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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
RYERSON TULL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
RYERSON TULL, INC.
Robert J. Darnall
Chairman
Neil S. Novich
President and Chief Executive Officer
April 17, 1998
Dear Stockholder:
It is our pleasure to invite you to Ryerson Tull, Inc.'s second Annual
Meeting as a public company. The meeting will begin at 2:00 p.m., Chicago
time, on Wednesday, May 27, 1998, at the First Chicago Center, One First
National Plaza, Chicago, Illinois. We hope you will join us.
At the meeting we will discuss the Company's strategic initiatives and
financial results. In addition, you will have an opportunity to ask questions.
The attached notice and proxy statement provide a more detailed description of
the meeting's agenda.
We look forward to seeing you on May 27. If you do not expect to attend the
meeting, please take a moment now to complete and return the enclosed proxy
card in the envelope provided. Whether in person or by proxy, your
participation in the annual meeting is important to us.
Cordially,
Robert J. Darnall Neil S. Novich
Chairman President and Chief
Executive Officer
2621 West 15th Place, Chicago, Illinois 60608
RYERSON TULL, INC.
2621 WEST 15TH PLACE
CHICAGO, ILLINOIS 60608
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1998
To Stockholders:
Ryerson Tull, Inc. will hold its 1998 Annual Meeting of Stockholders on
Wednesday, May 27, 1998, at 2:00 p.m., Chicago time at the First Chicago
Center, One First National Plaza, Chicago, Illinois, for the purpose of:
1. electing three directors of the Company to hold office for a three-year
term;
2. electing an independent public accounting firm to audit the accounts of
the Company and its subsidiaries for 1998; and
3. transacting any other business that may properly come before the
meeting.
Only stockholders of record at the close of business on April 1, 1998 are
entitled to notice of and to vote at the Annual Meeting. Stockholders may vote
in person by attending the Annual Meeting or by proxy, which allows
stockholders to direct someone else to vote their shares.
Accompanying this Notice is a Proxy Statement for the Annual Meeting. The
Company's Annual Report for the fiscal year ended December 31, 1997 was
previously mailed. Additional copies are available upon written request to the
Ryerson Tull investor relations department.
By order of the Board of Directors,
CHARLES B. SALOWITZ
Corporate Secretary
April 17, 1998
Chicago, Illinois
We cordially invite stockholders to attend this meeting. Each stockholder,
whether or not he or she expects to be present at the Annual Meeting, is
requested to SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD in the
accompanying envelope as promptly as possible.
RYERSON TULL, INC.
2621 WEST 15TH PLACE
CHICAGO, ILLINOIS 60608
PROXY STATEMENT
The Board of Directors (the "Board") of Ryerson Tull, Inc. (the "Company")
solicits the enclosed proxy for the 1998 Annual Meeting to be held on May 27,
1998.
Beginning on or about April 17, 1998, the Company will begin to solicit
proxies by mail. The Company may also solicit proxies through its directors,
officers and regular employees. The Company will pay all costs associated with
this proxy solicitation, including a fee of $3,000 plus out-of-pocket expenses
for Kissel-Blake Inc. for its assistance. The Company will also reimburse
brokers, banks and similar organizations for reasonable charges and expenses
they incur in obtaining instructions from the beneficial owners of Company
common stock.
The Company first became publicly held on June 26, 1996 with the issuance of
5,220,000 shares of its Class A Common Stock, par value $1.00 per share (the
"Class A common stock" or "common stock") in a public offering (the
"Offering"). Prior to that time, the Company was a wholly owned subsidiary of
Inland Steel Industries, Inc. ("Inland"). Inland owns all of the Company's
Class B common stock, which allows Inland to ensure adoption or rejection of
all matters to be voted upon at the Annual Meeting.
Shares represented by an effective proxy will be voted as directed by the
shareholder. The voting securities of the Company outstanding on the record
date April 1, 1998, together with the vote to which each is entitled, consist
of 5,285,348 shares of the Company's Class A common stock (one vote per
share), and 34,000,000 shares of its Class B common stock (four votes per
share). For all matters expected to be voted upon at the Annual Meeting, the
Company's voting shares vote together without regard to class. A stockholder
submitting a proxy may revoke it at any time prior to the vote at the Annual
Meeting.
After the stockholders have voted their shares in person or by proxy, all
such documents are delivered to the tabulator for counting. These documents
are also available to the inspectors of election to enable them to certify the
results of the vote. Harris Trust and Savings Bank acts as the tabulator, and
one or more officers or employees of Harris Bank will serve as inspectors of
election.
It is the Company's policy to keep proxies, consents, ballots and voting
materials that identify the vote of specific stockholders confidential.
Exceptions to this policy include contested
proxies, consent solicitation and situations where the law requires otherwise.
Comments written on or accompanying proxy cards will be provided to the
Company without indication of the vote of the stockholder, except where the
vote is included in the comment or is necessary to understand the comment.
ELECTION OF DIRECTORS
When any shares of the Company's Class A common stock are outstanding, the
Company's Certificate of Incorporation requires that at least one-third of the
Board members be "Independent Directors," except under specific limited
circumstances. An "Independent Director" is someone who is not, and within the
previous 12 months has not been: (a) an officer or employee of the Company;
(b) an officer, director or employee of Inland or any other subsidiary or
affiliate of Inland; or (c) an owner of more than five percent of the
outstanding common stock of Inland or of any other subsidiary or affiliate of
Inland. The Restated Certificate of Incorporation also requires that the Board
of Directors have three classes, with the Independent Directors allocated as
evenly as possible among the classes. The Independent Directors are Richard G.
Cline, Jerry K. Pearlman and Ronald L. Thompson.
The Board of Directors has nominated Mr. Richard G. Cline, Mr. James A.
Henderson and Mr. Neil S. Novich for election as directors at the 1998 Annual
Meeting of Stockholders. Each of the nominees is currently a director of the
Company. No other candidates are eligible for election at the 1998 Annual
Meeting.
Directors shall be elected by a plurality of the shares entitled to vote and
voted, either in person or by proxy, at the Annual Meeting. Therefore, the
outcome of the election will not be affected by stockholders who abstain from
voting or withhold authority to vote in the election, or by broker non-votes.
Proxies not limited to the contrary will be voted for Messrs. Cline,
Henderson and Novich as directors of the Company for terms expiring at the
2001 Annual Meeting upon the election and qualification of their successors.
If any nominee should become unavailable for election, an event that is not
anticipated, proxies may be voted for such other person or persons as the
Board of Directors may designate. Alternatively, the Board may reduce its
membership.
The Board of Directors held six meetings during 1997. All incumbent
directors attended at least 75% of the combined total number of meetings of
the Board and committees on which they served.
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INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
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Richard G. Cline Director since 1996
Mr. Cline, age 63, has been Chairman of Hussman International,
Inc., a manufacturer and service provider of merchandising and
refrigeration systems for the commercial food industry, since
January 1998. He is also Chairman of Hawthorne Investors, Inc., a
private management advisory services and investment firm, which
he founded in 1996. He served as Chairman of the Board of NICOR,
Inc., a diversified holding company with subsidiaries engaged in
natural gas distribution and containerized liner shipping from
1986 through December 1995, as its Chief Executive Officer from
1986 to 1995, and as its President and Chief Operating Officer
from 1985 to 1988 and from 1990 to 1994. For the previous 22
years, he was an executive of Jewel Companies, Inc., becoming
Chairman, President and Chief Executive Officer in 1984. He is
LOGO Chairman of the Company's Audit Committee and a member of its
Executive Committee. Mr. Cline also is a director of Kmart
Corporation and Whitman Corporation and a trustee of the
Benchmark Funds, a registered investment company managed by The
Northern Trust Company and The Northern Trust Qualitative
Investment Advisors, Inc., and is a past chairman of the Federal
Reserve Bank of Chicago.
James A. Henderson Director since 1996
Mr. Henderson, age 63, is Chairman and Chief Executive Officer of
Cummins Engine Company, Inc., a manufacturer of diesel engines.
Mr. Henderson joined Cummins in 1964, was elected Executive Vice
President in 1971, Executive Vice President and Chief Operating
Officer in 1975, President and Chief Operating Officer in 1977,
and President and Chief Executive Officer in 1994, and assumed
his present position in 1995. He is a member of the Company's
Audit Committee. Mr. Henderson is also a director of Cummins
Engine Company, Inc., Ameritech Corporation, Inland, Inland Steel
Company and Rohm and Haas Company.
LOGO
Neil S. Novich Director since 1994
Neil S. Novich, age 43, has been President, Chief Executive
Officer and Chief Operating Officer of the Company, President of
Joseph T. Ryerson & Son, Inc. ("Ryerson") and Chairman of J. M.
Tull Metals Company, Inc., subsidiaries of the Company, since
June 1994. Mr. Novich was also appointed a Director of the
Company in June 1994. He served as Chairman of Ryerson from June
1994 to April 1995 and since June 1996. He was a Senior Vice
President of Inland from January 1995 to May 1996 and a Vice
President of Inland from June 1994 to January 1995. Prior to
joining Inland in 1994, Mr. Novich led the Distribution and
Logistics Practice at Bain & Company, an international management
consulting firm. He is a member of the Company's Executive
Committee.
LOGO
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INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE
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Robert J. Darnall Director since 1986
Mr. Darnall, age 60, has been Chairman of the Company since April
1995, a position he also held from November 1990 to June 1994. He
has been Chairman and Chief Executive Officer of Inland since
1992 and its President, Chief Operating Officer and a Director
since 1986. He is also Chairman and Chief Executive Officer of
Inland Steel Company, which he joined in 1962, and has served as
Chairman since 1992, as a Director since 1983, as Chief Executive
Officer from 1992 to 1995 and since April 1996, and as President
for various periods ending most recently in May 1996. He is
Chairman of the Company's Executive Committee. Mr. Darnall is
also a director of Cummins Engine Company, Inc., Household
International, Inc., Inland, Inland Steel Company and the Federal
Reserve Bank of Chicago.
LOGO
Jerry K. Pearlman Director since 1996
Mr. Pearlman, age 59, was Chairman of Zenith Electronics
Corporation, a manufacturer of consumer electronics and cable
television products, prior to his retirement in November 1995. He
was also Chief Executive Officer from 1983 through April 1995. He
is Chairman of the Company's Compensation Committee and a member
of its Executive and Nominating and Governance Committees. Mr.
Pearlman is also a director of Stone Container Corporation.
LOGO
Donald S. Perkins Director since 1996
Mr. Perkins, age 71, was Chairman of Jewel Companies, Inc., a
diversified retailer, prior to his retirement in 1980. He is
Chairman of the Company's Nominating and Governance Committee and
a member of its Compensation and Executive Committees. Mr.
Perkins is also a director of Aon Corporation, Cummins Engine
Company, Inc., LaSalle Street Fund Incorporated, Lucent
Technologies, Inc., the Putnam Funds, Springs Industries, Inc.,
and Time Warner Inc.
LOGO
Jean-Pierre Rosso Director since 1996
Mr. Rosso, age 57, is Chairman, President and Chief Executive
Officer of Case Corporation, a worldwide designer, manufacturer
and distributor of farm and construction machinery, and was
President and Chief Executive Officer of that company from April
1994 to March 1996. Prior to joining Case, Mr. Rosso was
President of the Home and Building Control Division of Honeywell
Inc., a producer of advanced technology products, from 1991 to
1994 and President of Honeywell Europe from 1987 to 1991. He is a
member of the Company's Compensation and Nominating and
Governance Committees. Mr. Rosso also is a director of ADC
Telecommunications Inc., Case Corporation, Crown Cork & Seal
Company, Inc., Inland, and Inland Steel Company.
LOGO
4
INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE (CONTINUED)
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Ronald L. Thompson Director since 1996
Mr. Thompson, age 48, is the Chairman of the Board, Chief
Executive Officer and President of Midwest Stamping Co., a metal-
stamping and assembly firm serving principally the automotive
original equipment industry. Prior to joining Midwest Stamping,
he was Chairman of the Board and President of The GR Group, Inc.,
a diversified holding company with interests in manufacturing and
service activities, from 1980 to 1993. He is a member of the
Company's Audit Committee. Mr. Thompson also is a director of the
Illinois Power Company, Illinova Corporation and the Teachers
Insurance and Annuity Association.
LOGO
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has three standing committees: the Audit Committee, the
Compensation Committee and the Nominating and Governance Committee. These
committees are composed solely of the directors identified above under
"Election Of Directors."
The Audit Committee performs a number of functions related to external and
internal audits. It nominates the independent auditors for stockholder
approval at the annual meeting and reviews the proposed scope and the results
of the annual audit, including the recommendations of the independent
auditors. The Audit Committee reviews the minutes of the independent auditors'
quarterly audit review and approves the compensation of the independent
auditors. All non-audit services performed by the independent auditors must
receive prior approval from the Audit Committee. The Audit Committee also
reviews the Company's system of internal accounting and operating controls,
including environmental, health, safety and security matters, the performance
of its internal auditors, the proposed scope of annual and five-year internal
audit programs, the reports and recommendations of the internal auditors, and
the financial review section of the Company's annual report to stockholders
and annual report on Form 10-K. The Audit Committee also monitors Company
compliance with policies relating to conflicts of interest, sensitive payments
and similar matters and reviews registration statements prepared in connection
with financings by the Company or its subsidiaries and the duties of the
Independent Directors. The Audit Committee held four meetings in 1997.
The Compensation Committee reviews management recommendations regarding the
Company-wide compensation plan, makes recommendations to the Board on the
salaries and promotions of the Company's senior officers and key employees,
administers the Ryerson Tull 1996 Incentive Stock Plan and makes
recommendations to the Board to establish or modify executive compensation
plans and programs. The Compensation Committee held three meetings in 1997.
5
The Nominating and Governance Committee recommends candidates for election
to the Board by stockholders at the Annual Meeting and for appointment to fill
Board positions vacated mid-year. The Nominating and Governance Committee is
responsible for recommending to the Board a process for evaluating Board
performance and overseeing the evaluation process. It recommends the
establishment or modification of director compensation, and administers the
Directors' Compensation Plan. It also recommends policies and procedures for
corporate governance and assures compliance with the policies and procedures
adopted. The Nominating and Governance Committee held three meetings in 1997.
The Nominating and Governance Committee will consider qualified candidates
recommended by the stockholders for designation as nominees for election at
the Annual Meeting of Stockholders to be held in 1999 and subsequent years. In
order for a candidate recommended by a stockholder to be considered by the
Nominating and Governance Committee for designation as a nominee for election
at the 1999 Annual Meeting of Stockholders, the name of the candidate and a
written description of his or her qualifications must be received by the
Corporate Secretary of the Company prior to January 1, 1999. The Company's By-
laws provide a formal procedure, including an advance notice requirement, for
nominations by stockholders of persons for election as directors at annual
meetings of the Company.
COMPENSATION OF DIRECTORS
Pursuant to the terms of the Directors' Compensation Plan, each director who
is not an employee of the Company or any of its affiliates ("Non-employee
Directors") will receive an annual retainer of $40,000. Normally, the Company
will pay half of the retainer in shares of its Class A common stock and half
in cash. However, directors may elect to receive all or any part of the cash
portion of their retainer in shares of Class A common stock.
The Company pays the cash portion of the retainer quarterly for service
during the quarter. If a Non-employee Director serves for a fraction of a
quarter, the cash portion for that quarter is prorated in whole months. The
Company pays the stock portion of the retainer as restricted stock issued at
the beginning of the director's term. Over the director's term, the restricted
stock vests in quarterly increments. Directors are also entitled to any
dividends which accrue on the restricted stock. In addition, directors receive
$1,000 for attending Independent Directors' meetings, a special Board meeting,
and a special committee meeting not held in conjunction with a regular or
special Board meeting. The Company does not pay fees to directors for
attending other committee meetings. A Non-employee Director who serves as
chairman of a standing committee of the Board will receive an additional
annual retainer of $4,000.
Pursuant to the terms of the Directors' Compensation Plan, directors may
elect to defer payment of all or any portion of the retainers and fees which
will become due over the course of the year. Directors must make this election
prior to January 1 of each year. However, if a director is appointed or
elected during a calendar year, that director may make a deferral election
within 30 days after becoming a director. The Company will distribute deferred
amounts in a lump sum or in installments of cash or shares of Class A common
stock, at the election of the director at the time of the deferral. Interest
on cash deferrals will be credited at the prime rate
6
in effect from time to time at The First National Bank of Chicago (or its
successor). Stock deferrals will be credited with dividends paid on shares of
Class A common stock from time to time. The Company has reserved a total of
100,000 shares of Class A common stock for issuance under the Directors'
Compensation Plan, subject to adjustment for certain corporate transactions
affecting the number or type of outstanding shares.
The Company also pays the premiums on a business accident insurance policy
insuring each Non-employee Director for up to $500,000.
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table presents, as of April 1, 1998, the equity securities of
the Company and of Inland beneficially owned by all directors of the Company,
the other named executive officers of the Company and the directors and
executive officers of the Company as a group. Except as indicated otherwise,
the beneficial owners have sole voting and investment power for these voting
securities. Company Class A common stock and Inland common stock each include
purchase preferred stock rights. The shares of Inland Series E ESOP
Convertible Preferred Stock shown as beneficially owned by the executive
officers are held for their respective accounts in the Ryerson Tull Savings
Plan and, under such Plan, can be converted, at the executive officer's
retirement or other termination of employment, into an equal number of shares
of Inland common stock (subject to adjustment in certain events). Excluded
from the shares of Inland Series E ESOP Preferred Stock listed as beneficially
owned are unallocated shares of Inland Series E ESOP Preferred Stock that the
ESOP Trustee is required to vote or dispose of in the manner and proportion in
which allocated shares are directed to be voted or disposed of.
COMPANY CLASS A
COMMON INLAND INLAND SERIES E ESOP
STOCK(/1/) COMMON STOCK(/2/) PREFERRED STOCK(/3/)
--------------- ----------------- --------------------
Directors
Richard G. Cline....... 5,359(/4/) -- --
Robert J. Darnall...... 11,754 327,815 2,388
James A. Henderson..... 3,463(/4/) 2,965 --
Neil S. Novich......... 128,627 131 582
Jerry K. Pearlman...... 8,981(/4/) -- --
Donald S. Perkins...... 8,463(/4/) 4,046 --
Jean-Pierre Rosso...... 5,901(/4/) 1,480 --
Ronald L. Thompson..... 6,702(/4/) -- --
Named Executive Officers
Jay M. Gratz........... 3,061 53,720 1,582
Carl G. Lusted......... 75,631 672 1,681
Stephen E. Makarewicz.. 54,331 2,097 770
Gary L. Niederpruem.... 58,152 2,041 1,414
All Directors and
Executive Officers as a
Group.................. 511,355(/4/) 465,745 16,573
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(1) Messrs. Novich, Lusted, Makarewicz and Niederpruem individually own 2.4%,
1.4%, 1.0%, and 1.1%, respectively, of the Company' common stock
(including restricted stock and
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options exercisable within 60 days of April 1, 1998). No other director or
named executive officer individually owns 1% or more of such outstanding
common stock. All directors and executive officers as a group own 9.7% of
the outstanding common stock of the Company. Includes shares which the
following have the right to acquire under options exercisable within 60
days after April 1, 1998: Mr. Novich--112,556, Mr. Lusted--68,974, Mr.
Makarewicz--49,181, Mr. Niederpruem--53,094, and all directors and
executive officers as a group--399,225; and shares held under restricted
awards as follows: Mr. Darnall--3,654, Mr. Novich--8,654, Mr. Gratz--1,461,
Mr. Lusted--3,505, Mr. Makarewicz--2,961, Mr. Niederpruem--2,961, and all
directors and executive officers as a group--32,859. Also includes 1,400
shares held directly or indirectly by family members of an executive
officer, for which beneficial ownership is disclaimed. Excludes shares of
Company Class B common stock owned by Inland. (See "Additional Information
Relating to Voting Securities.")
(2) Excludes shares of Inland common stock into which Inland Series E ESOP
Preferred Stock may be converted. Each director or named executive officer
of the Company individually owns, and all directors and executive officers
of the Company as a group collectively own, less than 1% of the
outstanding Inland common stock. Includes shares held jointly with other
persons, as follows: Mr. Darnall--290, and all directors and executive
officers as a group--2,787; shares which the following have the right to
acquire under options exercisable within 60 days after April 1, 1998: Mr.
Darnall--251,000, Mr. Gratz--47,250, and all directors and executive
officers as a group--351,030; and shares held under restricted stock
awards, as follows: Mr. Darnall--9,000, Mr. Gratz--2,200, and all
directors and executive officers as a group--13,200.
(3) Each director and named executive officer of the Company individually
owns, and all directors and executive officers as a group collectively
own, less than 1% of the Inland Series E ESOP Preferred Stock.
(4) Includes shares of Company Class A common stock payable under the terms of
the Ryerson Tull Directors' Compensation Plan which are subject to
forfeiture or the receipt of which has been deferred as follows: shares
subject to forfeiture, Messrs. Cline and Russo--202 shares each; and
deferred shares, Messrs. Henderson and Perkins--2,463 shares each, Mr.
Pearlman--4,981 shares and Mr. Thompson--4,702 shares, of which 202 each
are subject to forfeiture.
8
ADDITIONAL INFORMATION RELATING TO VOTING SECURITIES
The following table sets forth, as of December 31, 1997, the only holders
known to the Company to beneficially own more than 5% of its common stock.
NUMBER OF SHARES
OR AMOUNT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SECURITIES OWNED CLASS
- ------------------------------------ ---------------- ----------
Class A Common Stock
FMR Corp. 599,400(/1/) 11.3%
82 Devonshire Street
Boston, MA 02109
MacKay-Shields Financial Corporation 323,860(/2/) 6.1%
9 West 57th Street
New York, NY 10019
Vanguard/Windsor Funds, Inc. 1,450,500(/3/) 27.5%(/3/)
100 Vanguard Boulevard
Malvern, PA 19355
Wellington Management Company, LLP 1,451,700(/3/) 27.5%(/3/)
75 State Street
Boston, MA 02109
Class B Common Stock
Inland Steel Industries, Inc. 34,000,000 100%
30 West Monroe Street
Chicago, IL 60603
- --------
(1) FMR Corp., on behalf of itself, Edward C. Johnson 3d, Abigail P. Johnson,
Fidelity Management & Research Company and Fidelity Value Fund, reported
sole dispositive power as to the shares.
(2) MacKay-Shields Financial Corporation reported shared voting and
dispositive power as to all such shares and reported that the interest of
The MainStay Funds, a registered investment company, relates to more than
5% of the Company's Class A common stock.
(3) Vanguard/Windsor Funds, Inc. reported sole voting power and shared
dispositive power as to 1,450,500 shares. Wellington Management Company,
LLP, in its capacity as investment advisor to its clients, including
Vanguard/Windsor Funds, Inc., reported beneficial ownership of 1,200
shares with shared voting power and 1,451,700 shares with shared
dispositive power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GUARANTOR ARRANGEMENT
Joseph T. Ryerson & Son, Inc. ("Ryerson"), a wholly owned subsidiary of the
Company, is the guarantor of $96,500,000 of the Inland Steel Industries Thrift
Plan ESOP notes. The notes are payable in installments through July 2004 and
bear interest ranging from 7.96% to 8.80%. If Inland had a deficiency in the
Thrift Plan ESOP Trust and failed to cover that deficiency,
9
Ryerson could be required to make payments pursuant to the guarantee. There
have been no deficiencies in the ESOP Trust. No payments were made under such
guarantee arrangement in 1997 and none are expected in 1998.
SUPPORT SERVICES; INDEMNIFICATION AND CORPORATE SEPARATENESS
During 1996, the Company and Inland entered into a Corporate Separation
Agreement relating to Inland's provision of support services to the Company,
joint participation in a marketing program, indemnification by and between the
Company and Inland, and the establishment of procedures to maintain separation
between the Company and Inland.
Inland has provided support services to the Company in the following areas:
finance (including tax administration, cash management, pension and employee
benefit plan administration, auditing and corporate communications), legal
(including public affairs and corporate secretary), human resources and
information technology, as well as senior management services. Consistent with
past practice, specific distinguishable costs incurred by Inland in providing
these services to the Company will be charged to the Company. In addition,
other support costs not specifically allocated to Inland or other Inland
subsidiaries will be allocated to the Company based on the percentage of
Inland consolidated operating assets attributable to the Company. The
percentage of Inland consolidated assets attributable to the Company is
expected to fluctuate from one period to another. At December 31, 1997, the
percentage was 24.13%. Charges by Inland to the Company for these services
amounted to $5,500,000 in 1997.
The Corporate Separation Agreement also provides that the Company and Inland
will undertake joint marketing efforts currently referred to as the "red
diamond program." The red diamond program involves a team approach to
maximizing customer satisfaction by involving personnel from the Company and
Inland with various areas of expertise to provide integrated solutions to
customer needs. The red diamond program is cancelable immediately by mutual
consent of the parties, or upon 60 days' written notice by either party.
The Corporate Separation Agreement further provides that the Company on the
one hand, and Inland and its other subsidiaries on the other, will indemnify
each other for losses, claims and damages that they may suffer or for which
they may become liable, including those relating to tax, environmental, ERISA
and pension liabilities, that arise out of the relationship of the parties
prior to the Offering or as a result of Inland's control of the Company.
Provisions intended to maintain the existence of the Company and Inland as
separate corporate entities also are included in the Corporate Separation
Agreement. These provisions include: no more than one-half of the Company's
executive officers, other than the Company's Chairman and Chief Executive
Officer, will be officers or employees of Inland or any of its other
subsidiaries; the Company and Inland each will maintain its assets separate
from those of the other and the other's subsidiaries; the Company and Inland
each will account for and manage its liabilities separately from those of the
other and the other's subsidiaries; the Company will maintain offices separate
from the offices of Inland and Inland's other subsidiaries; and, other than
the ESOP Guarantee and certain Inland guarantees of the Company's equipment
leases,
10
neither the Company nor Inland will pledge its assets for the benefit of or
grant guarantees or otherwise hold out its credit as being available to
satisfy the obligations of the other or any of the other's subsidiaries. These
provisions automatically terminate at any time that the number of outstanding
shares of Class B common stock represents less than 50% of the total number of
outstanding shares of Class A common stock and Class B common stock.
TAX-SHARING ARRANGEMENTS
In 1996 the Company and Inland entered into a tax-sharing agreement that
provides that current and deferred federal income tax liability is determined
for each company in the Inland group on an individual basis. Under the
agreement, current federal tax liability for each company in the Inland group,
including the Company, is paid to Inland which in turn pays the Internal
Revenue Service. If the Company is unable to use all of its allocated tax
attributes (net operating loss and tax credit carryforwards) in a given year
but other companies in the consolidated group are able to utilize them, then
Inland will transfer the tax attributes and pay the Company for their use. The
agreement also contains state tax-sharing arrangements, similar to the
arrangements described above with respect to federal taxes, for those states
in which the consolidated group is charged state taxes on a unitary or
combined basis. In 1997 the Company paid Inland approximately $32,700,000
pursuant to such arrangements.
CROSS-LICENSE AGREEMENT
In 1996 the Company and Inland entered into a cross-license agreement (the
"Cross-License Agreement") pursuant to which the Company licenses on a
royalty-free basis its "Ryerson" name and know-how for use by Inland and its
affiliates outside North America and pursuant to which Inland licenses on a
royalty-free basis its "red diamond" trademark for use by the Company. The
Cross-License Agreement requires the Company and Inland to reimburse the other
for the reasonable costs incurred in providing the respective license property
pursuant to the agreement. The Cross-License Agreement terminates
automatically if the number of outstanding shares of Class B common stock
represents less than 50% of the aggregate number of outstanding shares of
Class A common stock and Class B common stock. The Cross-License Agreement may
also be terminated by either party upon 60 days' written notice to the other
party or immediately by mutual consent of the Company and Inland. The Cross-
License Agreement provides that, following termination of the agreement, both
the Company and Inland have a right to a license (which may be exclusive) of
any part of the other's property that is then subject to the agreement for a
transition period of up to two years at a fair market value license fee and
upon such other terms as may be mutually agreed upon by the Company and
Inland. Upon a failure to mutually agree on a license fee and other terms,
provision is made for determination by a qualified independent expert. No
payments were made under the agreement in 1997 and none are expected in 1998.
PENSIONS
Effective April 30, 1996, that portion of the Inland Pension Plan covering
the Company's current and former employees was separated and became the
Company's Pension Plan. The
11
Company's Pension Plan assumed the liabilities of the Inland Pension Plan
attributed to current and former Company employees and a corresponding
percentage of the assets. Due to this separation, the Company's benefit
obligation was remeasured and the Company recognized a $25.4 million decrease
in its prepaid pension cost, a $16.5 million reduction in reinvested earnings
and an $8.9 million deferred tax asset increase in 1996. The Company's pension
plan currently meets the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company's
current policy is to continue to fund the plan in the future to at least meet
these minimum funding standards. Although the Company was not required to make
any pension plan contributions during 1997, the Company elected to make a
voluntary cash contribution of $6.9 million to enhance the plan's funded
status.
Effective January 1, 1998, the Company froze the benefits accrued under its
defined benefit pension plan for certain salaried employees and instituted a
new defined contribution plan. Salaried employees vested in their benefits
accrued under the defined benefit plan at December 31, 1997 will be entitled
to those benefits upon retirement. Certain transition rules have been
established for those salaried employees meeting specified age and service
requirements to continue to accrue benefits for an additional five years under
the defined benefit plan. At December 31, 2002, these employees will become
eligible to participate fully in the defined contribution plan. The change in
the Company's Pension Plan for certain salaried employees resulted in a one-
time pre-tax curtailment gain of $8.9 million in 1997.
TRANSACTIONS WITH INLAND STEEL COMPANY
During 1997, the Company purchased steel products from Inland Steel Company
("ISC"), a wholly-owned subsidiary of Inland, in arm's-length transactions for
approximately $208,400,000. The terms of these transactions were negotiated
between the Company and ISC and are similar to the terms of the large supply
arrangements that the Company has with other suppliers and that ISC has with
other purchasers. The Company expects to continue purchasing significant
amounts of steel products from ISC.
ISC also purchased material from the Company in 1997. ISC's purchases
totaled approximately $8,900,000 for the year. ISC may continue to buy
material from the Company in the future. The 1997 transactions were and any
future transactions will continue to be on an arm's-length basis. Pursuant to
the Company's Restated Certificate of Incorporation, the Company's Independent
Directors reviewed the transactions and reported to the Board that they were
conducted on terms at least as favorable as those that could be obtained from
an unaffiliated third party.
TRANSACTIONS WITH I/N TEK AND I/N KOTE
Inland and Nippon Steel Corporation ("NSC") have two joint ventures, I/N Tek
and I/N Kote, both of which are located near New Carlisle, Indiana. I/N Tek, a
steel cold-rolling facility, is 60% owned by a subsidiary of ISC and 40% owned
by a subsidiary of NSC. I/N Kote, a facility
12
which electrogalvanizes and hot-dip galvanizes cold-rolled steel, is owned
equally by subsidiaries of ISC and NSC. In addition, as of April 1, 1998, NSC
or its subsidiaries owned Inland voting notes representing approximately 5.5%
of the voting power of Inland and 352,400 shares of Inland common stock
representing approximately 0.6% of the voting power of Inland.
During 1997, the Company's subsidiaries purchased approximately $1,700,000
of electrogalvanized and hot-dip galvanized steel from I/N Kote. During the
same period, the Company's subsidiaries sold I/N Tek and I/N Kote various
metals products valued at approximately $23,000 and $135,000, respectively.
The Company expects to enter into similar transactions with I/N Tek and I/N
Kote during 1998. All such transactions are made on an arm's-length basis.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS REGARDING EXECUTIVE COMPENSATION
The Company's executive compensation programs are designed to attract and
retain outstanding individuals as officers and key employees by rewarding such
individuals based on their personal performance and on the financial
performance of the Company and its business units. The compensation system
also is designed to align the incentives of executive officers with the
interests of stockholders. Total compensation opportunities are designed to be
competitive with those offered by metal service center companies, select
general distribution companies, and select industrial and service companies of
comparable size. These programs have three elements: base salary compensation,
short-term incentive compensation, and long-term incentive compensation.
Company programs are administered by the Compensation Committee of the Board
of Directors (the "Committee"). The Inland Compensation Committee determines
the compensation of Messrs. Darnall and Gratz, who are also executive officers
of Inland. Inland pays this compensation and the Company reimburses Inland
pursuant to the methodology described above in "Certain Relationships and
Related Transactions--Support Services; Indemnification and Corporate
Separateness."
The Compensation Committee consists of three directors, none of whom is or
has been an employee of Inland, the Company or any of the Company's
subsidiaries. The Committee currently consults with outside compensation
experts for assistance with the Company's executive compensation programs. The
Company intends to offer total compensation opportunities competitive with
those offered by comparable companies. The Company compares its compensation
opportunities to other metal service center companies. However, because most
metal service companies are not publicly owned, because public information for
those publicly owned metal service center companies shows that few have long-
term incentive programs, and because no metal service center company has
revenues comparable to the Company's revenues, the Company also compares its
compensation opportunities to that offered by select general distribution
companies and select industrial and service companies of comparable size.
13
Mr. Novich meets regularly with the Committee and with the non-management
directors. These meetings will include an annual review, by all of the outside
directors, of his financial, operating, and organizational goals for the
Company and an evaluation of his performance as it relates to the Company's
achievement of the previous year's goals. The results of that evaluation are
an important element in compensation decisions made by the Committee and the
Board of Directors, both with respect to Mr. Novich and with respect to the
other executive officers of the Company.
The Committee reviews the base salary compensation of executive officers
annually, reviews comparable positions in the comparison group of companies,
and then makes recommendations to the Board. Generally, base compensation
represents approximately one-half of the total target compensation opportunity
for executive officers. The other half of such total target compensation
consists of short-term and long-term incentive compensation and is variable,
fluctuating from year to year depending on individual performance, business
unit performance, corporate performance, and industry performance. Mr.
Novich's base salary was increased to $421,000 in February 1997 in recognition
of his management skill in focusing business units on financial performance
measures and operational improvements and on competitive market factors.
Short-term incentive compensation for 1997 was payable to officers and other
key employees under the Ryerson Tull, Inc. Annual Performance Improvement
Incentive Plan, which stockholders approved at the 1997 Annual Meeting. This
Plan provides for cash awards based on a specified percentage of a
participant's salary earnings and the extent to which corporate and (or)
business unit performance standards are achieved for the year. In 1997, all
corporate and business units of the Company achieved the threshold levels of
return on operating assets and all but one business unit achieved the
threshold level of revenue growth established for such units. As the President
and Chief Executive Officer of the Company, the Company computed the award
payment to Mr. Novich based upon the 1997 return on operating assets and
revenue growth achieved by the Company. The award payments to Messrs. Darnall
and Gratz were made by the Inland Compensation Committee under the Inland
Annual Incentive Plan and computed based on the 1997 return on Inland's
operating assets achieved by its corporate units, weighted with respect to the
relative asset value of each such unit. The award payments to Messrs. Lusted,
Makarewicz and Niederpruem were computed based upon the 1997 return on
operating assets and revenue growth achieved by each of their respective
business units.
Long-term incentive compensation grants and awards may be made by the
Committee (or, in certain circumstances, by the Chairman or the President of
the Company) under the Company's 1996 Incentive Stock Plan. These grants and
awards consist of stock options, stock appreciation rights, restricted stock
awards, and performance awards, or combinations thereof. Stock options and
stock appreciation rights may be granted at not less than 100% of the fair
market value of the Company's Class A common stock on the date of grant and
are generally exercisable for a period not exceeding ten years. Restricted
stock awards, consisting of shares of Class A common stock, are contingent on
continuing employment with the Company for specified periods, and performance
awards, payable in shares of Class A common stock or cash, are
14
contingent on the achievement over specified periods of such performance
objectives as established by the Committee. Restricted stock awards may also
be contingent upon the achievement of performance measures. The restrictions
lapse, and the shares vest, at the end of the three-year period beginning on
the date of grant. Vesting may be accelerated at the discretion of the
Committee in the event of exceptional individual performance and (or)
significant progress by the Company or the respective business unit in meeting
its operating and financial objectives. Grants and awards made by the
Committee under the 1996 Incentive Stock Plan are intended to provide
executive officers not only with additional incentives for outstanding
individual performance but also with an opportunity to acquire an ownership
stake in the Company and thereby more closely align their interests with those
of the stockholders.
New grants of options, including those made to Mr. Novich, were established
after review of a compensation analysis for officer positions of the Company,
based on a comparative company survey of compensation practices at select
industrial companies with $1 billion to $2.5 billion in sales and select
service companies (including general distributors) with $500,000,000 to $3.6
billion in annual sales and a summary of executive compensation issues
prepared by the Company's outside executive compensation consultants. The
Committee granted new option awards totaling 153,000 shares to named executive
officers of the Company in 1997, including an option award of 60,000 shares to
Mr. Novich. These grants were intended to provide incentives to improve
stockholder value, to encourage executive retention and to remain competitive
in executive recruitment. The Committee made no restricted stock awards or
performance awards to named executive officers in 1997, except for a
performance award for 2,000 shares payable over two years granted to Mr.
Niederpruem, of which award 750 shares were paid out for the performance
period ended December 31, 1997. The Inland Compensation Committee made
performance awards, but no option grants or restricted stock awards, to
Messrs. Darnall and Gratz. The performance awards, payable in three
installments related to calendar years 1997, 1998 and 1999, are paid if Inland
achieves specified annual performance goals for operating profit and total
stockholder return. No shares were paid under these awards for 1997.
In 1993, Section 162(m) was added to the Internal Revenue Code, which limits
deductibility of certain compensation for named executive officers. The
Committee intends that Company compensation plans satisfy the requirements of
Section 162(m) for maximum deductibility by the Company for Federal income tax
purposes of payments made under such plans to named executive officers. In the
event the Committee determines that it is advisable to grant awards to named
executive officers that may not so qualify for deductibility, the Committee
reserves the right to make such awards, taking into consideration the
financial effects of such awards on the Company.
Jerry K. Pearlman, Chairman
Donald S. Perkins
Jean-Pierre Rosso
15
COMPARISON OF EIGHTEEN-MONTH CUMULATIVE TOTAL RETURN
The following performance graph compares the performance of the Company's
common stock for the period commencing July 1, 1996 and ended December 31,
1997, to the cumulative total return of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500 Index") and to a peer group. Since there is no
nationally recognized industry index consisting of metals distributors to be
used as a peer group index, the Company constructed its own peer group
consisting of seven other public companies in the metals distribution
industry. In addition to the Company, the peer group includes A.M. Castle &
Co., Friedman Industries, Incorporated, Huntco Inc., Olympic Steel, Inc.,
Reliance Steel & Aluminum Co. and Steel Technologies Inc. This comparison
assumes the investment of $100 on June 30, 1996 and the reinvestment of
dividends.
Ryerson Tull Inc. S&P 500 PT Peer Group
--------------------------------------------------------
6/30/96 $100.00 $100.00 $100.00
9/30/96 $86.05 $103.07 $87.99
12/31/96 $83.72 $111.64 $85.50
3/31/97 $86.05 $114.65 $78.52
6/30/97 $102.33 $134.62 $98.54
9/30/97 $100.39 $144.67 $105.44
12/31/97 $86.05 $148.80 $98.91
16
EXECUTIVE COMPENSATION
The following table presents the 1995, 1996 and 1997 compensation for
Messrs. Darnall and Gratz, who are executive officers of both Inland and the
Company, Mr. Novich, who is chief executive officer, and the Company's other
three most highly compensated executive officers. The compensation listed in
the table includes compensation paid by the Company, subsidiaries of the
Company, and Inland.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------------------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN- STOCK STOCK COMPEN-
POSITION(/1/) YEAR SALARY BONUS SATION AWARDS(/2/) OPTIONS(/3/) SATION(/4/)
- ------------- ---- -------- -------- ------- ----------- ------------ -----------
Robert J.
Darnall 1997 $684,996 $393,873 0 $ 0 0 $34,248
Chairman 1996 684,996 316,000 0 104,488 100,000 33,833
and Direc- 1995 690,961(/5/) 515,800 0 169,500 30,000 34,545
tor
Neil S.
Novich 1997 $418,309 $329,600 0 $ 0 60,000 $20,908
President, 1996 400,095 386,600 0 70,625 42,000 18,845
Chief Ex- 1995 387,113 400,400 0 84,750 14,000 19,351
ecutive
Officer and
Director
Jay M.
Gratz 1997 $309,584 $142,409 0 $ 0 0 $15,474
Vice Presi- 1996 224,274 104,200 0 54,900 36,000 11,097
dent and 1995 173,752 104,200 0 28,250 4,000 8,696
Chief Fi-
nancial
Officer
Carl G.
Lusted 1997 $239,666 $167,900 0 $ 0 36,000 $11,979
President-- 1996 232,667 200,500 0 25,425 21,000 11,639
Ryerson 1995 223,384 206,250 0 39,550 7,000 11,181
Central
Stephen E.
Makarewicz 1997 $187,809 $ 89,439 0 $ 0 27,000 $ 8,353
President-- 1996 181,041 100,000 0 21,188 18,000 7,352
-Tull 1995 167,504 125,500 13,333(/6/) 33,900 6,000 2,533
Gary J.
Niederpruem 1997 $199,527 $114,262 0 $ 0 30,000 $ 9,967
President-- 1996 180,809 43,700 0 21,188 18,000 9,040
Ryerson 1995 171,911 67,000 0 33,900 6,000 8,600
East
- --------
(1) Messrs. Darnall and Gratz are also executive officers of Inland, as was
Mr. Novich prior to the Offering. Amounts shown for Messrs. Darnall,
Novich and Gratz represent their total compensation for 1997, 1996 and
1995. Inland paid all of Mr. Darnall's compensation, Mr. Novich's
compensation prior to consummation of the Offering, and Mr. Gratz's
compensation after the consummation of the Offering. The Company
reimbursed Inland for 24.13% of Mr. Darnall's and Mr. Gratz's compensation
in 1997. In 1996, the Company reimbursed Inland for 27.9% of Mr. Darnall's
compensation and of the portion of Mr. Novich's and Mr. Gratz's
compensation paid by Inland. The Company's reimbursement of compensation
to Inland is based on the ratio of the Company's operating assets to
Inland's consolidated operating assets. Inland uses this percentage to
determine the percentage of Inland's overhead expenses allocable to the
Company.
17
(2) Awards for 1996 consist of Company common stock, except for Mr. Gratz,
whose award consisted solely of Inland common stock, and Mr. Darnall,
whose award included both Company common stock and Inland common stock.
Awards for 1995 consist of Inland common stock. All awards are valued at
the aggregate market value, based on the closing market price on the date
of the grant. Dividends on awarded shares are paid to the extent that
dividends are paid on Class A common stock or Inland common stock, as
applicable. Except for a July 24, 1996 grant for 3,000 shares of Inland
common stock made to Mr. Darnall that will vest on May 20, 1999, all
restricted stock awards identified in the table will vest three years
after the date of the grant. Vesting of Company common stock or Inland
common stock may be accelerated at the discretion of the Company's or
Inland's Compensation Committee, respectively, in the event of exceptional
individual performance and/or significant progress by the Company, Inland
or the appropriate business unit in meeting its operating and financial
objectives. In 1996, for all named executive officers except Messrs.
Darnall and Gratz, shares of restricted Company Class A common stock were
substituted for all outstanding Inland restricted stock awards, at the
ratio and pursuant to the methodology described in footnote (3) below. Mr.
Gratz received Company Class A common stock in substitution for 50% of his
outstanding 1996 Inland restricted stock award. Mr. Darnall's outstanding
Inland stock awards and options were not replaced with Company common
stock. The number and value of the aggregate restricted stock holdings of
Company Class A common stock and Inland common stock at December 31, 1997,
based on the closing market price on that date, were: Company common
stock, Mr. Darnall--3,654 shares/$50,699; Mr. Novich--8,654
shares/$120,074; Mr. Gratz--1,461 shares/$20,271; Mr. Lusted--3,505
shares/$48,632; Mr. Makarewicz--2,961 shares/$41,084; and Mr.
Niederpruem--2,961 shares/$41,084; and Inland common stock, Mr. Darnall--
9,000 shares/$154,125; and Mr. Gratz--2,200 shares/$37,675.
(3) Includes options to purchase Inland common stock granted prior to the
Offering. After the Offering, options for Company Class A common stock
were substituted for outstanding options to purchase Inland common stock
for all named executive officers except Messrs. Darnall and Gratz. Options
for Company Class A common stock were substituted for outstanding options
for Inland common stock in the same ratio as the average value (average
closing price of such stock for the first ten trading days following the
substitution) that a share of Inland common stock bore to the average
value of a share of Ryerson Tull Class A common stock, which ratio was
1.218254 to 1.
(4) Amounts represent the value of vested and unvested employer contributions
and allocations to the Inland Thrift Plan and the Inland Non-Qualified
Thrift Plan (or, in the case of Mr. Makarewicz for the periods prior to
the Offering, the J. M. Tull Metals Company, Inc. Employees' Profit
Sharing Plan).
(5) Differences between 1995 salary and that in subsequent years reflects
extra days of pay due to a change to a salaried payroll system with 24 pay
periods per year from one with 26 pay periods per year.
(6) Represents reimbursement of relocation expenses and related tax gross-up.
18
INDIVIDUAL OPTION GRANTS IN 1997
The following table presents information with respect to (a) individual
grants of options that were made under the Company Incentive Stock Plan during
the last fiscal year to the named executive officers and (b) the present value
of such options on the grant date.
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(/1/) FISCAL YEAR PRICE(/2/) DATE(/1/) VALUE(/3/)
- ---- ------------------ ---------------- ---------- ---------- ----------
Robert J. Darnall....... -- -- -- -- --
Neil S. Novich.......... 60,000 18.5% $14.0625 3/25/2007 $417,600
Jay M. Gratz............ -- -- -- -- --
Carl G. Lusted.......... 36,000 11.1 14.0625 3/25/2007 250,560
Stephen E. Makarewicz... 27,000 8.3 14.0625 3/25/2007 187,920
Gary J. Niederpruem..... 30,000 9.2 14.0625 3/25/2007 208,800
- --------
(1) All options are for Company Class A common stock and were granted on March
26, 1997. The options become exercisable with respect to 33% of the shares
after one year from the date of grant, 67% after two years from the date
of grant, and are fully exercisable after three years from the date of
grant. All options granted in 1997 were transferable, with the advance
written consent of the Compensation Committee, (a) to a spouse or
descendants or (b) to a trust for the benefit of the optionee, his or her
spouse or descendants. See "Change in Control of the Company" for option
provisions regarding any change in control of the Company. The Inland
Compensation Committee, which determines the compensation of Messrs.
Darnall and Gratz, did not make option grants to them in 1997.
(2) The exercise price is equal to the average of the high and low price of
the Company's Class A common stock on the New York Stock Exchange
Composite Transactions on the date of grant. The exercise price may be
paid by delivery of already-owned shares. In addition, the option grantee
may elect to have the Company withhold shares of stock or accept already-
owned shares to satisfy tax withholding obligations associated with
receiving or exercising options.
(3) In accordance with Securities and Exchange Commission rules, the Black-
Scholes option pricing model was chosen to estimate the grant date present
value of the options granted under the Company Incentive Plan during 1997.
The use of this pricing model should not be construed as an endorsement of
the model's accuracy at valuing options. For purposes of calculating the
value of the options as of the grant date, the following assumptions were
made: the option term is 10 years, the volatility of Company common stock
is 32.47% calculated using monthly stock prices of a comparable peer group
for the seven-year period prior to the grant date, the ten-year risk-free
interest rate is 6.76%, the annualized dividend rate is $0 per share, and
the expected term is seven years. The value of the options granted in 1997
depends upon the actual performance of the Company's Class A common stock
during the applicable period; the actual value, if any, that an option
grantee will realize upon exercise of an option will depend on the excess
of the market value of such common stock over the exercise price on the
date the option is exercised.
19
YEAR END OPTION/SAR VALUES
The following table presents the number of securities underlying the
option/SAR holdings of the named executive officers at the end of 1997 and the
value of such holdings. No options were exercised by named executive officers
in 1997.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
FISCAL YEAR-END AT FISCAL YEAR-END
NAME (EXERCISABLE/UNEXERCISABLE)(/1/) (EXERCISABLE/UNEXERCISABLE)
- ---- -------------------------------- ---------------------------
Robert J. Darnall....... 217,000/67,000 $0/0
Neil S. Novich.......... 50,994/94,282 0/0
Jay M. Gratz............ 35,280/24,120 0/0
Carl G. Lusted.......... 48,396/53,141 0/0
Stephen E. Makarewicz... 32,816/41,692 0/0
Gary J. Niederpruem..... 35,739/44,692 0/0
- --------
(1) All such options are for Class A common stock of the Company, except for
Messrs. Darnall and Gratz, whose options are for Inland common stock. The
value of unexercised in the money options/SARs is based on the closing
price of the Company's Class A common stock or Inland common stock, as
applicable, on the New York Stock Exchange Composite Transactions on
December 31, 1997.
PENSION BENEFITS; RETIREMENT AND TERMINATION AGREEMENTS
PENSION BENEFITS
Prior to April 30, 1996, certain Company employees were eligible to
participate in the Inland Pension Plan. Effective April 30, 1996, the portion
of the Inland Pension Plan covering the Company's current and former employees
was separated and became the Company's Pension Plan. Employees covered by the
Company's Pension Plan were credited with the number of years of service
credited to them under the Inland Pension Plan at the separation date. Messrs.
Darnall and Gratz remain covered by the Inland Pension Plan. The Company
provides pension benefits to eligible salaried employees of Tull under a
separate benefit schedule of the Company's Pension Plan, as discussed below.
Benefits for salaried employees under the Company's pension plan were frozen
as of January 1, 1998, subject to transition rules for certain employees
meeting specified age and service criteria. The Company implemented a defined
contribution plan, the Ryerson Tull Savings Plan, in place of the pension plan
benefits.
Under the Pension Plan, the Company provides pensions to eligible employees
(including employees who are directors or officers) who, at retirement, have
met certain service or service and age requirements. In general, benefits for
salaried employees are based on two factors: (1) years of benefit service, and
(2) average monthly earnings, based on the highest 36 months of earnings
during the participant's last ten years of service, except for employees
eligible for the transition rules relating to age and service. For this
purpose, earnings generally consist of salary compensation plus bonus
compensation as reported in the Summary Compensation Table.
20
The following table shows the maximum annual pension benefits payable on a
straight life annuity basis to employees in various earnings classifications
upon retirement at age 65 under the applicable plan. All benefit amounts shown
in this table are subject to offset based upon Social Security earnings.
PENSION PLAN TABLE
AVERAGE ANNUAL EARNINGS
FOR THE APPLICABLE ANNUAL PENSION BENEFITS FOR YEARS OF SERVICE SHOWN
YEAR-OF-SERVICE --------------------------------------------------------------
PERIOD 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
----------------------- -------- -------- -------- -------- -------- -------- --------
$ 200,000.............. $ 17,000 $ 34,000 $ 51,000 $ 68,000 $ 85,000 $102,000 $119,000
400,000.............. 34,000 68,000 102,000 136,000 170,000 204,000 238,000
600,000.............. 51,000 102,000 153,000 204,000 255,000 306,000 357,000
800,000.............. 68,000 136,000 204,000 272,000 340,000 408,000 476,000
1,000,000.............. 85,000 170,000 255,000 340,000 425,000 510,000 595,000
1,200,000.............. 102,000 204,000 306,000 408,000 510,000 612,000 714,000
1,400,000.............. 119,000 238,000 357,000 476,000 595,000 714,000 833,000
1,600,000.............. 136,000 272,000 408,000 544,000 680,000 816,000 952,000
As of April 1, 1998, the named executive officers were credited with the
following years of service: under the Inland Pension Plan, Robert J. Darnall--
35 years; and Jay M. Gratz--22 years; under the Company Pension Plan, Neil S.
Novich--3 years; Carl G. Lusted--30 years; Stephen E. Makarewicz--14 years;
and Gary J. Niederpruem--24 years. Pension benefits for Messrs. Lusted,
Makarewicz, and Niederpruem, whose age and service met certain transition
criteria adopted in connection with the freeze of the Company Pension Plan,
will continue to accrue pension benefits until December 31, 2002. At that
date, their pension benefit will be frozen. Until December 31, 2002, they are
subject to limits on certain Company-paid contributions to employees' accounts
under the Ryerson Tull Savings Plan.
To supplement pension benefits to employees of the Company and its
affiliates who participate in the Pension Plan and whose benefits under that
plan are limited by certain provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company has established the Ryerson Tull
Supplemental Retirement Plan for Covered Employees (the "Supplemental Plan").
Generally, the Supplemental Plan provides benefits equal to the difference
between the benefits that would have been payable under the Pension Plan had
the Code limitations not applied and the benefits actually paid under the
Pension Plan. The Supplemental Plan is non-contributory. Benefits under the
Supplemental Plan come from the Company's general assets. The Company
generally pays Supplemental Plan benefits at the same time and in the same
form as Pension Plan benefits. However, the Supplemental Plan provides that,
for any officer or employee age 55 or older with at least five years of
service and annual compensation in excess of $150,000, the Company may elect
to satisfy its obligations under the Supplemental Plan
21
by (i) purchasing an annuity contract either prior to or at the time of
retirement (and a tax gross-up payment to the officer or employee at the time
of purchase) or (ii) paying a lump sum amount at the time of retirement.
Neither the Company nor Inland established any annuities or individual letters
of credit for named executive officers in 1997.
Prior to establishing the Supplemental Plan, certain Company employees
participated in the Inland Steel Industries Supplemental Retirement Plan for
Covered Employees and the Inland Steel Industries Special Retirement Benefit
Plan for Covered Employees (collectively, the "Inland Supplemental Plans").
Messrs. Darnall and Gratz continue to participate in the Inland Supplemental
Plans, which provide benefits similar to the Supplemental Plan. Except for
Messrs. Darnall and Gratz, the Company has assumed Inland's liabilities under
the Inland Supplemental Plans with respect to current and former employees of
the Company.
In the event of a change in control (as defined in the Pension Plan and
Supplemental Plan) of the Company, all benefits accrued under the Pension Plan
and the Supplemental Plan will become fully and irrevocably vested and
distributable to participants as provided by the terms of such plans. If,
within three years following a change in control there is a termination of the
Pension Plan, or a substantial reduction in accruals under the Pension Plan,
assets will first be used to provide retiree medical benefits and then will be
applied to increase retirement benefits to affected participants on a pro rata
basis. Special rules also apply if, after a change in control, the Pension
Plan is merged with another Plan or if assets are transferred from the Pension
Plan to another plan. This distribution would occur within three years of a
change in control, and, within this three-year period, there are limitations
on amendments to the Pension Plan.
The Company provides pension benefits to eligible salaried employees of Tull
under a separate benefit schedule. The Tull benefit schedule is not subject to
the pension plan freeze. The maximum annual pension benefits payable under
this schedule are approximately 3% higher than those shown in the above table
for comparable earnings and service. The Tull benefit schedule does not cover
any executive officers, but Stephen E. Makarewicz and Carl G. Lusted are
credited respectively with 11 and 23 years of service under the Pension Plan
according to the Tull benefit schedule. Each has a lump sum benefit accrued as
their Tull benefit.
To supplement retirement benefits to employees of the Company and its
affiliates who participate in the Savings Plan and whose benefits under the
Savings Plan are limited by the Code, the Company established a Nonqualified
Savings Plan. Generally, the Nonqualified Savings Plan permits eligible
employees to make contributions to the Nonqualified Savings Plan in an amount
not exceeding 10 percent of base compensation and to receive matching
contributions of 100 percent of such contributions that do not exceed 4
percent of base compensation. Matching contributions under the Nonqualified
Savings Plan become vested in the same manner as matching contributions under
the Savings Plan. Benefits under the Nonqualified Savings Plan are paid from
the Company's general assets. Benefits under the Nonqualified Savings Plan are
generally paid in a lump sum at the time of termination.
Prior to establishing the Nonqualified Savings Plan, certain Company
employees participated in the Inland Steel Industries Nonqualified Thrift Plan
which provides benefits
22
which are substantially similar to the Nonqualified Savings Plan. The Company
has assumed Inland's liabilities under the Nonqualified Thrift Plan with
respect to benefits accrued for current Company employees.
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
Pursuant to an agreement dated January 22, 1997, the Company has assumed
Inland's obligation to Mr. Lusted under an agreement dated June 27, 1990,
which provides that upon Mr. Lusted reaching age 62 or at any other mutually
agreeable time, Mr. Lusted will be reimbursed for his reasonable moving
expenses from the Chicago area to the Atlanta area, or to any other mutually
agreeable location. In connection with such a relocation, Mr. Lusted will
receive the amount, if any, by which the lesser of Mr. Lusted's purchase price
or the appraised value of his home in the Chicago area exceeds the net sales
price of such home.
On June 10, 1996, the Company entered into agreements (the "Company
Agreements") with each of the named executive officers, the present terms of
which expire on December 31, 1998, but are automatically extended for
additional one-year periods unless the Company gives notice prior to June 30
of a year that it does not wish to extend these agreements for future years or
unless a change in control (as defined below) or certain other limited events
occur. The Company has not given notice of non-renewal. For purposes of the
Company Agreements, a change in control will generally be deemed to have
occurred if: (i) with certain limited exceptions, any person becomes the
beneficial owner of 40% or more of the combined voting power of the Company's
then outstanding securities; (ii) during any two-year period, the majority of
the membership of the Company's Board of Directors changes without the
approval of two-thirds of the directors who either were directors at the
beginning of the period or whose election was previously so approved; (iii)
the Company's stockholders approve a merger or consolidation of the Company
with another company in which the Company's voting securities, in combination
with voting securities held by any trustee or fiduciary under any Company
employee benefit plan, do not continue to represent at least 60% of the
combined voting power of the voting securities of the surviving entity
(excepting certain recapitalizations of the Company); (iv) the Company's
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all of its assets; or (v) there occurs with respect to a Related Company
(defined below) a sale or disposition of securities representing 50% or more
of the combined voting power of the Related Company's securities, or a merger
or consolidation of a Related Company with another company in which a
majority-owned direct or indirect subsidiary of the Company does not own at
least 50% of the combined voting power of the voting securities of the
surviving entity or a sale or disposition of all or substantially all of the
assets of a Related Company to a person other than the Company or a majority-
owned direct or indirect subsidiary of the Company. A "Related Company" is a
covered employee's employer (or any direct or indirect parent company of such
employer, or subsidiary of such employer that is a significant subsidiary of
the Company). A change in control of the Company shall not be deemed to have
occurred with respect to any employee, however, if the sale or other
transaction includes or involves a sale to the public or a distribution to the
stockholders of the Company of
23
more than 50% of the voting securities of the employee's employer or a direct
or indirect parent of his or her employer and the employee's employer (or a
direct or indirect parent of the employee's employer) agrees to become a
successor to the Company under the employee's Company Agreement.
The Company Agreements provide that if a covered executive's employment is
terminated within two years after a change in control of the Company either
(i) by the Company other than for "cause" or other than as a consequence of
death, disability or retirement, or (ii) by such executive for "good reason,"
generally relating to a diminution of responsibilities, compensation or
benefits or significant relocation of his or her principal office, the
executive will receive: (i) a lump-sum payment equal to two times the sum of
(a) the executive's current annual base salary plus (b) the executive's
average incentive bonus paid for the five years preceding termination of
employment; (ii) an amount in cash equal to any allocations, unpaid awards or
rights under the Company's annual or other incentive compensation plans; (iii)
an amount in cash equal to the value of outstanding stock options granted
under the Company's stock option plans at specified prices; (iv) an amount in
cash equal to the value of shares of common stock awarded or issuable as
performance and/or restricted shares under the Company's incentive stock
plans; (v) life, disability, accident and health insurance as provided in the
Company's insurance programs and financial advisory and outplacement services
for a period of 24 months after termination of employment; (vi) an amount in
cash in lieu of two years of additional accrued benefits under the Company's
pension plan and (vii) legal fees and expenses incurred as a result of such
termination. Each Company Agreement contains an excise tax "gross-up"
provision under which the Company pays executives an additional amount if an
excise tax is imposed on the benefits receivable under the agreement. Upon the
imposition of any excise tax, the Company will not be entitled to a Federal
income tax deduction for the "gross-up" portion of the severance payments.
The Company Agreements also provide benefits in the event that the Company
terminates the executive for reasons other than cause within 12 months after
the occurrence of a "potential change in control" of the Company and a change
in control of the Company or certain other limited events occur within six
months after his or her termination. Under the agreements, a "potential change
in control" is deemed to occur if (i) the Company enters into an agreement
which would result in a change in control of the Company, (ii) any person,
including the Company, publicly announces an intention to take or to consider
taking actions which would constitute a change in control, (iii) with certain
limited exceptions, any person who is or becomes the owner of Company
securities representing 9.5% or more of the combined voting power of the
Company's then outstanding securities increases such person's beneficial
ownership of such securities by 5% or more over the percentage owned on the
date the Company Agreements were effective, or (iv) the Board of Directors
adopts a resolution that a potential change in control of the Company has
occurred for purposes of the Company Agreements.
Inland has entered into agreements (the "Inland Agreements") with Messrs.
Darnall and Gratz which provide benefits substantially similar to those
provided under the Company Agreements in the event that the executive's
employment with Inland is terminated following a
24
change in control of Inland, but provide protections and, if applicable,
payments, for a period of 36 months (rather than 24 months) following a change
in control of Inland. Inland also has entered into similar agreements
providing protections and, if applicable, payments for a period of 24 months
following a change in control of Inland with Messrs. Novich, Lusted,
Makarewicz, and Niederpruem. The Inland Agreements define change in control to
include events similar to those which constitute a change in control under the
Company Agreements. If, upon a change in control, an executive becomes
entitled to benefits under a Company Agreement and an Inland Agreement,
benefits payable under the Inland Agreement will be reduced by the amount of
benefits payable under the Company Agreement. Otherwise, an executive shall
not be entitled to benefits under both an Inland Agreement and a Company
Agreement based on the same events constituting a change in control.
25
ELECTION OF AUDITORS
Proxies not limited to the contrary will be voted for the election of Price
Waterhouse LLP to audit the accounts of the Company and its subsidiaries for
the year 1998.
Representatives of Price Waterhouse LLP will be present at the Annual
Meeting and will be given the opportunity to make a statement if they desire
to do so. They will also be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
ELECTION OF PRICE WATERHOUSE LLP AS AUDITORS.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders must be received in writing by the Secretary of
the Company no later than December 18, 1998 and must comply with the
requirements of the Securities and Exchange Commission in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to the Annual Meeting of Stockholders to be held in 1999. Proposals
not included in a proxy statement for an annual meeting must comply with an
advance notice procedure set forth in the By-laws of the Company in order to
be properly brought before that annual meeting of stockholders.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those set forth in the Notice of the Annual Meeting.
However, if any other matters do come before the meeting, it is intended that
the holders of the proxies will vote thereon in their discretion.
By order of the Board of
Directors,
CHARLES B. SALOWITZ
Corporate Secretary
April 17, 1998
Chicago, Illinois
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Each stockholder, whether or not he or she expects to be present in person
at the Annual Meeting, is requested to SIGN, DATE AND RETURN THE ENCLOSED
PROXY in the accompanying envelope as promptly as possible.
26
- -
- -
PROXY PROXY
RYERSON TULL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Darnall, Neil S. Novich and Charles
B. Salowitz, and each of them, as attorneys and proxies (with full power of
substitution in each) to vote all common stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held May 27, 1998 and at any adjournment thereof. UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS,
FOR THE ELECTION OF PRICE WATERHOUSE LLP AS AUDITORS, AND AT THE DISCRETION OF
THE PROXIES ON ANY AND ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE SUCH
ANNUAL MEETING OR ANY ADJOURNMENT THEREOF.
(Please complete on other side)
- -
RYERSON TULL, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
[ ]
The Board of Directors Recommends a Vote FOR For Withhold For All
Item 1. All from all Except
1. Election of Directors [_] [_] [_]
Nominees: Richard D. Cline, James A. Henderson,
Neil S. Novich.
-----------------
Nominee Exception
The Board of Directors Recommends a Vote FOR
Item 2.
2. The election of Price Waterhouse LLP as auditors for the year 1998.
3. In the discretion of the proxies to vote upon any and all other matters
which may properly come before such annual meeting or any adjournment
thereof.
For Against Abstain
[_] [_] [_]
Dated: , 1998
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Signature(s)
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Please sign as name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. Date and return promptly.