Net Worth Appreciation Agreement
April 1, 1996
In connection with your employment by WCI Steel, Inc. ("Company"), this Net
Worth Appreciation Agreement ("Agreement") confirms the full agreement for your
compensation and your obligations under the Agreement. The "Original Effective
Date" for purposes of this Agreement shall be April 1, 1996.
1. There is hereby established for your benefit an unfunded deferred
compensation account (the "Account"). Beginning April 1, 1996, and continuing
for so long as you are employed by the Company, as soon as practicable after the
close of each fiscal quarter of the Company, there shall be credited (charged)
to the Account 5% (your "Full Percentage") of the change in the "Net Worth" of
the Company for the quarter then ended (except for the fiscal quarter ended
April 30, 1996 for which the Account shall be credited with 5% of the change in
the Net Worth of the Company for the month of April 1996) computed as described
herein. For purposes of this Agreement, the "Net Worth" of the Company shall be
deemed to be the amount of shareholders' equity determined in accordance with
Generally Accepted Accounting Principles used in the preparation of the
Company's consolidated financial statements and as filed with the Securities and
Exchange Commission, except that the amount of reported shareholders' equity
shall be adjusted to eliminate the charge for the net worth appreciation program
and to restate inventories on the first in- first out basis, including
applicable income tax effects and will not reflect any changes of the nature
described in the first sentence of paragraph 10. There shall be charged to the
Account payments made to you as provided in paragraphs 4, 6, 8, 10 and 14 of
this Agreement.
2. In connection with this Agreement, you agree to provide 30 days prior
written notice of your intention to voluntarily terminate your employment or
retire. In the event you voluntarily leave the Company's employ, the
"Measurement Date" for purposes of measuring compensation
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under this Agreement shall be the end of the Company's fiscal quarter in which
the 30-day notice period ends. In the event your employment is terminated
involuntarily by the Company, the Measurement Date of the termination of your
employment shall be the end of the fiscal quarter preceding the termination of
your employment.
3. Your interest in the Account vests as to 60% as of April 1, 1999 and vests
as to an additional 20% on each of April 1, 2000 and April 1, 2001 provided that
you are still employed by the Company at such dates. If your employment is
voluntarily terminated by you or if you are terminated for "Cause", prior to the
fifth anniversary of your Original Effective Date, the calculation of amounts
payable to you shall be based on your vested percentage. If your employment is
terminated without cause, by reason of your death, or by your serious disability
rendering you unable to perform your duties for the Company, you shall be deemed
vested in 60% of the Account if such event takes place before the third
anniversary of the Original Effective Date of your Agreement and an additional
20% for each full or fractional year thereafter, up to a maximum vesting of
100%. For purposes of this provision, termination shall be deemed to be for
"Cause" only if the grounds therefor are one or more of the following: (a)
material conduct contrary to the best interests of WCI, (b) continuing refusal
or inability to perform the duties of your position (other than for reasons of
disability), or (c) illegal conduct having a material impact on WCI.
4. During the term of your employment, you will receive a distribution in each
fiscal year equal to 5% of the balance of your Account at the end of the
previous fiscal year calculated as if you had retired on that date and your
percentage was fully vested. This distribution will be made as soon as
practicable after March 1 in each fiscal year and will reduce the balance in
your Account by the amount of the distribution. This distribution will be at
least $150,000 for each fiscal year (provided that there is an adequate balance
in your Account at the relevant fiscal year end) and will be subject to a
maximum of $300,000 for any fiscal year when combined with payments received by
you on account of dividends, management fees paid to Renco in excess of
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$1,200,000 or other distributions to shareholders for such fiscal year (see
paragraph 5 below). Because the 5% payment may be made before all dividend
related payments for the fiscal year are known, payments made to you under this
provision may be subsequently reduced if the amount of payment received when
combined with the amount received pursuant to paragraph 5 below exceeds
$300,000. In this event, the reduction of this payment will be made by
reducing or eliminating amounts you would have otherwise received as a result of
subsequent dividends paid by the Company or future payments made pursuant to the
first sentence of this paragraph. (For example, assume that 5% of your Account
balance at the end of the previous year was $200,000 which is paid to you on
March 1 of the current fiscal year pursuant to this paragraph, and you were also
entitled to receive payments related to dividends of $30,000 on each of January
1, April 1, July 1, and October 1. Under this scenario, you would be paid
$30,000 on January 1, $200,000 on March 1, $30,000 on April 1, $30,000 on July
1, and $10,000 on October 1. The October 1 dividend related payment was
reduced from $30,000 to $10,000 because that amount resulted in the total amount
paid you for that fiscal year of $300,000). Nothing herein shall limit the
amount of payments you are entitled to receive solely as a result of dividend
payments, or other distributions made to shareholders (see paragraph 5). (For
example, if in a given fiscal year you are entitled to receive $350,000 solely
as a result of dividends paid by the Company, you will receive the full $350,000
as a result of dividends, but because the total payment exceeds $300,000 you
would not receive any payment as a result of the 5% of prior years balance
measurement as described in this paragraph.)
5. If during your term of employment by the Company, the Company pays
dividends to shareholders, or it pays management fees to Renco in excess of
$1,200,000 in any fiscal year, or any other form of distribution to The Renco
Group ("Renco") or any affiliate of Renco (this distribution shall include any
transfer of assets from the Company or its subsidiaries to Renco or any other
subsidiary of Renco in any form whether as cash or other form of value which
shall have the effect of reducing the shareholders' equity of the Company), then
you shall be entitled
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to receive a payment in an amount equal to your Full Percentage of such cash
dividend, management fees paid to Renco in excess of $1,200,000 in the fiscal
year, or other distribution to shareholders. Payments made pursuant to this
paragraph will be considered when determining whether the $150,000 minimum and
$300,000 maximum described in paragraph 4 are met. However, payments made
pursuant to this paragraph are not subject to the $300,000 maximum described in
paragraph 4. Stock dividends (i.e., dividends paid by the distribution of
additional Company shares to shareholders) and stock splits will not result in a
distribution under this paragraph as no assets are distributed to shareholders
and shareholders' equity is not reduced. The payment of cash dividends or
other distributions to shareholders reduces the Net Worth of the Company and
thus will result in a reduction in your Account in an amount equal to your Full
Percentage of such dividends or distributions. Because the balance of your
Account is reduced as a result of the reduction in shareholders' equity, it will
not also be reduced by the related payment made to you in such cases.
6. Except as provided in paragraph 7 below, if there is a "Organized Sale" of
the equity securities of the Company by the shareholders, you will be entitled
to a payment equal to your Full Percentage times the difference between the net
proceeds (net of any related expenses and retained liabilities) on the sale and
your "Base Net Worth Amount" for the interest sold (i.e., your "Base Net Worth
Amount" times the ratio of the number of shares sold in the Organized Sale
divided by the the total number of shares outstanding immediately before the
Organized Sale). Your "Base Net Worth Amount" for purposes of this Agreement
shall be deemed to be $66,109,000. The payment due you will be paid by the
Company if all shareholders have the opportunity to participate in the Organized
Sale (whether they actually choose to participate or not) and by Renco if the
Organized Sale is limited to a sale by Renco, and not available on substantially
equal terms to all shareholders. In the event payments are made to you
pursuant to this paragraph, your Account will be reduced by the amount of the
payment attributable to the Net Worth of the Company (i.e., the balance of your
Account times the ratio of the number of
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shares of the Company sold in the Organized Sale to the total number of shares
outstanding immediately preceding the Organized Sale). Payments made relating
to the premium (i.e., amount of net proceeds in excess of the Net Worth of the
Company for the interest sold), if any, received on the Organized Sale will not
reduce your Account balance. For purposes of this Agreement, an "Organized
Sale" shall mean a transaction or series of transactions whereby all
shareholders are entitled to participate and sell their shares or a transaction
limited to the sale of shares by Renco only. "Organized Sale" specifically
does not include the normal buying and selling of shares by individual investors
in the market, except that it would include the sale of shares in the market
made by Renco to the extent the total shares sold by Renco exceeds five percent
on a cumulative basis (see paragraph 7 below).
7. Notwithstanding paragraph 6 above, you will not be entitled to any payment
due to the sale of equity securities of the Company to a third party by Renco,
until such transaction(s) made subsequent to the date hereof exceeds 5%, in the
aggregate, of the shares held by Renco or Xxx Xxxx Xxxxxxx on the date hereof
(i.e., 1,537,345 common shares which shall be adjusted for any stock dividends
or stock splits made subsequent to November 1, 1995), and then only to the
extent such sale transaction(s) and/or subsequent sale transactions exceeds 5%,
in the aggregate, of the shares held by Renco or Xxx Xxxx Xxxxxxx on the date
hereof.
8. In addition to the above, if there is a "Change Of Control" (as defined in
paragraph 9 below), you will receive a payment at that time of the remaining
amount determined pursuant to paragraph 1. As a condition of this payment,
you will be required to agree to continued employment, on substantially the same
or better terms to you than those then in effect, for a period of up to one year
following the transaction which results in the Change Of Control. Following
this period, you will be entitled to leave the employ of the Company and be
relieved of your non-compete agreement. If Renco sells its interest in full,
or if there is a Change Of Control as described below, and upon payment in full
of amounts due you pursuant to this
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Agreement, the Company's and Renco's obligation to you under this Agreement
will be satisfied in full and the Agreement will terminate.
9. For purposes of this Agreement, Xx. Xxx Xxxx Xxxxxxx shall be deemed to
"Control" the Company provided that he, his immediate family, and estate or
trusts for the benefit of his immediate family, own 20 percent or more of the
outstanding equity of the Company, and, for so long as he is physically able,
Xx. Xxxxxxx or any of his lineal discendants retains the position of Chairman of
the Board of the Company. A "Change Of Control" will be deemed to have
occurred, if the aforementioned conditions of Control are not met or if another
individual, entity, or affiliated individuals or entities, holds a greater
voting interest than Xx. Xxx Xxxx Xxxxxxx, his immediate family, and estate or
trusts for the benefit of his immediate family.
10. The net worth Account will not be reduced by transactions the Company
enters into in its own securities (i.e., treasury stock transactions) nor will
it be increased by the issuance or sale, by the Company, of its own securities
(i.e., stock offerings whereby the proceeds of the offering are retained by the
Company for use in the business). No payment will be due you as a direct
result of the above described transactions unless such transactions result in an
effective distribution to shareholders, or an Organized Sale (as defined), or a
Change Of Control (as defined), in which case the provisions of paragraph 5,6
and/or, 8, if applicable, shall apply. If the Company purchases shares held by
Renco, you will be entitled to a payment equal to your Full Percentage times the
difference between the amount paid for the shares and your Base Net Worth Amount
for the shares purchased (i.e. your Base Net Worth Amount times the ratio of the
number of shares purchased from Renco divided by the total number of shares
outstanding immediately before the share purchase). Any such purchase will
reduce the shareholders' equity of the Company and thus reduce your Account
balance by an amount equal to the payment made to you.
11. Upon termination of your employment with the Company, the vested balance of
your Account will be frozen (i.e., not subject to changes, either up or down, in
the Net Worth of the
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Company) as of the Measurement Date and quarterly payments, without interest,
equal to the balance of your Account divided by 40 will commence upon the
earliest of your age 62, ten years after the termination of your employment, or
twenty years after the date you were first employed by the Company. In any
event, quarterly payments (computed as described above) will commence upon the
earliest of (a) age 62, (b) twenty years after the date you were first employed
by the Company or (c) immediately if your service is involuntarily terminated
without Cause. The above described deferments in payment would also not apply
in event of your serious disability which prevents you from performing your
duties or in other cases of health or family crisis which, in the sole
discretion of the Compensation Committee, warrant waiver of the deferment period
and installment payments computed as described above will then commence
immediately. In the event of your death, your estate or beneficiaries shall
receive a payment, within 90 days of your death, equal to the present value of
the vested balance of your Account (pursuant to the vesting provisions of the
third sentence of paragraph 3), computed using (a) 40 equal quarterly
installments if your Account is not in pay status or the remaining payments due
you under the Agreement if your Account is in pay status, and (b) the discount
rate used for computing the present value of annuitized benefits under the
provisions of the Internal Revenue Code of 1986 and the regulations thereunder
and as same may be amended from time to time.
12. Payments made under this agreement are subject to your faithful adherence
to your confidentiality agreement and to your agreement, by your signature
below, to not enter into any arrangement, including employment arrangements,
with any organization that is a competitor of the Company until after the date
of the last scheduled payment due you under this Agreement, including any
waiting or deferment period as provided in paragraph 11 above. The non-compete
restrictions of this Agreement shall no longer apply if there is a Change Of
Control as defined in paragraph 9.
13. Your rights under this Agreement may not be assigned, transferred, pledged
or hypothecated without the prior approval of the Company, except that, upon
your death, your
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interest in the Account will vest in your estate or heirs and that during your
lifetime, you may assign your interest to a revocable or irrevocable trust for
the primary benefit of your spouse or any lineal descendant of your or your
spouse's grandparents.
14. Upon signing this Agreement, you will receive a one-time payment equal to
$150,000. This payment is in addition to amounts that may be due you as a
result of other provisions of this Agreement and will not be considered when
determining whether the maximum annual payment described in paragraph 4 has been
met or exceeded. This payment will reduce the balance of your Account.
Please confirm that the foregoing sets forth the full agreement with respect to
your net worth appreciation participation by signing and returning the enclosed
copy of this Agreement.
/s/ Xxxxxx X. Xxxxx
________________________________
Xxxxxx X. Xxxxx, President and CEO
WCI Steel, Inc.
By /s/ Xxx Xxxx Xxxxxxx
________________________________
Xxx Xxxx Xxxxxxx, Chairman of the Board
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