based upon the number of Shares purchased.
6.7 Restrictions on Transferability. Except to the extent permitted under this Section 6.7, no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant. Notwithstanding the foregoing, the right to purchase Shares subject to an Option Award may be transferred, in whole or in part, by a Participant during a Participants lifetime, to a Participants spouse, child or grandchild, or to the trustee of a testamentary or other grantor trust established primarily for the benefit of a Participants spouse, child or grandchild; provided that:
(a) A transfer shall only be effective upon receipt by the Secretary of the Company, on behalf of the Committee, of written notice of transfer in such form as the Committee may require;
(b) A notice of transfer shall: (i) identify the name, address and relationship of the transferee to the Participant; (ii) identify the Option Award which is the subject of the transfer, the number of Shares transferred and the consideration paid, if any, for the transfer; (iii) in the case of a transfer to a trustee, include evidence satisfactory to the Committee that under the terms of the trust the transfer is for the exclusive benefit of a Participants spouse, child or grandchild; and (iv) include a copy of the authorized signature of each person who will have the right to exercise the option to purchase and all information relevant to the rights transferred; and
(c) A transferee may not transfer any rights. Upon the transferees death, all rights shall revert to the Participant.
The Committee may impose such additional restrictions on transferability as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment. Except as hereinafter provided, Options granted under the Plan may not be exercised by any person, including a transferee of any rights under an Option Award, unless the
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Participant is then in the employ of the Company and unless the Participant has remained continuously so employed since the date of grant of the Option. Subject to the duration set forth in Section 6.4, Options shall be exercisable as follows unless otherwise provided by the Committee:
(a) in the case of a Participants death, any outstanding Options which have not yet vested in accordance with the applicable Option Award Agreements shall immediately vest and be exercisable:
(i) if the Participants death occurs while employed by the Company, by the Beneficiary or representative during a period of three (3) years following the date of the Participants death; or
(ii) if the Participants death occurs after his Retirement, but before the third anniversary of his Retirement, by the Beneficiary or representative on or before the third anniversary of his Retirement;
(b) in the case of the Participants Disability, any outstanding Options which have not yet vested in accordance with the applicable Option Award Agreements shall immediately vest and be exercisable by the Participant or by the Participants appointed representative during a period of three (3) years following the date of the Participants last day worked;
(c) in the case of the Participants Retirement, any outstanding Options which have not yet vested shall continue to vest in accordance with the applicable Option Award Agreements and such vested Options shall be exercisable by the Participant during a period of three (3) years following the date of the Participants last day worked;
(d) in the case of a Participants involuntary termination of employment:
(i) if such termination is for reasons other than Cause, any outstanding Options which have not yet vested shall continue to vest in accordance with the applicable Option Award Agreements and such vested Options shall be exercisable by the Participant during a period of three (3) years following the date of the Participants last day worked; or
(ii) if such termination is for Cause, by the Participant on or before his last day worked whether or not the Committee has made its final determination that there is Cause for termination as of that last day worked; and
(e) in the case of a Participants voluntary termination of employment, his last day worked.
Article 7. Restricted Stock and Restricted Stock Units.
7.1 Restricted Stock Awards and Restricted Stock Unit Awards. Restricted Stock Awards may be made to any Director or Employee at any time while the Plan is in effect and Restricted Stock Unit Awards may be made to Directors at any time while the Plan is in effect. Restricted Stock Awards and Restricted Stock Unit Awards may be made whether or not prior such Awards have been made to said person.
7.2 Notice. The Committee shall promptly provide each Participant with written notice setting forth the number of Shares covered by the Restricted Stock Award or Restricted Stock Unit Award and such other terms and conditions relevant thereto, including the purchase price, if any, to be paid for the Shares by the recipient of a Restricted Stock Award, as may be considered appropriate by the Committee.
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7.3 Restrictions on Transfer of Restricted Stock. The purpose of these restrictions is to provide an incentive to each Participant to continue to provide services to the Company and to perform his or her assigned tasks and responsibilities in a manner consistent with the best interests of the Company and its shareholders. The Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions:
(a) Stock certificates evidencing shares shall be issued in the sole name of the Participant (but may be held by the Company until the restrictions shall have lapsed in accordance herewith) and shall bear a legend which, in part, shall provide that:
The shares of common stock evidenced by this certificate are subject to the terms and restrictions of the AK Steel Holding Corporation Stock Incentive Plan. These shares are subject to forfeiture or cancellation under the terms of said Plan. These shares may not be sold, transferred, assigned, pledged, encumbered or otherwise alienated or hypothecated except pursuant to the provisions of said Plan, a copy of which Plan is available from the Secretary of the Company upon request.
(b) No Restricted Stock may be sold, transferred, assigned, pledged, encumbered or otherwise alienated or hypothecated unless, until and then only to the extent that said restrictions shall have lapsed in accordance with Section 7.4.
7.4 Lapse of Restrictions. The restrictions set forth in Section 7.3 will lapse only if, on the date restrictions are to lapse in accordance with this Section 7.4, the Participant has been continuously employed by the Company or has been a Director from the time of the Restricted Stock Award to such date of lapse. If the lapse schedule would result in the lapse of restrictions in a fractional share interest, the number of shares will be rounded down to the next lowest number of full shares for each of the first two lapse dates, with the balance to relate to the final lapse date. Unless otherwise provided by the Board:
(a) with respect to a Restricted Stock Award to an Employee, the restrictions set forth in Section 7.3 shall lapse with respect to twenty-five percent (25%) of the Shares subject thereto on the second anniversary of the date of the Award; and with respect to an additional twenty-five percent (25%) of the Shares subject thereto on each of the third, fourth and fifth anniversaries of the date of the Award; and
(b) with respect to a Restricted Stock Award to a Director, the restrictions set forth in Section 7.3 shall lapse upon completion of the full tenure for which the Director was elected to serve on the Board.
7.5 Vesting and Forfeiture of Restricted Stock. Upon the lapse of the restrictions set forth in Section 7.3 with respect to Shares covered by a Restricted Stock Award, ownership of the Shares with respect to which the restrictions have lapsed shall vest in the holder of the Award. In the event of termination of an Employees employment, or in the event a Director fails to complete his or her full tenure on the Board, all Shares then still subject to the restrictions described in Section 7.3 shall be forfeited by the Participant and returned to the Company for cancellation, except as follows:
(a) Restrictions with respect to Shares covered by an outstanding Restricted Stock Award held by a Director shall lapse upon the date of his or her mandatory retirement from the Board by reason of age. In the case of an Employees Retirement, restrictions remaining in respect of a Restricted Stock Award held by that employee as of the date of Retirement shall continue to lapse and vest after Retirement as provided in the applicable Award Agreement; provided however, the Company may in its sole discretion reduce each outstanding Restricted Stock Award held by such employee with respect to which restrictions have not yet lapsed by the number of Shares sufficient in value to pay the employees share of any tax withholdings required in connection with such continued vesting after Retirement. Any outstanding restrictions shall lapse in case of death or Disability of the holder of a Restricted Stock Award. Evidence of Disability will be entitlement to disability income benefits under the Federal Social Security Act; and
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(b) The Committee may at any time in its sole discretion accelerate or waive all or any portion of restrictions remaining in respect of the Shares covered by an outstanding Restricted Stock Award (to the extent not waived pursuant to paragraph (a) above). This authority may be exercised for any or all Participants; provided that the waiver in any particular case shall not bind the Committee in any other similar case, it being the intention of the Company to grant the Committee the broadest possible discretion to act or to refuse to act in this regard. Any such action taken on behalf of a Director shall require the unanimous consent of all Directors (excluding the Director for whose benefit the action is taken) then in office.
7.6 Rights as Shareholder. Upon issuance of the stock certificates evidencing a Restricted Stock Award and subject to the restrictions set forth in Section 7.3 hereof, the Participant shall have all the rights of a shareholder of the Company with respect to the Shares of Restricted Stock represented by that Restricted Stock Award, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto.
7.7 Restricted Stock and Restricted Stock Unit Awards to Directors.
(a) Except as otherwise determined by majority vote of the Board with respect to any calendar year, fifty percent (50%) of each Directors annual retainer fee for services on the Board shall be paid in the form of Restricted Stock Awards or in the form of Restricted Stock Unit Awards, as determined by the Board. Each Director may elect before the beginning of such calendar year to have more than fifty percent (50%) of his or her annual retainer fee, and/or a portion of any other fees to be earned in such calendar year for services on the Board that otherwise would be payable in cash, paid to him or her by such means. Awards under this Section 7.7(a), and any other Awards to Directors under this Article 7, shall be made at intervals during the calendar year as the Company determines to be administratively feasible, but not less frequently than quarterly, according to procedures established by the Company and approved by the Board.
(b) Any Directors election under (a) above with respect to retainer fees earned in 2008 shall be deemed to apply to any Restricted Stock Unit Awards made in 2008. Prior to December 31, 2008, each Director may elect to convert all of his or her then outstanding Restricted Stock Awards to Restricted Stock Unit Awards according to procedures established by the Board.
(c) The terms of any Restricted Stock Unit Award granted under the Plan, including any Restricted Stock Awards converted into Restricted Stock Unit Awards under (b) above, shall be set forth in Restricted Stock Unit Award Agreements which shall contain provisions determined by the Board and not inconsistent with the Plan, including any vesting and forfeiture conditions, and the time and form of settlement of the applicable Restricted Stock Units. The terms of Restricted Stock Unit Award Agreements need not be the same with respect to each Director.
(d) The Board may at any time in its sole discretion accelerate or waive all or any portion of vesting restrictions remaining in respect of the Shares covered by an outstanding Restricted Stock Unit Award. This authority may be exercised for any or all Directors; provided that the acceleration or waiver in any particular case shall not bind the Board in any other similar case, it being the intention of the Company to grant the Board the broadest possible discretion to act or to refuse to act in this regard. Any such action shall require the unanimous consent of all Directors (excluding the Director for whose benefit the action is taken) then in office.
(e) The holder of a Restricted Stock Unit Award shall not have any rights of a shareholder of the Company with respect to such Award, including the right to vote the shares. Except as otherwise provided in a Restricted Stock Unit Award Agreement, prior to settlement or forfeiture, any Restricted Stock Unit shall carry with it a right to dividend equivalents under which the Participant shall be entitled to receive the value of all dividends and other distributions (with respect to actual Shares) in the form of additional Restricted Stock Units. Such additional Restricted Stock Units shall be subject to the same restrictions as the Restricted Stock Unit Award to which they relate.
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(f) Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, Restricted Stock Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated.
(g) Settlement of Restricted Stock Units shall be made in the form of Shares and distribution of such Shares shall occur or commence as provided in the applicable Restricted Stock Unit Award Agreement; provided however, such settlement and distribution may be deferred to a later date as elected by the Director in accordance with procedures established by the Company to ensure compliance with applicable law, including Section 409A of the Code.
Article 8. Performance Shares
8.1 Grant of Performance Shares. Subject to the terms and conditions of the Plan, Performance Shares may be granted to Employees at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Shares granted to each Participant and the terms and conditions thereof.
8.2 Value of Performance Shares. The Committee shall set performance goals over certain periods to be determined in advance by the Committee (Performance Periods). Prior to each grant of Performance Shares, the Committee shall establish an initial number of Shares for each Performance Share Award granted to each Participant for that Performance Period. Prior to each grant of Performance Shares, the Committee also shall set the performance goals that will be used to determine the extent to which the Participant may receive a payment of Shares with respect to the Performance Shares awarded for such Performance Period. These goals will be based on the attainment, by the Company or its subsidiaries or affiliates, of one or more certain performance criteria and objectives described in Section 8.8 herein. With respect to each such performance measure utilized during a Performance Period, the Committee shall assign percentages to various levels of performance which shall be applied to determine the extent to which the Participant may receive a payout of the number of Shares for the Performance Shares awarded for such Performance Period.
8.3 Payment of Shares. After a Performance Period has ended, the holder of a Performance Share shall be entitled to payment of the applicable number of Shares with respect thereto as determined by the Committee. The Committee shall make this determination by first determining the extent to which the performance goals set pursuant to Section 8.2 have been met. It will then determine the applicable percentage to be applied to, and will apply such percentage to the number of Performance Shares to determine the payout to be received by the Participant. In addition, with respect to Performance Shares granted to any Covered Employee, no payout shall be made hereunder except upon written certification by the Committee that the applicable performance goal or goals have been satisfied to a particular extent.
8.4 Committee Discretion to Adjust Awards. Subject to limitations applicable to payments to Covered Employees, the Committee shall have the authority to modify, amend or adjust the terms and conditions of any Performance Share Award Agreement, at any time or from time to time, including but not limited to the performance goals.
8.5 Form and Timing of Payment. The payment described in Section 8.3 herein shall be made in the applicable number of Shares as soon as administratively feasible after the end of the Performance Period to which such payment relates but no later than March 15 immediately following the end of such Performance Period. All such Shares shall be issued on the same date unless otherwise prescribed by the Committee. Unless the Committee provides otherwise, the value of any dividends with respect to such issued Shares that the Participant would have been entitled to during the applicable Performance Period had he held such Shares during such Performance Period shall also be paid to the Participant in whole Shares on said date.
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8.6 Termination of Employment.
(a) Unless the Committee provides otherwise, in the event the employment of a Participant is terminated by reason of death, Disability, or Retirement, each Performance Share Award held by the Participant shall be deemed earned on a prorated basis, and a prorated payment based on the Participants number of full months of service during the Performance Period, further adjusted based on the achievement of the performance goals during the entire Performance Period, as computed by the Committee, shall be made at the time payments are made to Participants who did not terminate service during the Performance Period.
(b) If the employment of a Participant shall terminate for any reason other than death, Disability or Retirement, all Performance Shares shall be forfeited and no payment shall be made with respect thereto; provided however, the Committee may in its sole discretion waive such forfeiture and provide for a payment to the Participant with respect to outstanding Performance Shares, determined in such manner and payable at such time as the Committee deems appropriate under the circumstances. This authority of the Committee may be exercised for any or all Participants; provided that its action in any particular case shall not bind the Committee in any other case, it being the intention of the Company to grant the Committee the broadest possible discretion to act or refuse to act in this regard.
8.7 Nontransferability. No Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Shares granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
8.8 Performance Goals.
(a) For purposes of this Plan, including but not limited to Awards of Performance Shares under this Article 8, performance goals shall mean the criteria and objectives, determined by the Committee, which shall be satisfied or met during the applicable Performance Period as a condition to the Participants receipt of Shares with respect to such Award. The criteria or objectives for an Award shall be determined by the Committee in writing, shall be measured for achievement or satisfaction during the Performance Period in which the Committee established for such Participant to satisfy or achieve such criteria and objectives and may be absolute in their terms or measured against or in relationship to an index or other companies comparably, similarly or otherwise situated or other external or internal measure and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee, provided that such criteria and objectives relate to one or more of the following: total shareholder return; earnings; earnings per share; net income; revenues; operating profit; income before taxes, depreciation and/or amortization; cash flow; expenses; market share; return on assets; return on capital employed; return on equity; assets; value of assets; Fair Market Value of Shares; regulatory compliance; safety standards; quality standards; cost reduction objectives; satisfactory internal or external audits; improvement of financial ratings; achievement of balance sheet or income statement objectives; profit per ton shipped; or other financial, accounting or quantitative objectives established by the Committee.
(b) Performance criteria and objectives may include or exclude extraordinary or unusual charges or credits; pension or other employee benefit plan corridor charges or credits; losses from discontinued operations; restatements and accounting changes and other unplanned special charges such as restructuring expenses; acquisitions; acquisition expenses, including expenses related to impairment of goodwill or other intangible assets; stock offerings; stock repurchases and loan loss provisions. Such performance criteria and objectives may be particular to a line of business, subsidiary or affiliate or the Company generally, and may, but need not be, based upon a change or an increase or positive result.
(c) In interpreting Plan provisions applicable to performance criteria and objectives and to Performance Share Awards to Participants who are Covered Employees, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and the regulations thereunder. The Committee in establishing
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performance criteria and objectives applicable to such Awards, and in interpreting the Plan, shall be guided by such standards, including, but not limited to providing that the Award shall be paid solely as a function of attainment of objective performance criteria and objectives based on one or more of the specific criteria and objectives set forth in this Section 8.8 established by the Committee not later than 90 days after the Performance Period applicable to the Performance Share Award has commenced (or, if such period of service is less than one year, not later than the date on which 25% of such period has elapsed). Prior to the payment of any compensation based on achievement of performance criteria and objectives to any such Covered Employee, the Committee must certify in writing the extent to which the applicable performance criteria and objectives were, in fact, achieved and the amounts to be paid, vested or delivered as a result thereof, provided the Committee may reduce, but not increase, such amount.
Article 9. Rights of Employees.
9.1 Employment. Nothing in the Plan shall: (a) interfere with or limit in any way the right of the Company to terminate any Participants employment at any time; (b) confer upon any Participant any right to continue in the employ of the Company or its subsidiaries; or (c) be evidence of any agreement or understanding, express or implied, that the Company will employ any Participant in any particular position at a particular rate of compensation or for any particular period of time.
9.2 Participation. Nothing in this Plan shall be construed to give any person any right to be granted any Award other than at the sole discretion of the Committee or as giving any person any rights whatsoever with respect to Shares except as specifically provided in the Plan. No Participant shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
Article 10. Change of Control.
Upon the occurrence of a Change of Control, unless otherwise specifically prohibited by the terms of this Article 10:
(a) any and all outstanding Options previously granted hereunder, if not then exercisable, shall become immediately exercisable, any restrictions on the transfer of Shares of Restricted Stock shall lapse and expire effective as of the date of the Change of Control; and the settlement date with respect to any outstanding Restricted Stock Units shall be the effective date of the Section 409A Change of Control (as defined in the Restricted Stock Unit Award Agreement);
(b) subject to Article 11 herein, the Committee shall have the authority to make any modifications to any Option Award, Performance Share Award, Restricted Stock Award, and Restricted Stock Unit Award determined by the Committee to be appropriate before the effective date of the Change of Control;
(c) except as otherwise provided in the Performance Share Award Agreement, any unearned Performance Share Award shall be deemed earned at the target amount assigned to each such Award, and a prorated payment based on the number of full months of the Performance Period with respect to each such Award that have elapsed as of the effective date of the Change of Control shall be made as soon as administratively feasible following the effective date of the Change of Control; and
(d) if the Shares are no longer traded over a national public securities exchange following a Change of Control:
(i) Participants holding Options shall have the right to require the Company to make a cash payment to them in exchange for their Options. Such cash payment shall be contingent upon the Participants surrendering the Option. The amount of the cash payment shall be determined by adding the total positive spread on all outstanding Options. For this purpose, the total spread shall equal the difference between: (1) the higher of (i) the highest price per Share paid or offered in any
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transaction related to a Change of Control of the Company; or (ii) the highest Fair Market Value per Share at any time during the ninety (90) calendar day period preceding a Change of Control; and (2) the Option Price applicable to each Share held under Option; and
(ii) Participants holding Shares of Restricted Stock, Restricted Stock Units and/or Shares received pursuant to (c) above with respect to Performance Share Awards shall have the right to require the Company to make a cash payment to them in exchange for such Shares or Restricted Stock Units. Such cash payment shall be contingent upon the Participants surrendering the Shares or Restricted Stock Units. The amount of the cash payment shall be not less than the higher of (1) the highest price per Share paid or offered in any transaction related to a Change of Control of the Company; or (2) the highest Fair Market Value per Share at any time during the ninety (90) calendar day period preceding a Change of Control.
Article 11. Amendment, Modification, and Termination.
11.1 Amendment, Modification, and Termination. The Board may at any time and from time to
time, alter, amend, suspend or terminate this Plan in whole or in part; provided, that no amendment that (a) requires shareholder approval in order for this Plan to continue to comply with Rule 16b-3 under the Exchange Act, including any
successor to such Rule, or (b) would modify the provisions of Section 3.1, or the first paragraph of Section 4.1 or the second sentence of
Section 6.3 of this Plan, shall be effective unless such amendment shall be approved by the requisite vote of shareholders of the Company entitled to vote thereon.
11.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan without the written consent of the Participant holding such Award. If consent is not given, the Award shall continue in force in accordance with its terms without modification.
Article 12. Withholding.
12.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, (including the Participants FICA obligation, if any) required by law to be withheld with respect to any taxable event arising or as a result of this Plan. Failure to cooperate with the Company in paying any such withholding shall cause the cancellation of the Shares subject to the taxable transaction without liability for such cancellation.
12.2 Share Withholding. With respect to withholding required upon the exercise of Options, the vesting of Shares under a Restricted Stock Award, or receipt of Shares pursuant to a Performance Share Award, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All elections shall be irrevocable, made in writing, signed by the Participant. In addition to the foregoing requirements, an Insider may elect Share withholding only if such election is made in compliance with Section 16 of the Exchange Act.
Article 13. Indemnification. The Company shall indemnify and hold harmless each member of the Committee, or of the Board, against and from any loss, cost, liability or expense, including reasonable attorneys fees and costs of suit, that may be imposed upon or reasonably incurred by the member in connection with or resulting from any claim, action, suit, or proceeding to which the member may be a party defendant or in which the member may be involved as a defendant by reason of any action taken or any failure to act under the Plan and against and from any and all amounts paid in settlement thereof or paid in satisfaction of any judgment in any such action, suit, or proceeding against the member, provided that the member shall give the Company an opportunity, at its own expense, to handle and defend the same before the member undertakes to handle and defend it or agrees to any settlement of the claim. The foregoing right of indemnification shall be in addition to,
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and not exclusive of, any other rights of indemnification to which the member may be entitled under the Companys Articles of Incorporation or By-Laws, as a matter of law, or otherwise. This right shall not extend to any action by a Director as a claimant of rights under the Plan, whether on the Directors behalf or on behalf of a class of persons which would include the Director, unless filed in the form of a declaratory judgment seeking relief for the Company or the Plan.
Article 14. Successors. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 15. Listing of Shares and Related Matters. If at any time the Committee shall determine that the listing, registration or qualification of the Shares subject to any Award on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory authority, is necessary or desirable as a condition of, or in connection with, the granting of an Option or the issuance of Shares thereunder, the granting of a Restricted Stock Award, the granting of Shares pursuant to a Restricted Stock Unit Award or the granting of Shares pursuant to a Performance Share Award, no Option that is the subject of such Award may be exercised in whole or in part and no certificates may be issued or reissued in respect of any Restricted Stock, Restricted Stock Unit or Performance Share Award that is the subject of such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
Article 16. Legal Construction.
16.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
16.2 Severability. If any provision of the Plan shall be held by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid or unenforceable provision had not been included. Unless otherwise specifically provided in a final order by a court of competent jurisdiction, no such judicial determination shall deprive a Participant of the economic advantage, if any, of unexpired Options under any Option Award Agreement, of Shares of Restricted Stock then subject to restrictions under the terms of the Plan or the Restricted Stock Award Agreement, of any Restricted Stock Unit Awards, or of any Performance Share Awards. If any such judicial determination does or would have an adverse impact then the Company shall assure the Participant of the right to receive cash in an amount equal to the value of any Award under the Plan prior to the determination of its invalidity in the same manner as if such Award was lawful and the benefit granted thereunder could be enjoyed in accordance with the terms of the Award.
16.3 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
16.4 Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule l6b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. The obligations of the Company to issue or transfer Restricted Stock awarded pursuant to the Plan, Shares pursuant to a Restricted Stock Unit Award, Shares upon exercise of an Option, or Shares pursuant to a Performance Share Award, shall be subject to: compliance with all applicable governmental rules and regulations, and administrative action; the effectiveness of a registration statement under the Securities Act of 1933, as amended, if deemed necessary or appropriate by the Company; and the condition that listing requirements (or authority for listing upon official notice of issuance) for each stock exchange on which outstanding shares of the same class may then be listed shall have been satisfied.
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16.5 Governing Law. To the extent not preempted by Federal law, the Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Delaware.
AK STEEL HOLDING CORPORATION | ||
AK STEEL CORPORATION | ||
By: |
/s/ David C. Horn | |
David C. Horn, Executive Vice President, | ||
General Counsel and Secretary |
Adopted 1995
Amended November 21, 1996
Amended and Restated March 19, 1998
Amended and Restated January 16, 2003
Amended and Restated January 20, 2005
Amended December 7, 2006
Amended October 18, 2007
Amended and Restated October 16, 2008
Amended and Restated March 18, 2010
Amended and Restated March 20, 2014
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¨ Mark this box with an X if you have made
changes to your name or address details above.
Annual Meeting Proxy Card
A. | Proposal 1 Election of Directors. |
The Board of Directors recommends a vote FOR the listed nominees.
For | Against | Abstain | For | Against | Abstain | |||||||||
01 Richard A. Abdoo |
¨ | ¨ | ¨ | 07 Robert H. Jenkins | ¨ | ¨ | ¨ | |||||||
02 John S. Brinzo |
¨ | ¨ | ¨ | 08 Ralph S. Michael, III | ¨ | ¨ | ¨ | |||||||
03 Dennis C. Cuneo |
¨ | ¨ | ¨ | 09 Dr. James A. Thomson | ¨ | ¨ | ¨ | |||||||
04 Sheri H. Edison |
¨ | ¨ | ¨ | 10 James L. Wainscott | ¨ | ¨ | ¨ | |||||||
05 Mark G. Essig |
¨ | ¨ | ¨ | 11 Vicente Wright | ¨ | ¨ | ¨ | |||||||
06 William K. Gerber |
¨ | ¨ | ¨ |
B. | Proposal 2 Advisory vote to ratify the appointment of independent registered public accounting firm. |
The Board of Directors recommends a vote FOR the ratification of the Audit Committees appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for 2015.
¨ For ¨ Against ¨ Abstain
C. | Proposal 3 Advisory vote to approve Named Executive Officer compensation. |
The Board of Directors recommends a vote FOR the resolution to approve the compensation of the Named Executive Officers.
¨ For ¨ Against ¨ Abstain
D. | Proposal 4 Re-Approval of the material terms of the performance goals under the Companys Long-Term Performance Plan. |
The Board of Directors recommends a vote FOR the resolution to re-approve the material terms of the performance goals under the Companys Long-Term Performance Plan.
¨ For ¨ Against ¨ Abstain
E. | Proposal 5 Re-Approval of the material terms of the performance goals under the Companys Stock Incentive Plan. |
The Board of Directors recommends a vote FOR the resolution to re-approve of the material terms of the performance goals under the Companys Stock Incentive Plan.
¨ For ¨ Against ¨ Abstain
F. | Authorized Signatures Sign Here This section must be completed for your instructions to be executed. |
NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy. All joint holders must sign. When signing as attorney, trustee, executor, administrator, guardian or corporate officer, please provide your FULL title.
Signature 1 Please keep signature within the box |
Signature 2 Please keep signature within the box |
Date (mm/dd/yyyy) | ||||||||||
Title: |
Title: |
Proxy AK Steel Holding Corporation
Annual Meeting of Stockholders
Proxy Solicited on behalf of the Board of Directors of the Company for the Annual Meeting to be held on May 28, 2015
The undersigned stockholder of AK Steel Holding Corporation (the Company) hereby appoints James L. Wainscott, David C. Horn and Roger K. Newport and each of them, as attorneys-in-fact and proxies, each with full power of substitution, to represent the undersigned at the Annual Meeting of Stockholders of the Company to be held on May 28, 2015, and at any adjournment thereof, with authority to vote at such meeting all shares of Common Stock of the Company owned by the undersigned on March 30, 2015, in accordance with the directions indicated herein:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION AS A DIRECTOR OF EACH OF THE ELEVEN NOMINEES NAMED ON THE REVERSE SIDE, FOR THE RATIFICATION OF THE AUDIT COMMITTEES APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2015, FOR THE RESOLUTION TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS, FOR THE RESOLUTION TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE COMPANYS LONG-TERM PERFORMANCE PLAN, AND FOR THE RESOLUTION TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE COMPANYS STOCK INCENTIVE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE ELEVEN NOMINEES NAMED FOR ELECTION AS A DIRECTOR.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE AUDIT COMMITTEES APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2015.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RESOLUTION TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RESOLUTION TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE COMPANYS LONG-TERM PERFORMANCE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RESOLUTION TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE COMPANYS STOCK INCENTIVE PLAN.
Please sign, date and return this proxy card promptly using the enclosed envelope.
(Continued and to be voted on reverse side.)