-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DIPP204oJd6fRLQTv7xZI9dBYdLj5gVqAzZgEPcr3zqgyV8FUu1z6dPz5JlEpSWN 2mnYZj2y37fSzbOOOtDTvg== 0000011860-01-500016.txt : 20010313 0000011860-01-500016.hdr.sgml : 20010313 ACCESSION NUMBER: 0000011860-01-500016 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010312 FILED AS OF DATE: 20010312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BETHLEHEM STEEL CORP /DE/ CENTRAL INDEX KEY: 0000011860 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 240526133 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-01941 FILM NUMBER: 1566251 BUSINESS ADDRESS: STREET 1: 1170 EIGHTH AVE CITY: BETHLEHEM STATE: PA ZIP: 18016-7699 BUSINESS PHONE: 6106942424 MAIL ADDRESS: STREET 1: 1170 EIGHTH AVE CITY: BETHLEHEM STATE: PA ZIP: 18016-7699 DEF 14A 1 cwc.txt 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 (S) 240.14a-11(c) or (S) 240.14a-12 Bethlehem Steel Corporation - ------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - ------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - ------------------------------------------------------------------------- (5) Total fee paid: - ------------------------------------------------------------------------- [_] 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 number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - ------------------------------------------------------------------------- (3) Filing Party: - ------------------------------------------------------------------------- (4) Date Filed: Notes: Bethlehem Steel Corporation Notice of 2001 Annual Meeting of Stockholders and Proxy Statement Bethlehem [LOGO OF BETHLEHEM STEEL APPEARS HERE] Bethlehem Steel Corporation 1170 EIGHTH AVENUE BETHLEHEM, PA 18016-7699 [LOGO OF BETHLEHEM STEEL APPEARS HERE] March 12, 2001 To All Bethlehem Stockholders: It is a pleasure to invite you to the Annual Meeting of Stockholders which will be held on Tuesday, April 24, 2001. We will meet in the Main Ballroom of the DoubleTree Hotel Wilmington, Wilmington, Delaware, at 10 a.m. Your continuing interest in Bethlehem's business is appreciated, and I hope that as many of you as possible will attend the Meeting in person. The annual election of directors will take place at the Meeting. Personal information about each nominee for the Board of Directors, as well as information about the functions of the Board and its committees, is contained in the Proxy Statement. You are also being asked to ratify the appointment of PricewaterhouseCoopers LLP as Bethlehem's independent auditors for 2001. A proposal by a stockholder is included in the Proxy Statement. For the reasons set forth in the Proxy Statement, the Board of Directors recommends a vote for the proposal. The Compensation Committee proposed, and the Board adopted on December 13, 2000, subject to stockholder approval, the 2001 Stock Incentive Plan. If approved, the 2001 Stock Incentive Plan will replace the 1998 Stock Incentive Plan. The 2001 Plan provides for the award of stock options and shares of Bethlehem Common Stock to key employees of Bethlehem and its subsidiaries. Stock options and stock awards are an important form of compensation for our management personnel, just as they are in other major corporations. The 2001 Stock Incentive Plan is described in detail in the Proxy Statement and is attached as Exhibit 2. We are asking stockholders to approve it at the Meeting. Please read the formal notice of the Meeting and the Proxy Statement carefully. For those of you who cannot be present at the Meeting, I urge you to vote by telephone, through the internet or by completing and returning your proxy in the enclosed envelope. Your vote is important, and Bethlehem's management appreciates your cooperation in directing proxies to vote at the Meeting. Sincerely, /s/ Duane R. Dunham Duane R. Dunham, Chairman BETHLEHEM STEEL CORPORATION 1170 Eighth Avenue Bethlehem, Pennsylvania 18016-7699 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS ---------------------------------------- The Annual Meeting of Stockholders of Bethlehem Steel Corporation will be held in the Main Ballroom, DoubleTree Hotel Wilmington, 4727 Concord Pike, U.S. Route 202, Wilmington, Delaware, on Tuesday, April 24, 2001, at 10 a.m., for the following purposes: (1) to elect ten directors to serve for terms of one year and until their successors have been elected and qualified; (2) to ratify the appointment of PricewaterhouseCoopers LLP as the independent auditors for 2001; (3) to take action upon the 2001 Stock Incentive Plan of Bethlehem; (4) to take action upon a stockholder proposal, if such proposal is presented properly at the Meeting; and (5) to transact such other business as may properly come before the Meeting. Stockholders of record at the close of business on March 5, 2001, are entitled to receive notice of and to vote at the Meeting. This Notice, the Proxy Statement and the enclosed form of proxy are sent to you by order of the Board of Directors. WILLIAM H. GRAHAM Secretary March 12, 2001 - ------------------------------------------------------------------------------- Whether or not you expect to attend the Meeting, please complete and return the enclosed proxy card or vote by telephone or through the internet. - ------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- 1 General Information for Stockholders ------------------------------------ 1 Proxy Solicitation 1 Voting Policy and Procedure 2 Voting Tabulation and Results 3 Stockholder Proposals 3 Item 1 - Election of Directors ------------------------------ 3 General Information 4 Information Concerning Nominees 6 Board Meetings and Committees of the Board 7 Audit Committee Report 8 Director Compensation 9 Retirement Policy 9 Certain Relationships and Related Transactions 10 Item 2 - Ratification of the Appointment of Independent Auditors ---------------------------------------------------------------- 10 Fees 10 Item 3 - Approval of 2001 Stock Incentive Plan ---------------------------------------------- 11 Summary of 2001 Stock Incentive Plan 15 Tax Effects 18 New Plan Benefits 18 Other Information 18 Item 4 - Stockholder Proposal ----------------------------- 18 Proposal 19 Comments and Recommendation of the Board of Directors 21 Stock Ownership Information --------------------------- 21 Stock Ownership of Director Nominees and Executive Officers 22 Five Percent Stockholders 23 Section 16(a) Beneficial Ownership Reporting Compliance 23 Executive Compensation ---------------------- 23 Compensation Committee Report on Executive Compensation 27 Summary Compensation Table 28 Employment Contracts and Termination of Employment and Change-in-Control Arrangements 29 Stock Option/SAR Grants in 2000 30 Aggregated Stock Option/SAR Exercises in 2000 and December 31, 2000, Stock Option Values 30 Pension Plan Table ------------------ 32 Comparative Stock Performance ----------------------------- 33 Additional Information ---------------------- 33 Indemnification Assurance Agreements 33 Other Matters Exhibit 1 - Audit Committee Charter ----------------------------------- Exhibit 2 - 2001 Stock Incentive Plan ------------------------------------- Proxy Statement The Board of Directors of Bethlehem Steel Corporation is furnishing this Proxy Statement in connection with its solicitation of proxies for use at the Annual Meeting of Stockholders to be held on April 24, 2001, and any adjournments thereof (the "Meeting"). This Proxy Statement and the accompanying form of proxy are being mailed to stockholders on or after March 12, 2001. GENERAL INFORMATION FOR STOCKHOLDERS Proxy Solicitation Bethlehem's Board of Directors solicits proxies in order to provide every stockholder with an opportunity to vote on all matters that properly come before the Meeting, whether or not the stockholder attends in person. When you as a stockholder vote by telephone or the internet or properly sign, date and return the enclosed form of proxy, the persons named as proxies vote your shares in accordance with your directions. If you send no directions, the persons named as proxies will vote your shares in accordance with the Board's recommendation. Bethlehem will bear the cost of soliciting proxies. A number of its officers and regular employees may solicit proxies personally and by telephone. In addition, Georgeson Shareholder Communications Inc. will assist Bethlehem in soliciting proxies from brokers, bank nominees and institutional holders for an estimated fee of $10,000 plus expenses. Brokerage houses, nominees and other custodians and fiduciaries will send proxy material directly to their principals, and Bethlehem will reimburse them for their expenses in doing so. Voting Policy and Procedure Record Date. Holders of record of Bethlehem Common Stock and ESOP Preference Stock on March 5, 2001 (the "Record Date") are entitled to notice of the Meeting and to vote at the Meeting the shares held on that date. Each share of Common Stock and ESOP Preference Stock is entitled to one vote. Confidential Voting. Bethlehem has adopted a confidential voting policy which provides that votes will be held in confidence from Bethlehem, its directors, officers and employees except: . to allow the independent inspector of election to certify the results of the vote; . as necessary to meet applicable legal requirements and to assert or defend claims for or against Bethlehem; . in case of a contested proxy solicitation; or . in the event a stockholder has made a written comment on the proxy material. As part of the policy, Bethlehem will continue to employ an independent tabulator to receive and tabulate the proxies and an independent inspector of election. 1 Methods of Voting. You can vote your shares by ballot at the Meeting or by proxy using one of the following methods: . Vote by Telephone: On a touch-tone telephone dial 1-877-779-8683 from the U.S. and Canada or dial 201-536-8073 from other countries. You will be asked to enter the Voter Control Number located in the box just below the perforation on the enclosed proxy card. Then follow the instructions. . Vote by Internet: Point your browser to the web address: http://www.eproxyvote.com/bs Click on the "Proceed" icon - You will be asked to enter the Voter Control Number located in the box just below the perforation on the enclosed proxy card. Then follow the instructions. . Vote by Mail: Mark, sign and date the enclosed proxy card and return it in the postage paid envelope. You may revoke your proxy or submit a revised proxy at any time before it is voted at the Meeting. If you choose to vote by telephone or the internet, however, your proxy must be revised or revoked by 5 p.m., Eastern standard time, on April 23, 2001. After that time, your vote may only be revised or revoked by submitting a ballot at the Meeting, which cancels any proxy previously voted. Voting Under Benefit Plans. The enclosed form of proxy indicates the shares of Common Stock and ESOP Preference Stock allocated to your accounts in the following plans on the Record Date: . Bethlehem Steel Corporation Employee Stock Ownership Plan; . Savings Plan for Salaried Employees of Bethlehem Steel Corporation and Subsidiary Companies; and . 401(k) Retirement Savings Plan for Certain Represented Employees of Bethlehem Steel Corporation and Subsidiary Companies. When you vote by telephone or the internet or properly sign, date and return the enclosed proxy card, you tell the trustees under these plans to vote the shares allocated to your accounts as you instruct them. In order for your voting instructions under these plans to have effect, you must vote by telephone or the internet or return the enclosed form of proxy to Bethlehem's tabulator before 5 p.m., Eastern standard time, on April 20, 2001. If you fail to do so, the trustees will vote the shares allocated to your accounts in the same proportions as the shares for which instructions for the particular plan are received. Voting Tabulation and Results The independent inspector of election will tabulate the votes cast at the Meeting. The inspector of election will treat shares of Common Stock and ESOP Preference Stock represented by a properly executed proxy as present at the Meeting for purposes of determining a quorum. This will be done regardless of whether the proxy is marked as casting a vote or abstaining. Likewise, the inspector of election will treat shares of Common Stock represented by "broker non-votes" as present for purposes of determining a quorum. 2 The Board nominees who receive the greatest number of the affirmative votes cast by holders of Common Stock and ESOP Preference Stock, up to the number of directors to be elected, will be elected. Accordingly, so long as a quorum is present, abstentions or broker non-votes will not affect the election of directors. The affirmative vote of the holders of a majority of the shares of Common Stock and ESOP Preference Stock that are present in person or by proxy and entitled to vote at the Meeting, voting together as a single class, is required to ratify the appointment of the independent auditors, approve the 2001 Stock Incentive Plan and adopt the stockholder proposal. Therefore, abstentions and broker non-votes will have the same effect as votes against these proposals. Stockholder Proposals You may include a proposal in the proxy statement for a future annual meeting of stockholders if it is a proper subject for inclusion, is submitted to Bethlehem on a timely basis and otherwise complies with Securities and Exchange Commission rules ("SEC rules") and the laws of the State of Delaware. Each proposal you submit should include your full and correct registered name and address, the number of shares you own and their dates of acquisition. If you claim beneficial ownership, you must submit proof of it with the proposal. In addition, you must appear personally or by proxy at the Meeting to present the proposal for action. In order for such proposals to be included in the proxy statement for the Annual Meeting of Stockholders to be held in 2002, Bethlehem must receive them on or before November 12, 2001. You may also submit proposals not intended to be included in the proxy statement in accordance with SEC rules and the advance notice provisions of Bethlehem's By-laws. If you intend to submit such a proposal for consideration at the 2002 Annual Meeting, you must forward the proposal to Bethlehem in writing on or before January 24, 2002, and must otherwise comply with such advance notice provisions and applicable Delaware law. If you give notice of such a proposal after this deadline, you will not be permitted to present the proposal to the stockholders for a vote at the Meeting. The Board carefully considers all proposals and suggestions submitted by stockholders. Management and the Board will adopt a proposal or suggestion if it is practicable and in the best interests of Bethlehem and its stockholders. ITEM 1 - ELECTION OF DIRECTORS General Information The business and affairs of Bethlehem are managed by or under the direction of its Board of Directors. Stockholders elect directors in April of each year to serve for terms of one year and until their successors have been elected and qualified or until their earlier resignation, retirement or removal. Absent instructions to the contrary, the persons named in the accompanying form of proxy intend to vote the shares covered by proxies "For" the election of the director nominees named below. Absent instructions to the contrary, if any nominee shall, prior to the Meeting, become unavailable for election as a director, the persons named in the accompanying form of proxy will vote for a substitute nominee, if the Board recommends one. 3 Information Concerning Nominees The following 10 nominees have been recommended by the Committee on Directors and proposed by the entire Board of Directors. Of the 10 nominees, 8 are not employees of Bethlehem. These 8 non-employee Board members bring valuable experience to Bethlehem from a variety of fields. None of them has carried on an occupation or employment with any subsidiary or other affiliate of Bethlehem. All of the nominees have been recommended on the basis of their demonstrated broad knowledge, experience and ability in their respective endeavors and, most importantly, on the basis of their ability to represent the interests of all stockholders, rather than the special interests of a particular group. Each nominee is presently a director of Bethlehem and has previously been elected a director by the stockholders. [PHOTO OF Benjamin R. Civiletti - Mr. Civiletti, age 65, was elected BENJAMIN R. a director of Bethlehem in 1993. He has been CIVILETTI Chairman of Venable, Baetjer and Howard, a law firm, APPEARS HERE] since 1993 and a partner since 1981. He had been Managing Partner of that firm from 1987 until 1993. He previously served as Attorney General of the United States from 1979 to 1981. Mr. Civiletti is also a director of MBNA America Bank, N.A., MBNA International Bank Limited, The Wackenhut Corporation and Wackenhut Corrections Corporation. [PHOTO OF Worley H. Clark - Mr. Clark, age 68, was elected a WORLEY H. director of Bethlehem in 1993. He is President of W "H" CLARK Clark Associates, Ltd., a consulting firm. He retired APPEARS HERE] as Chairman and Chief Executive Officer of Nalco Chemical Company, a manufacturer of specialty chemicals, in 1994, having held the positions of Chief Executive Officer since 1982 and Chairman since 1984 and having been an employee of that company since 1960. Mr. Clark is also a director of Ultramar Diamond Shamrock Corporation, Merrill Lynch & Co., Inc., Millennium Chemicals Inc. and Georgia-Pacific Corporation. [PHOTO OF John B. Curcio - Mr. Curcio, age 66, was elected a JOHN B. director of Bethlehem in 1988. He was Chief Executive CURCIO Officer and a director of Mack Trucks, Inc., a manufacturer APPEARS HERE] of heavy-duty trucks, from 1983 until 1989 and Chairman of the Board from 1985 until his retirement. Mr. Curcio is also a director of Minerals Technologies, Inc. and Integrated Components Systems, Inc. and Vice Chairman of Dallas & Mavis Specialized Carrier Co. and Jupiter Logistics, de Mexico, S.A. de C.V. [PHOTO OF Duane R. Dunham - Mr. Dunham, age 59, was elected a DUANE R. director of Bethlehem in 1999. He was elected Chairman, DUNHAM President and Chief Executive Officer effective APPEARS HERE] April 25, 2000. He has been an employee of Bethlehem since 1965, holding various positions. Prior to his election as Chairman, President and Chief Executive Officer, Mr. Dunham had been President and Chief Operating Officer since 1999 and, prior to that time, he had been President, Sparrows Point Division, since 1993. 4 [PHOTO OF Lewis B. Kaden - Mr. Kaden, age 58, was elected a director LEWIS B. of Bethlehem in 1994. He has been a partner of Davis KADEN Polk & Wardwell, a law firm, and an Adjunct Professor of APPEARS HERE] Law at Columbia University since 1984, where he was a Professor of Law from 1976 to 1984. [PHOTO OF Harry P. Kamen - Mr. Kamen, age 67, was elected a director HARRY P. of Bethlehem in 1993. He retired in 1998 as Chairman of the KAMEN Board annd Chief Executive Officer of Metropolitan Life APPEARS HERE] Insurance Company, a life insurance company, positions he held since 1993. He held the additional title of President of Metropolitan Life from December 1995 to November 1997. Mr. Kamen is also a director of Banco Santander Central Hispano, BDirect Capital, Inc., Metropolitan Life Insurance Company, Pfizer Inc. and National Association of Securities Dealers, Inc. [PHOTO OF William M. Landuyt - Mr. Landuyt, age 45, was elected a WILLIAM M. director of Bethlehem in 1998. He has been Chairman and LANDUYT Chief Executive Officer of Millennium Chemicals APPEARS HERE] Inc., an international chemicals company, since its demerger from Hanson PLC on October 1, 1996. He has also been President of Millennium since June 1997. Mr. Landuyt was a director and President and Chief Executive Officer of Hanson Industries (which managed the U.S. operations of Hanson PLC until the demerger) from June 1995 until the demerger, a director of Hanson PLC from 1992 until September 1996, Finance Director of Hanson PLC from 1992 to May 1995, and Vice President and Chief Financial Officer of Hanson Industries from 1988 to 1992. He joined Hanson Industries in 1983. [PHOTO OF Gary L. Millenbruch - Mr. Millenbruch, age 63, was elected GARY L. a director of Bethlehem in 1991. He was elected Vice MILLENBRUCH Chairman effective August 1, 1999 and has been Chief APPEARS HERE] Financial Officer since 1992. He has been an employee of Bethlehem since 1959, holding various positions. Prior to his election as Vice Chairman, he had been Executive Vice President since 1992, Senior Vice President from 1986 to 1992, and Treasurer from 1994 to September 1999. 5 [PHOTO OF Shirley D. Peterson - Mrs. Peterson, age 59, was elected a SHIRLEY D. director of Bethlehem in 1996. She retired in June 2000 as PETERSON President of Hood College, a position she held since 1995. APPEARS HERE] She was a member of Steptoe & Johnson, a law firm, from 1993 through 1994, Commissioner of the Internal Revenue Service from 1992 to 1993, and an Assistant Attorney General (Tax Division), United States Department of Justice, from 1989 to 1992. Mrs. Peterson is also an Independent Trustee of Kemper Mutual Funds. [PHOTO OF John F. Ruffle - Mr. Ruffle, age 63, was elected a JOHN F. director of Bethlehem in 1990. He retired in 1993 as Vice RUFFLE Chairman of the Board of J.P. Morgan & Co. Incorporated, a APPEARS HERE] bank holding company, and Morgan Guaranty Trust Co. of New York, a commercial bank, positions he held since 1985. Mr. Ruffle is also a director of Trident Corporation, American Shared Hospital Services, Inc., The Wackenhut Corporation and Wackenhut Corrections Corporation, a Trustee of JP Morgan Series Trust II and a member of the Board of Managers of the North Moore Fund, LLC and JP Morgan Global Emerging Markets Fund, LLC. In addition to the business activities described above, the director nominees also participate in various other business, professional and charitable activities. Board Meetings and Committees of the Board Directors are kept informed of Bethlehem's business by presentations made at Board meetings and by various reports sent to them by management. The Board of Directors meets regularly and met 10 times during 2000. Directors also meet in committees of the Board. During 2000, the average attendance of directors at Board meetings and meetings of committees to which they belonged was approximately 98%. Executive Committee. This Committee consists of Messrs. Dunham (Chairman) and Millenbruch and met 6 times in 2000. It has all of the powers of the Board during intervals between Board meetings. Finance Committee. This Committee consists of Mr. Dunham (Chairman) and all other directors and met 8 times in 2000. It advises the Board, the Executive Committee and the officers and employees of Bethlehem with respect to all activities, plans and policies affecting the financial affairs of Bethlehem, including dividends. Compensation Committee. This Committee consists of Messrs. Clark (Chairman), Curcio and Kamen and met 8 times in 2000. It has the responsibility for management compensation and review and has, but is not limited to, the following powers: . to fix the compensation to be paid to the principal corporate officers of Bethlehem; . to administer the Annual Incentive Compensation Plan for Key Employees of Bethlehem, the 1998, 1994 and 1988 Stock Incentive Plans of Bethlehem, the 1994 Non-Employee Directors Stock Plan and, if approved by stockholders, the 2001 Stock Incentive Plan of Bethlehem; and 6 . to review and approve Bethlehem's report on executive compensation contained in this Proxy Statement. The members of this Committee do not participate in the executive compensation programs the Committee administers. Committee on Directors. This Committee consists of Mr. Civiletti (Chairman) and all other non-employee directors and met 7 times in 2000. It advises the Board on corporate governance issues and has, but is not limited to, the following powers: . to search for persons qualified to be members of the Board and to make recommendations about them to the Board; . to review and evaluate the members of the Board, the Committees of the Board and procedures and policies of the Board; . to review and evaluate the performance of Bethlehem and its management; . to review compensation and benefits for members of the Board; and . to review organization, strategic planning and scheduling for the Board and the Committees of the Board. If you as a stockholder wish to recommend a nominee for membership on the Board of Directors, you should write to the Secretary of Bethlehem specifying the name of the nominee and his or her qualifications. Each submission must include the written consent of the person proposed for nomination indicating that he or she is willing and able to serve as a director of Bethlehem. All such recommendations will be brought to the attention of the Committee on Directors. Audit Committee. This Committee consists of Messrs. Ruffle (Chairman), Civiletti, Kaden and Landuyt and Mrs. Peterson and met 4 times in 2000. Information regarding this Committee is contained in the "Audit Committee Report" below and the Committee's Charter attached to this Proxy Statement as Exhibit 1. Audit Committee Report In accordance with its written Charter adopted by the Board of Directors, the Audit Committee of the Board assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of Bethlehem. Each member of the Committee is independent as defined by the New York Stock Exchange listing standards. The Committee chairman, as the representative of the Committee, reviewed the interim financial information contained in each quarterly earnings announcement with management prior to public release and obtained the assurance that the required review of quarterly results by the independent auditors had been conducted on a timely basis. In discharging its oversight responsibility as to the audit process, the Committee obtained from the independent auditors a formal written statement describing all relationships between the independent auditors and Bethlehem that might bear on the independent auditors' independence consistent with Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees"; 7 discussed with the independent auditors any relationships that may impact their objectivity and independence, including whether the independent auditors' provision of non-audit services was compatible with maintaining their independence; and satisfied itself as to the independent auditors' independence. The Committee also discussed with management, the internal auditors and the independent auditors the quality of Bethlehem's internal controls and the organization, responsibilities, budget and staffing of the internal auditors. The Committee also reviewed with both the independent auditors and the internal auditors their audit plans for the year 2000. The Committee discussed with the independent auditors all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, "Communication with Audit Committees" and, with and without management present, discussed and reviewed the results of the independent auditors' audit of the financial statements. The Committee also discussed the results of the internal audits with both Bethlehem's General Auditor and independent auditors. The Committee reviewed and discussed the audited financial statements of Bethlehem as of and for the fiscal year ended December 31, 2000, with management and the independent auditors. Management is responsible for preparing Bethlehem's financial statements and the independent auditors are responsible for auditing those statements. Based on the above-mentioned review and discussions with management and the independent auditors, the Committee recommended to the Board that Bethlehem's audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2000, for filing with the Securities and Exchange Commission. The Committee also recommended the reappointment, subject to stockholder approval, of the independent auditors and the Board concurred in such recommendation. Audit Committee John F. Ruffle, Chairman Benjamin R. Civiletti Lewis B. Kaden William M. Landuyt Shirley D. Peterson Director Compensation Each non-employee director receives the following compensation for service: . an annual retainer of $25,000, payable quarterly; . an annual retainer of $5,000, payable quarterly, to the Chairman of the Audit Committee, Compensation Committee and Committee on Directors; . attendance fees of $1,000 for the Annual Meeting of Stockholders, any Board of Directors meeting, and any committee meeting(s) whether or not held on the same day as a board meeting; and . 500 shares of Bethlehem Common Stock awarded on December 1 of each year pursuant to the 1994 Non-Employee Directors Stock Plan, which was approved by stockholders. 8 Non-employee directors also receive reimbursement for any expenses they incur in connection with the business and affairs of Bethlehem. Neither of the directors who are employees of Bethlehem receive compensation separately for service as a member of the Board of Directors or any committee of the Board. Under the Post Retirement Retainer Plan, non-employee directors who retire from the Board with 10 or more years of service will receive annual payments equal to 100% of the annual retainer fee payable at retirement. Non-employee directors who retire with between 5 and 10 years of service will receive annual payments starting at 50% of the annual retainer fee payable at retirement for directors with 5 years of service and increasing 10% for each year of service up to 10 years. The annual payments will begin at retirement (or at age 65 if retirement is prior to age 65) and will continue for a period equal to the director's years of service with the Board. A deferred compensation plan for non-employee directors has been implemented beginning in 2001. The plan is voluntary and participating directors may defer up to 100% of cash compensation under the plan to either a cash or Bethlehem Common Stock account. Deferrals to a cash account are credited with investment returns based on investment options approved by the Board of Directors and selected by the director. Deferrals to the Bethlehem Common Stock account are credited as common stock units which will not have voting rights, but the director will be considered a "beneficial" owner of stock represented by such units for the purposes of dividends or other distributions. Distributions from the plan are made when the participant ceases to be a director in the form of (a) a lump-sum cash payment or annual installment cash payments for up to 10 years, at the participant's election, in the case of the cash account, and (b) shares of Bethlehem Common Stock (cash in lieu of fractional shares), in the case of the stock account. Retirement Policy The general retirement policy of the Board of Directors provides that non-employee directors shall retire at the end of the term in which they reach age 70. However, the current non-employee directors who were elected at the 1991 Annual Meeting of Stockholders (Messrs. Curcio and Ruffle) shall retire no later than at the end of the term in which they reach age 72. Employee directors shall retire from the Board at the time of their retirement from Bethlehem. The present retirement age for management employees of Bethlehem is 65. Certain Relationships and Related Transactions Pursuant to the terms of a 1999 labor agreement with the United Steelworkers of America ("USWA"), the USWA has the right to designate a nominee for consideration by the Committee on Directors and the Board of Directors for one seat on the Board. The nominee is to be a prominent individual with experience in public service, labor, education or business. The nominee shall not be or become, while serving as a director, an officer, employee or director of the USWA. Subject to complying with the same standards of conduct as every other Bethlehem director, and subject to annual election by the stockholders, the USWA nominee will serve as a director during the term of the 1999 labor agreement, which terminates July 31, 2004. Mr. Kaden, who has been the USWA's designated nominee throughout the term of the 1993 labor agreement, was again designated by the USWA for consideration 9 as a director of Bethlehem by the Committee on Directors. The Committee on Directors has recommended Mr. Kaden's election to the Board. As noted above, Mr. Civiletti is Chairman of Venable, Baetjer and Howard and Mr. Kaden is a partner of Davis Polk & Wardwell. Both of these law firms render legal service to Bethlehem in the ordinary course of business. ITEM 2 - RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors, on the recommendation of the Audit Committee, has appointed the firm of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") as independent auditors to audit the financial statements of Bethlehem and its consolidated subsidiaries for the year 2001. Representatives of PricewaterhouseCoopers are expected to be present at the Meeting. They will have an opportunity to make a statement at the Meeting if they so desire and are available to respond to appropriate questions. The affirmative vote of the holders of a majority of the shares of Common Stock and of ESOP Preference Stock that are present in person or by proxy and entitled to vote at the Meeting, voting together as a single class, is required for ratification of the appointment of the independent auditors. The Board of Directors recommends that stockholders vote "For" ratification of the appointment of the independent auditors. Fees Audit Fees. Audit fees for 2000 were $749,800, of which an aggregate amount of $592,200 has been billed by PricewaterhouseCoopers through December 31, 2000. Such fees include the audit of the financial statements of Bethlehem and its consolidated subsidiaries as filed on Form 10-K and the review of quarterly financial information as filed on Forms 10-Q for the first three quarters of 2000. Financial Information Systems Design and Implementation Fees. No fees were billed for this item during 2000. All Other Fees. Additional fees totaled $304,650, primarily relating to audits of employee benefit plans. ITEM 3 - APPROVAL OF 2001 STOCK INCENTIVE PLAN On December 13, 2000 the Board of Directors adopted and recommended for submission to stockholders for their approval the 2001 Stock Incentive Plan (the "2001 Plan"). If approved, the 2001 Plan would replace the 1998 Stock Incentive Plan (the "1998 Plan") which was previously approved by stockholders and is scheduled to terminate December 31, 2002. There are about one million shares remaining under the 1998 Plan. These shares will no longer be available for future awards if the 2001 Plan is approved by stockholders. The Board of Directors believes that it is desirable that Bethlehem continue to have a stock incentive plan to help align the interests of executive officers and other key employees of Bethlehem and its subsidiaries with the interests of stockholders. 10 If approved by stockholders, the 2001 Plan would become effective on April 24, 2001 and would terminate on December 31, 2005. Summary of 2001 Stock Incentive Plan The main features of the 2001 Plan are described below, but the description is qualified in its entirety by reference to the complete text of the 2001 Plan which appears as Exhibit 2 to this Proxy Statement. 1. The 2001 Plan provides for the grants of options to acquire Bethlehem Common Stock, awards of restricted and unrestricted shares of Bethlehem Common Stock, and awards of stock units, each of which represents the right to receive a share of Bethlehem Common Stock or cash, securities or other property with a value equal to a share of Bethlehem Common Stock. There will be reserved 6,400,000 shares of Bethlehem Common Stock for use upon the exercise of, or the surrender of the right to exercise, options and pursuant to stock or stock unit awards (4.9% of the shares of Common Stock outstanding and not held in treasury at March 5, 2001), although the number of shares to be issued pursuant to stock or stock unit awards will not exceed 3,000,000, subject in each case to adjustments as set forth below in this paragraph. Such shares may be, in whole or in part, as the Board from time to time determines, issued shares of Common Stock that have been reacquired by Bethlehem or authorized but unissued shares of Common Stock. The number of shares is subject to adjustment in the event of changes in the outstanding Common Stock of Bethlehem by reason of stock dividends, stock splits, recapitalizations and the like. In general, if an option expires or terminates or is forfeited or canceled for any reason without having been exercised or the right to exercise it surrendered in full, the shares covered thereby again become available for the purposes of the 2001 Plan, and if any stock or stock unit award is forfeited before the restrictions provided for in such stock or stock unit award lapse in full, the shares covered thereby again become available for the purposes of the 2001 Plan. 2. Only regular key employees (including officers) of Bethlehem or any of its subsidiaries who are selected by the Board may receive option, stock or stock unit awards under the 2001 Plan. No officer or employee may receive option, stock or stock unit awards over the period the 2001 Plan is in effect for an aggregate of more than 640,000 shares under the 2001 Plan, subject in each case to adjustments as described above in paragraph 1. 3. Options may be "incentive stock options" within the meaning of Section 422(b) of the Internal Revenue Code of 1986 or nonqualified stock options. The purchase price of the Common Stock covered by each option will be not less than 100% of the fair market value of the Common Stock at the time of granting the option, determined as provided in the 2001 Plan. No outstanding option may be amended to lower the purchase price of the Common Stock covered thereby. The purchase price is payable in full at the time of exercise in cash or in whole or in part with shares of Common Stock (valued at the closing sale price of a share of Common Stock on the New York Stock Exchange on the date the option is exercised). If shares of Common Stock are used to satisfy the exercise price, such shares must have been acquired either (i) at least six months prior to the exercise date or (ii) in an open market transaction. Common Stock payments must be made by delivery of (i) stock certificates in negotiable form or (ii) a completed attestation form prescribed by Bethlehem setting forth the shares of Common Stock owned by the holder which such holder wishes to utilize to satisfy the exercise price. 11 4. The term of each option will be not more than ten years from the date of grant, and will be subject to earlier termination or forfeiture as described below. Options may be exercised, as determined by the Board and specified in the applicable written option agreement, at any time or from time to time, in one or more installments, as the Board in its discretion determines. The Board may also establish conditions to exercise based upon continued employment, the attainment of specified financial performance goals and other relevant factors. 5. Unless otherwise determined by the Board and set forth in an agreement, option, stock and stock unit awards will not be transferable otherwise than by will or the laws of descent and distribution. With the approval of the Board, a nonqualified stock option may be transferred by gift to any member of the holder's immediate family or to a trust for the benefit of one or more of such immediate family members. 6. If so authorized by the Board, the right to exercise an option, or a portion thereof (but only to the extent and in the amounts that such option shall then be exercisable), may be surrendered to Bethlehem in return for the payment by Bethlehem of an amount equal to the excess of the fair market value of the shares of Common Stock covered thereby, or portion thereof, over the option price thereof. Any such payment may be made in shares of Common Stock (valued, generally, at the closing sale price of the Common Stock on the New York Stock Exchange on the date of surrender), or in cash, or partly in cash and partly in shares of Common Stock, as the Board shall determine. 7. The Board may permit any taxes required to be withheld in connection with any option, stock or stock unit award to be paid in cash, in already-owned shares of Common Stock, or by the withholding of shares of Common Stock otherwise issuable upon the exercise or vesting of any such award, or any combination of the foregoing. 8. An option agreement may provide that (i) any shares of Common Stock issued upon the exercise of the option provided for therein, (ii) any payment (whether in shares of Common Stock, or in cash, or some combination thereof) made by Bethlehem upon the surrender of the right to exercise the option provided for therein, (iii) the option itself provided for therein or (iv) any combination of the foregoing will be forfeited and returned to Bethlehem if the recipient is no longer in the employ of Bethlehem or one or more of its subsidiaries during the period or periods specified by such agreement. The holder of an option will, as one of the conditions of the option agreement relating thereto, agree to remain in the employ of Bethlehem or one or more of its subsidiaries in order to exercise the option. Any such condition to remain in the employ of Bethlehem or one or more of its subsidiaries will not apply (i) if employment terminates by reason of retirement, death or permanent disability or (ii) if a change in control occurs. The term "change in control" means (i) the first purchase of shares pursuant to a tender offer or exchange offer (other than a tender offer or exchange offer by Bethlehem) for all or part of Bethlehem's Common Stock or any securities convertible into such Common Stock that would result in a person or group owning 15% or more of the Common Stock, (ii) the receipt by Bethlehem of a Schedule 13D or other advice indicating that a person or group is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of 15% or more of Bethlehem's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3, (iii) such person or group is the beneficial owner of 5% or more of Bethlehem's Common Stock and makes a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) any consolidation or merger of Bethlehem in which Bethlehem will not be the continuing or surviving corporation or pursuant to which shares of Common Stock of 12 Bethlehem would be converted into cash, securities or other property, other than a merger of Bethlehem in which the holders of Bethlehem Common Stock immediately prior to the merger would have at least 66-2/3% of the ownership of common stock of the surviving corporation immediately after the merger, (v) the date of the approval by stockholders of Bethlehem of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all of or substantially all the assets of Bethlehem or (vi) the adoption of any plan or proposal for the liquidation or dissolution of Bethlehem. 9. A holder of an option who retires or whose employment is terminated by reason of permanent disability (and, if the holder dies within five years after such retirement or such termination by reason of permanent disability, such holder's estate or a person who has acquired the right to exercise such option by bequest or inheritance) may exercise the option, or, subject to acceptance by Bethlehem, surrender it as described in paragraph 6 above, at any time within five years after such retirement or after such termination by reason of permanent disability, but not after the expiration of the term of the option. If the holder dies after such retirement or such termination by reason of permanent disability and during the period during which the option may be exercised, his estate or such person who has acquired the right to exercise the option will be deemed to have offered, immediately prior to the termination of such period, to surrender the right to exercise the option as described in paragraph 6 above, unless the option has theretofore been exercised or so surrendered or forfeited. The term "permanent disability" means disability by bodily injury or disease, either occupational or non-occupational in cause, preventing the employee on the basis of satisfactory medical evidence from engaging in any employment of the type normally performed by the employee. 10. If the holder of an option dies while employed by Bethlehem or by one or more of its subsidiaries or during such time as an option is exercisable following termination of employment as described in paragraph 9 above, the option may be exercised in whole or in part, or, subject to acceptance by Bethlehem, the right to exercise the option may be surrendered as described in paragraph 6 above, by his estate (or by a person who has acquired the right to exercise such option by bequest or inheritance) at any time within five years after the date of death but not after the expiration of the term of the option. 11. Anything in the 2001 Plan to the contrary notwithstanding, if a change in control occurs, the right to exercise all outstanding options, to the extent such options have not theretofore been forfeited or exercised or the right to exercise such options theretofore surrendered, will automatically vest in accordance with their respective terms. Upon the occurrence of a change in control, an employee to whom an option was granted may exercise the portion, if any, of such option that is then exercisable, and any and all installments of such option that are not then exercisable and have not theretofore been forfeited will automatically become exercisable on the date or dates established in the option agreement relating thereto as the date or dates on which such installment or installments become exercisable, regardless of whether the conditions, if any, to exercise, based upon continued employment, the attainment of specified financial performance goals or any other factor, have been or are thereafter satisfied. Such employee or, if such employee dies, the estate of such employee (or a person who shall have acquired the right to exercise such option by bequest or inheritance) may exercise each such portion that becomes exercisable pursuant to the immediately preceding sentence during the six-month period after it has become exercisable, but not after the expiration of the term of the option. 13 12. Each stock or stock unit award will be subject to such terms and conditions as the Board in its discretion determines, which may include, without limitation, conditions for issuance of shares of Common Stock, cash, securities or other property pursuant thereto at any time subsequent to the granting thereof or in installments from time to time or providing for forfeiture of such award or the shares, cash, securities or other property issued or theretofore issued pursuant thereto in designated circumstances. The Board may in its discretion award unrestricted shares of Common Stock in consideration of services theretofore rendered by the recipient. The Board in its discretion may require, among other things, that the recipient pay the par value for the shares to be issued pursuant to the award. A stock or stock unit award made pursuant to the 2001 Plan may be subject to such terms, conditions and restrictions, including, without limitation, substantial risks of forfeiture based upon requirements relating to continued employment, the attainment of specified financial performance goals or other relevant factors and for such period or periods as are determined by the Board at the time that the stock or stock unit is awarded. In the event of a recipient's termination of employment for any reason prior to the lapse of restrictions applicable to a stock or stock unit award made to such recipient, the Board may determine in its sole discretion that any or all rights to shares of Common Stock or stock units as to which there will still remain unlapsed restrictions will be forfeited by such recipient to Bethlehem without payment or any consideration by Bethlehem, or that the restrictions with respect to all or a portion of such shares or stock units will terminate. The recipient of a stock unit award will have only the rights of a general unsecured creditor of Bethlehem until delivery or issuance of shares of Common Stock, cash, securities or other property, as specified in the applicable stock unit agreement. Upon the delivery or vesting date as specified in the applicable stock unit agreement, the recipient of a stock unit award shall receive, in respect of each stock unit not previously forfeited, one share of Common Stock, or cash, securities or other property equal in value to a share of Common Stock, or a combination thereof, as specified in the applicable stock unit agreement. 13. The 2001 Plan will be administered by the Board or by a committee appointed by the Board consisting of not less than three members of the Board. Subject to the provisions of the 2001 Plan, the Board or such committee will determine the employees to whom option, stock and stock unit awards shall be granted, the type of awards, and the terms and conditions of each award. The committee will be composed of individuals who are not employees of Bethlehem or its subsidiaries and who receive fees from Bethlehem only in their capacity as members of the Board. It is expected that the Compensation Committee will be appointed to administer the 2001 Plan. 14. The 2001 Plan may be amended by the stockholders of Bethlehem. The Board may also amend the 2001 Plan, but it may not, without approval of the stockholders, (i) increase the maximum number of shares as to which awards may be granted under the 2001 Plan (other than as described in paragraph 1 above), (ii) change the manner of determining the option prices except to change the manner of determining the fair market value of the Common Stock as provided in the 2001 Plan, (iii) increase the maximum term of each option as set forth in the first sentence of paragraph 4 above, (iv) change the provisions outlined in the third sentence of paragraph 13 above or (v) extend the term of the 2001 Plan. No amendment of the 2001 Plan may adversely affect any rights under an outstanding option, stock or stock unit award without the consent of the holder thereof. 14 15. Unless extended by approval of the stockholders, the 2001 Plan will terminate on December 31, 2005; provided that the Board or the stockholders may terminate the 2001 Plan at an earlier date. No termination of the 2001 Plan may adversely affect any rights under an outstanding award without the consent of the holder thereof. 16. The 2001 Plan provides that its submission to stockholders for approval will not be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options, stock or stock units otherwise than under the 2001 Plan. Tax Effects Incentive Stock Options. Under the Internal Revenue Code of 1986 (the "Code"), if shares of Common Stock are issued to the original holder of an incentive stock option granted and exercised in accordance with the 2001 Plan, and exercised during employment or within three months after the participant's termination of employment (12 months in the case of permanent and total disability as defined in the Code), then (1) no income will be realized by such holder at the time of the grant of the option or the transfer of such shares to such holder pursuant to the exercise of such option; (2) for purposes of the alternative minimum tax, the holder will have alternative minimum taxable income resulting from the exercise of the option, and tax basis in the shares received on exercise of the option, determined at the same time and in the same amount as if the option were a nonqualified option (so that, for example, alternative minimum taxable income will generally be based on the value of the shares on the date of exercise of the option); (3) no deduction will be allowable to Bethlehem for Federal income tax purposes in connection with the grant or exercise of such option; and (4) upon a sale or exchange of such shares after the later of (a) one year from the date of transfer of the shares to the original holder and (b) two years from the date of the grant of the option, any amount realized by such holder in excess of the option price will be taxed to the holder as long-term capital gain, and any loss sustained by the holder will be a long-term capital loss. If such shares are disposed of before the holding period requirements in clause (4) above are satisfied, then (i) the holder will recognize taxable ordinary income in the year of the disposition in an amount equal to the excess of the fair market value of the shares at the time of the option's exercise (or the proceeds of the disposition, if less) over the option price; (ii) subject to the limitations described below, Bethlehem will be entitled to a deduction in the amount of the ordinary income so recognized; (iii) the holder will realize short- or long-term capital gain or loss, as the case may be, in an amount equal to the difference between (x) the amount realized by the holder upon sale or exchange of the shares and (y) the option price paid by the holder increased by the amount of ordinary income, if any, realized by the holder; and (iv) the alternative minimum tax calculation described above will nevertheless still apply in the year of exercise, although if the shares are sold to an unrelated party in the taxable year of exercise there should generally be no adverse effect because the alternative minimum taxable income will then be limited to the taxable gain on the sale as determined for regular tax purposes. Nonqualified Options. Under the Code, if shares of Common Stock are issued to the original holder of a nonqualified option (i.e., an option which is not an incentive stock option, or an incentive stock option 14 which is exercised more than three months after the participant's termination of employment (or more than 12 months thereafter in the case of permanent and total disability as defined in the Code)) granted and exercised in accordance with the 2001 Plan, then (1) no income will be recognized by the holder at the time of the grant of the option; (2) upon exercise of the option the holder will recognize ordinary income in an amount equal to the excess of the fair market value, at the time of exercise, of the shares acquired over the option price; (3) upon the sale of the shares acquired pursuant to the exercise of the option, the holder will realize short-term or long-term capital gain or loss, as the case may be, in an amount equal to the difference between the amount realized on such sale and the holder's tax basis in the shares (determined as described in the following paragraph); and (4) subject to the limitation described below, Bethlehem will be entitled to a deduction in an amount equal to the ordinary income realized by the holder as set forth in clause (2) above. In the case of both incentive stock options and nonqualified options, if payment of the option price is made entirely in cash, the tax basis of the shares will be equal to their fair market value on the date of exercise, but not less than the option price, and their holding period will begin on the day after the tax basis of the shares is so determined. If the option recipient uses previously owned shares of Common Stock to exercise an option in whole or in part, the transaction will not be considered to be a taxable disposition of the previously owned shares. The holder's tax basis and holding period of the previously owned shares will be carried over to the equivalent number of shares received on exercise. The tax basis of the additional shares received upon exercise will be the fair market value of the shares on the date of exercise, but not less than the amount of cash used in payment, and the holding period for such additional shares will begin on the day after the tax basis of the shares is so determined. Stock Appreciation Rights. In the event the Board authorizes the surrender of the right to exercise an option in exchange for an amount equal to the excess of the fair market value of the shares of Common Stock covered thereby over the option price, such surrender shall be considered the exercise of a stock appreciation right. On the exercise of a stock appreciation right for cash, the holder will be taxed at ordinary income rates on the amount of cash received. On the exercise of a stock appreciation right for shares, the holder will be taxed at that time on the fair market value of the shares received. Subject to the limitation described below, Bethlehem will be entitled to a deduction at the same time and in the same amount as the holder has income. Restricted Stock. If restricted shares of Common Stock are granted to a participant under the 2001 Plan, then (1) if the election described in clause (2) below is not made, then when the shares cease to be subject to restrictions under the 2001 Plan, the participant will recognize taxable ordinary income equal to the excess of the fair market value of the shares at that time over the amount, if any, paid for such shares; and (2) within 30 days after the date the shares are considered to be transferred to a participant, the participant may elect under Section 83(b) of the Code to recognize taxable ordinary income at the time of transfer in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares, in which case (a) if the shares are subsequently forfeited, no deduction of such amount will be allowed and the participant will have a capital loss equal to the amount, if any, paid for such shares and (b) no additional income will be recognized upon the lapse of restrictions on the shares. 16 The recipient's holding period for the shares will begin at the time taxable income is recognized under these rules, and the tax basis in the shares will be the amount of ordinary income so recognized plus the amount, if any, paid for the shares. Moreover, any dividends received on the restricted shares prior to the date the participant recognizes income as described above will be taxable compensation income when received. Subject to the limitation described below, Bethlehem is entitled to deduct amounts equal to the amounts of income recognized by the participant, including a deduction for such dividends paid to the holder in the absence of the election under Code Section 83(b). Stock Units. If stock units are granted to a participant under the 2001 Plan, then when the stock units cease to be subject to restrictions or when applicable conditions are satisfied, the participant will recognize taxable ordinary income equal to the excess of the fair market value at that time of the consideration received (whether in the form of shares of Common Stock, cash, securities or other property) over the amount, if any, paid for the stock units. If the recipient receives consideration in a form other than cash, the recipient's holding period for the consideration will begin at the time taxable income is recognized, and the tax basis in that situation will be the amount of ordinary income so recognized plus the amount, if any, paid for the stock units. Subject to the limitation described below, Bethlehem is entitled to deduct amounts equal to the amounts of income recognized by the participant. Parachute Payment. If the exercisability of an option or the elimination of the restrictions on stock or the elimination of restrictions or satisfaction of conditions on stock units acquired under the 2001 Plan is accelerated or if a condition relating to the exercise of an option or the granting of a stock unit is eliminated as a result of a change in control, all or a portion of the value of the option, stock or stock unit at that time may be a parachute payment for purposes of determining whether a 20% excise tax is payable by the employee as a result of the receipt of an excess parachute payment pursuant to Section 4999 of the Code. Bethlehem will not be entitled to a deduction for any amounts considered an excess parachute payment. Limitation on Bethlehem's Deduction. Pursuant to the Omnibus Budget Reconciliation Act of 1993, Bethlehem's tax deduction for all compensation (including the value of restricted stock and stock units when they become taxable to the officer) paid to the named executive officers listed in the Summary Compensation Table in any taxable year is limited to $1,000,000 in certain circumstances. Generally, "performance based" compensation, as defined in Code Section 162(m), is not subject to the limitation. Accordingly, compensation resulting from the exercise or surrender of a stock option under the 2001 Plan will be exempt from this limitation if the 2001 Plan is approved by stockholders and the grant of such options is made by the Committee described in paragraph 13 above. Compensation arising from the grant of restricted shares of Common Stock and stock units will generally be subject to this limitation. The Committee has the discretion, however, to grant restricted stock or stock units intended to qualify as "performance based" compensation as defined in Code Section 162(m). Such grants will vest only upon the Committee's written confirmation that one or more pre-established, objective performance goals have been satisfied. If specific goals are established by the Committee, they will be determined with reference to one or more financial performance goals including, but not limited to, market price of Common Stock, total shareholder return of Common Stock relative to the stock of other companies selected by the Board, 17 market share of Bethlehem or a business unit thereof, earnings, net income, earnings per share and return on equity or costs. New Plan Benefits Because the Compensation Committee will have discretion in granting options under the 200l Plan, and because the future value of common stock is uncertain, it is not possible to determine the benefits or amounts, if any, that subsequently will be received by or allocated to any person under the 200l Plan. See the Stock Options/SAR Grants in 2000 contained in this Proxy Statement for a description of the number of options and stock appreciation rights granted during fiscal year 2000. In addition, restricted stock awards for an aggregate of 517,750 shares were made to 159 key employees during 2000 under the 1998 Plan. See the Summary Compensation Table contained in this Proxy Statement for a description of the number of restricted shares granted in fiscal year 2000 to the Chief Executive Officer, the former Chief Executive Officer and the next four most highly compensated executive officers during fiscal year 2000. Other Information Bethlehem intends to take such actions as may be required to keep the shares of Common Stock reserved for purposes of the 2001 Plan registered under the Securities Act of 1933, as amended, and listed on the New York Stock Exchange. On March 5, 2001, the closing price of the Common Stock on the New York Stock Exchange was $2.48 per share. The affirmative vote of the holders of a majority of the shares of Common Stock and of ESOP Preference Stock that are present, in person or by proxy and entitled to vote at the Meeting, voting together as a single class, is required for approval of the 2001 Plan. The Board of Directors recommends that stockholders vote "For" ratification of the 2001 Stock Incentive Plan. ITEM 4 - STOCKHOLDER PROPOSAL Proposal Greenway Partners, L.P., 277 Park Avenue, New York, New York 10172, which together with its affiliates beneficially owns an aggregate of 8,176,400 shares of Common Stock as of February 28, 2001, has advised Bethlehem that it intends to present at the Meeting the following resolution: WHEREAS, the price of Bethlehem Steel Common Stock has plummeted to historic lows under $3 per share, thus valuing the common equity of Bethlehem at under $400 million at a time when virtually the entire domestic steel industry is similarly depressed. RESOLVED, the shareholders urge the Board to take BOLD steps to counter the low stock price, such as by implementing a substantial stock buyback program. The reasons given by Greenway for their proposal are: "The Board must not be blind to the crisis engulfing Bethlehem Steel. 18 "The depression level share prices afforded Bethlehem as well as many of its industry peers, indicates a crisis of market confidence in Bethlehem and the steel industry. We urge the Board to be BOLD, and to demonstrate its confidence in Bethlehem by purchasing a substantial amount of its stock. Such action would turn the present crisis into an opportunity. No one would have imagined a few years ago that a $100 million investment by Bethlehem in a buyback program could reduce outstanding shares by approximately 25%. With the price of Bethlehem stock at such low levels, we would be surprised if any other investment Bethlehem could make would surpass the rate of return on a substantial stock buyback. When the industry situation improves, Bethlehem's remaining shares will then receive the double benefit of increased earnings and fewer shares. We believe the resulting improved earnings per share will lead to a substantially higher stock price for Bethlehem's shares. "Funds for a stock buyback can be generated by asset sales. Over the years, Bethlehem has amassed interests in a large number of assets, including joint ventures, transportation companies and mining operations. Through sales and/or sale and leaseback transactions involving certain of these assets, we believe Bethlehem could raise several hundred million dollars without materially adversely affecting its steelmaking operations. Proceeds from these transactions could be divided between a substantial stock buyback and debt repayment. "BOLD steps are also required to deal with the worldwide oversupply of steel that forces down prices and profitability. While Bethlehem's repeated actions against dumping of foreign steel is important, it is not enough. In light of Bethlehem's losses, we urge the Board to cut expenses even deeper and faster than planned. More than that, we urge Bethlehem to take the lead in fostering major industry consolidation in the United States. As noted in numerous articles, there is general acknowledgment that the major players must close inefficient plants, scale back production and consolidate. Such action already appears underway across the Atlantic where Usinor, Europe's largest steel producer, recently announced plans to merge with Aceralia of Spain and Arbed of Luxembourg in what would create the world's biggest steelmaker. "Greenway Partners and its affiliates are among the largest shareholders of Bethlehem Steel. After receiving our proposal, Bethlehem's Board in early December took the positive step of authorizing the repurchase of up to 25 million shares. However, as of December 31, 2000, only approximately 2.7 million shares had been repurchased. We ask our fellow shareholders to join with us and send a message calling for BOLD action in taking the lead in fostering major steel industry consolidation in the United States and in repurchasing additional shares. Present circumstances dictate a need for more than just "business as usual". The time has come for action." Comments and Recommendations of the Board of Directors Bethlehem's management and its Board of Directors are supportive of the proposal made by Greenway Partners. Bethlehem and most of the domestic steel industry are facing an intensively competitive business environment characterized by excess global steel capacity, unfairly traded steel imports, a highly fragmented industry, a consolidating customer and supplier base and high exit costs. Given this difficult business environment, Bethlehem has taken, and is taking, bold actions to improve its overall competitiveness and long-term performance and to increase the value of Bethlehem for its stockholders. In this regard, Bethlehem has taken the following actions: 19 . Bethlehem's Board of Directors has considered, and will continue to consider, the repurchase of its common and preferred stock and the declaration of a common stock dividend on the basis of attained financial results and business outlook. On December 7, 2000, the Board authorized the repurchase of up to 25 million shares of Common Stock depending on price and availability. As of the Record Date, Bethlehem has purchased approximately 2.7 million shares under this program. . Bethlehem has aggressively re-deployed assets to more productive uses. Since 1995, Bethlehem has sold assets totaling $818 million. During 2000, Bethlehem had asset sales of $126 million including the sale of its stainless steel operations in Massillon, Ohio, sale and leasebacks of a lake vessel and the new wide continuous slab casting equipment at Sparrows Point and the sale of its ownership interest in Presque Isle Corporation. Bethlehem is currently marketing for sale various non-strategic assets including the South Buffalo Railway Company and its ownership interest in two iron ore properties, Hibbing Taconite and MBR. . During 2000, Bethlehem took a number of actions to aggressively reduce costs and improve the management of its assets. For example, Bethlehem consolidated its three major flat rolled products divisions into two, eliminating Bethlehem Lukens Plate, it established a shared services unit and a smaller corporate center, and it reduced the size of its work force company-wide by approximately 2,000 employees. Further significant cost reduction initiatives are being implemented including further reductions in the work force. Bethlehem also made strategic capital expenditures including the new Cold Mill, wide caster and pulverized coal injection at Sparrows Point. . Bethlehem has explored, and will continue to explore, opportunities for joint ventures, partnerships, facility sharing arrangements and mergers. Recent examples include Bethlehem's acquisition of Lukens Inc. and various joint ventures including Columbus Coatings Company, which will provide coated products to the automotive market, and BethNova, which will provide automakers a premium source of tubing for hydroforming applications. Bethlehem believes that bold and urgent actions must be taken by steel companies, the steelworkers union and the government to address the problems endemic to the industry. Consolidation of the domestic industry, including the permanent elimination of non-competitive facilities, needs to occur. Capital, whether it be private or public, should be allocated to those companies that are capable of operating successfully in a fair marketplace. Full and effective enforcement of our existing trade laws would be a major step in correcting unfair steel trade. Finally, a workable solution to health care and related legacy costs must be found. Bethlehem's vision is to be the "Premier Steel Company". To be Premier, we must create value for our stockholders. Bethlehem's management and its Board of Directors are committed to pursuing all appropriate actions that they believe will increase the value of Bethlehem for its stockholders. The Board of Directors recommends that stockholders vote "For" the proposal. Such a vote will indicate your recommendation that Bethlehem's management and Board of Directors continue to take all appropriate actions to increase stockholder value. 20 STOCK OWNERSHIP INFORMATION Stock Ownership of Director Nominees and Executive Officers The following table shows the shares of Bethlehem Common Stock beneficially owned, directly or indirectly, by each current director, Messrs. Arnett, Barnette, Graham and Moffitt and all directors and executive officers as a group on the Record Date. None of the directors or executive officers of Bethlehem, except for Mr. Kamen, own any shares of Bethlehem Preferred Stock or ESOP Preference Stock. Mr. Kamen beneficially owns 1,000 shares of Bethlehem $5.00 Preferred Stock. Amount and Nature of Name Beneficial Ownership(1)(2) Percent of Class(3) - ---------------------------------------------------------------------------- Benjamin R. Civiletti 4,700 (4) Worley H. Clark 5,500 (4) John B. Curcio 8,500 (4) Duane R. Dunham 258,337 (4) Lewis B. Kaden 4,500 (4) Harry P. Kamen 12,400 (4) William M. Landuyt 2,400 (4) Gary L. Millenbruch 356,419 (4) Shirley D. Peterson 8,000 (4) John F. Ruffle 5,500 (4) Lonnie A. Arnett 134,438 (4) Curtis H. Barnette 778,591 (4) William H. Graham 148,832 (4) Augustine E. Moffitt, Jr. 141,289 (4) 26 directors and executive officers as a group (including those named above) 2,809,753(5) 2% (1) The figures shown include a total of 123,441 shares allocated as of the Record Date to the accounts of participants under the Savings Plan for Salaried Employees of Bethlehem Steel Corporation and Subsidiary Companies. Bethlehem matches employee contributions up to 4% of base salary. These matching contributions are in the form of Bethlehem Common Stock. Employees also have the option to have their contributions invested in Bethlehem Common Stock. As of the Record Date, there were approximately 4,500 participants in the Savings Plan, holding a total of 10,544,417 shares of Bethlehem Common Stock, representing approximately 8% of total outstanding shares. 21 (2) The Securities and Exchange Commission deems a person to have beneficial ownership of all shares which that person has the right to acquire within 60 days. The figures shown include fully vested stock options and stock options subject to acquisition within 60 days that were granted under the 1988, 1994 and 1998 Stock Incentive Plans of Bethlehem to the following individuals and group: Mr. Dunham, 155,250 shares; Mr. Millenbruch, 226,250 shares; Mr. Arnett, 86,500 shares; Mr. Barnette, 641,250; Mr. Graham 92,000 shares; and Mr. Moffitt, 83,150 shares; and the directors and executive officers as a group, 1,805,350 shares. (3) Based upon 129,780,254 total outstanding shares of Bethlehem Common Stock on the Record Date. (4) The number of shares deemed to be owned by each director or executive officer represents less than 1% of the outstanding shares. (5) The figures shown include an aggregate of 2,314 shares held by, or for the benefit of, the immediate families or other relatives of all directors and executive officers as a group. Directors and executive officers disclaim beneficial ownership of all of these shares. Five Percent Stockholders On the Record Date, there were outstanding a total of (a) 129,780,254 shares of Bethlehem Common Stock, owned of record by approximately 36,200 stockholders and (b) 2,049,777 shares of Bethlehem ESOP Preference Stock, beneficially owned under a qualified plan by approximately 12,100 participants. To the knowledge of the Board, no other person beneficially owned 5% or more of the ESOP Preference Stock and the only persons beneficially owning 5% or more of the Common Stock on the Record Date were: Name and Address of Beneficial Owner Number of Shares % of Class - ------------------------------------------------------------------------ Dimensional Fund Advisors(1) 1299 Ocean Avenue, 11th Floor Santa Monica, California 90401 7,841,292 5.95% - ------------------------------------------------------------------------ FMR Corp.(2) 82 Devonshire Street Boston, Massachusetts 02109 19,263,900 14.54% - ------------------------------------------------------------------------ Greenway Partners, L.P.(3) 277 Park Avenue, 27th Floor New York, New York 100017 9,093,900 6.90% - ------------------------------------------------------------------------ (1) Dimensional Fund Advisors filed a Schedule 13G with the Securities and Exchange Commission indicating that, at December 31, 2000, it had aggregate beneficial ownership of Bethlehem Common Stock, including sole voting power and sole dispositive power for 7,841,292 shares. (2) FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson jointly filed a Schedule 13G/A with the Securities and Exchange Commission indicating that, at December 31, 2000, they had aggregate beneficial ownership of Bethlehem Common Stock, including (i) sole voting power by FMR Corp. for 4,126,130 shares, (ii) no shared voting power, (iii) sole dispositive power by FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson for 19,263,900 shares, and (iv) no shared dispositive power. Fidelity Destiny II, an investment company, had an interest in 7,200,000 shares or 5.435% of the shares beneficially owned. 22 (3) The following entities and individuals jointly filed a Schedule 13D/A with the Securities and Exchange Commission indicating that, at November 9, 2000, they had aggregate beneficial ownership of 9,093,900 shares of Bethlehem Common Stock, including sole voting power, shared voting power, sole dispositive power and shared dispositive power, respectively, as follows: Greenway Partners, L.P. (2,491,900; 0; 2,491,900; 0 shares), Greentree Partners, L.P. (635,100; 0; 635,100; 0 shares), Greenhouse Partners, L.P. (0; 2,491,900; 0; 2,491,900 shares), Greenhut L.L.C. (0; 635,100; 0; 635,100 shares), Greenbelt Corp. (3,340,000; 0; 3,340,000; 0 shares), Greensea Offshore, L.P. (1,800,000; 0; 1,800,000; 0 shares), Greenhut Overseas, L.L.C. (0; 1,800,000; 0; 1,800,000 shares), Alfred D. Kingsley (821,900; 8,267,700; 821,900; 8,267,000 shares), and Gary K. Duberstein (5,000; 8,267,000; 5,000; 8,267,000 shares). Section 16(a) Beneficial Ownership Reporting Compliance The Securities Exchange Act of 1934 requires Bethlehem's directors and executive officers and certain other stockholders to file reports of ownership and changes in ownership of Bethlehem stock with the Securities and Exchange Commission and the New York Stock Exchange. To Bethlehem's knowledge, all such reports for 2000 were timely filed. EXECUTIVE COMPENSATION Compensation Committee Report on Executive Compensation Bethlehem's executive compensation programs are designed to attract, retain and motivate highly qualified executives to help cause the best possible performance from them. Compensation for Bethlehem's executives is based both on individual performance and upon corporate and business unit performance and consists of the following elements: . Salaries that are determined by individual contribution and performance and that are competitive in the marketplace. . Incentive compensation bonuses that, if paid, are directly linked to corporate and business unit profitability and performance and that enhance stockholder value. . Long-term stock incentives that are designed to align the interests of the executives with those of the stockholders and to increase the long-term retention of key employees. Stock ownership fosters commitment to long-term stockholder value, and executives are encouraged to own and hold Bethlehem Common Stock through these stock incentive plans and the Savings Plan. . A broad-based employee benefits program that includes a pension program, a savings plan, group medical coverage and life insurance. The Compensation Committee of the Board of Directors is responsible for administering Bethlehem's executive compensation programs and for determining the compensation of Bethlehem's executive officers. The Committee has available to it extensive compensation surveys (primarily with respect to salaries, incentive compensation and stock options), independent compensation consultants and 23 information about executive compensation within the steel industry and other industry groups. The Committee is composed of directors who are not current or retired employees of Bethlehem and who do not participate in the executive compensation programs that the Committee administers. Salaries. The Committee believes the salary of an executive must be based primarily on the executive's level of responsibility and performance. In addition, the Committee believes that salaries should be competitive with executive salaries provided by other companies in the steel business, including the peer group of integrated steelmakers shown in the comparative stock performance chart contained in this Proxy Statement and by other companies that are appropriate to use for comparison purposes because of similarities in size or the nature of the businesses. The Committee reviews both publicly available information about the salaries paid to executive officers of other steel companies and broad survey data from over 300 manufacturing, non-utility and non-financial services companies to determine salary levels that compare with those at companies with similar business performance, measured by such criteria as revenue, return on assets and return on equity. Salary levels for Bethlehem's executives are targeted at the median of such survey data for companies with annual revenues of between $3 billion and $6 billion. Since duties, responsibilities and experience of an executive officer may differ from survey norms in both content and scope, adjustments are made by the Committee in its judgment for those factors as well as for individual performance. Consequently, some salaries are lower and some higher than survey medians. The Committee conducts periodic reviews of executive officer salaries and makes adjustments as warranted. The increases over 1999 in the 2000 salaries of the executive officers named in the Summary Compensation Table contained in this Proxy Statement were based on individual performance and additional responsibilities for certain of the executive officers. The 2000 salary levels for these officers do not, in the Committee's opinion, significantly deviate from survey medians described above. Incentive Compensation Bonuses. The Committee believes that competitive salaries should be supplemented by incentive compensation bonus awards that are directly linked to performance-oriented goals as measured by Bethlehem's annual business plan. The Committee also believes that achievement of these goals should create value for Bethlehem's stockholders over time. The awards may be granted in cash, stock or a combination thereof. Incentive compensation bonus awards for executive officers are paid pursuant to an annual incentive program for essentially all salaried employees. Under the program, employees and executive officers have the opportunity to earn a targeted percentage of base salary that increases with higher position levels, thereby placing a greater percentage of compensation at risk for those with greater responsibility. For Messrs. Dunham, Millenbruch and Moffitt, payment of incentive compensation under this program is based on the achievement of corporate objectives for return on net assets above a threshold goal. For other executive officers, incentive payments are based on the achievement of corporate profitability and budget goals and, in the case of executives at business units, in part on the achievement of business unit profitability goals and in part on the achievement of corporate profitability goals. Payments may not exceed 140% of base salary for the chief executive officer and either 80% or 100% of base salary for the other four current executive officers named in the Summary Compensation Table. Because Bethlehem did not achieve the threshold goal, no incentive compensation bonuses were paid to Bethlehem's executive officers for 2000. 24 Long-Term Stock Incentives. The Committee believes that stock incentives are an important element of Bethlehem's executive compensation program. They help align the interests of Bethlehem's executives with those of the stockholders and increase the long-term retention of key employees. Executive officers are required to own or have plans to own Bethlehem Common Stock in amounts related to their base salary and to hold and not dispose of shares they own. As discussed below, the Committee has made stock option and restricted stock awards to executive officers and other key employees under its stock incentive plans. Also, Bethlehem's Savings Plan provides for matching company contributions which are made entirely in Bethlehem Common Stock. Executive officers and other key employees have received annual grants of stock options under Bethlehem's stock incentive plans. The Committee believes that stock options provide an incentive that focuses the executive's attention on managing Bethlehem from the perspective of an owner with an equity stake in the business. Options are awarded with an exercise price equal to the market price of Bethlehem Common Stock on the date of grant and have a maximum term of 10 years. Options awarded in 2000 generally may be exercised for up to one-fourth of the shares covered by the option each year over a four-year period commencing on the date of grant. These options were awarded in tandem with stock appreciation rights. Executives are encouraged to hold the stock received through the exercise of options and stock appreciation rights. In determining the number of options to award to an executive officer, the Committee considers the performance of the individual and the individual's position level. The Committee, in its judgment, may adjust the number of shares based on a comparison of option awards (using grant date value) of the survey companies described under "Salaries". Applying these factors, on April 26, 2000, the Committee awarded 384 key employees, including all of the executive officers named on the Summary Compensation Table other than Mr. Barnette, options to purchase Bethlehem Common Stock at a price of $5.625 per share (the fair market value of Bethlehem Common Stock on the date of the award). The Committee has also implemented a Key Employee Stock Investment Award Program that is designed to help increase the long-term retention of key employees, encourage their ownership of stock and align their interests with the interests of the stockholders. Under this Program, executive officers and other key employees have been awarded restricted shares of Bethlehem Common Stock that may not be sold, transferred or assigned while the shares are restricted. Unless the Committee determines otherwise, (a) the restrictions on the shares generally expire either (i) after five years as to one-half of the shares awarded and at age 64 or retirement, if later, as to the remaining shares, or (ii) at age 64 or 65 or at retirement, if later, if the employee is age 59 or older at the date of the grant and (b) the shares are forfeited if the employee voluntarily leaves the employment of Bethlehem (unless, at Bethlehem's request, the employee enters into a consulting and non-compete agreement) or is terminated for cause before the restrictions expire. Dividends, if declared, are payable upon the restricted shares. The size of restricted stock awards under this Program is determined by the Committee in its judgment based on a number of factors including level of responsibility, individual performance and potential to make a contribution to Bethlehem's future success, overall corporate progress toward achieving sustained profitability and the restricted stock practices at other companies. The Committee assigns no specific weight to any of these factors when making its determinations. In order to retain and motivate Mr. Dunham and certain of the other named executive officers and further align their interests with those of the stockholders, the 25 Committee awarded each of them restricted shares of Common Stock under the Key Employee Stock Investment Award Program in April 2000. Mr. Dunham was awarded 40,000 shares; Mr. Millenbruch, 25,000 shares; Mr. Arnett, 10,000 shares; Mr. Graham, 10,000 shares; and Mr. Moffitt, 25,000 shares. The shares awarded to the named executive officers are restricted and, as to one-half of the awards, may not be sold, transferred or assigned for five years, and as to the other half, may not be sold, transferred or assigned until the later of age 64 or retirement. As for Mr. Millenbruch's award, the shares may not be sold, transferred or assigned until the later of age 65 or retirement. The size of the awards was based on the factors discussed above. Compensation of Chief Executive Officer. In establishing Mr. Dunham's salary for 2000, the Committee considered Mr. Dunham's performance during 1999, his new responsibilities that commenced in April 2000 and the salaries of chief executive officers of other steel companies and companies of similar size and complexity. As previously discussed, because Bethlehem was not profitable in 2000, Mr. Dunham did not receive an incentive compensation bonus award in 2000. However, he did receive restricted stock awards and stock options during 2000 that are discussed under "Long-Term Stock Incentives" above. Limitation on Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code denies a publicly held corporation, such as Bethlehem, a federal income tax deduction for certain compensation in excess of $1 million per year paid to or accrued for each of its chief executive officer and four other most highly compensated executive officers. "Performance-based" compensation, such as stock options awarded under Bethlehem's 1998 Stock Incentive Plan and stock options and performance based stock units granted under the 2001 Stock Incentive Plan, if approved, is not subject to the limitation on deductibility. Based on Bethlehem's substantial net operating loss carryforwards and alternative minimum tax loss carryforwards ($1.2 billion and $500 million, respectively, at December 31, 2000) and the levels and types of compensation of Bethlehem's affected executive officers, the Committee continues to believe that the limitation on deductibility of certain compensation is currently not material to Bethlehem. Nevertheless, the Committee will continue to review the situation and future events with an objective of achieving deductibility to the extent appropriate. Restricted stock awards under the existing Key Employee Stock Investment Award Program are not exempt from the limitation, but the Committee feels that such awards are a necessary and appropriate incentive to motivate executives and align their interests with the interests of stockholders. Compensation Committee Worley H. Clark, Chairman John B. Curcio Harry P. Kamen 26 Summary Compensation Table The following table shows the aggregate compensation awarded or paid to, or earned by, Bethlehem's chief executive officer, former chief executive officer and each of Bethlehem's other four most highly compensated executive officers. Annual Compensation Long-Term Compensation - ----------------------------------------------------------------------------------------------------------------- Other Securities Annual Restricted Underlying All Other Compen- Stock Options/ Compen- Year Salary ($) Bonus($) sation(1)($) Awards(2)($) SARs (#) sation(3)($) - ----------------------------------------------------------------------------------------------------------------- Duane R. Dunham 2000 612,000 0 0 225,000 100,000 61,027 Chairman, President 1999 433,333 0 338,103 0 40,000 46,050 and Chief Executive 1998 292,500 146,000 0 305,000 25,000 27,559 Officer - ----------------------------------------------------------------------------------------------------------------- Lonnie A. Arnett 2000 330,000 0 0 56,250 18,000 27,357 Vice President, 1999 326,000 0 102,293 0 18,000 27,913 Controller and 1998 314,000 113,400 0 152,500 15,000 24,719 Chief Accounting Officer - ----------------------------------------------------------------------------------------------------------------- William H. Graham 2000 361,667 0 0 56,250 15,000 30,330 Senior Vice President, 1999 325,000 0 181,201 0 20,000 28,919 General Counsel and 1998 308,333 117,400 0 228,750 18,000 25,594 Secretary - ----------------------------------------------------------------------------------------------------------------- Gary L. Millenbruch 2000 518,333 0 0 140,625 40,000 53,873 Vice Chairman and 1999 499,417 0 245,752 0 40,000 52,224 Chief Financial Officer 1998 470,250 212,800 0 305,000 35,000 48,037 - ----------------------------------------------------------------------------------------------------------------- Augustine E. Moffitt, Jr. 2000 295,083 0 0 140,625 40,000 25,153 Executive Vice President 1999 226,417 0 67,121 0 30,000 20,271 and Chief Administrative 1998 207,667 94,000 0 152,500 25,000 16,485 Officer - ----------------------------------------------------------------------------------------------------------------- Curtis H. Barnette(4) 2000 416,667 0 906,301 0 0 23,465 Former Chairman and 1999 781,667 0 465,739 0 300,000 70,882 Chief Executive Officer 1998 725,000 453,800 0 991,250 75,000 69,236 - -----------------------------------------------------------------------------------------------------------------
(1) Relates to the unfunded retirement benefits payable to such officers under the Excess Benefit Plan and Supplemental Benefits Plan and represents the amount of payments to cover tax liabilities arising from the purchase of individually owned annuities to secure a portion of such benefits. (2) Fair market value at date of issuance of restricted shares of Common Stock awarded under the Key Employee Stock Investment Award Program. The shares are restricted and generally may not be sold, transferred or assigned until age 64 or 65 or at retirement, if later. Dividends, if declared, are payable upon the restricted stock. The aggregate number of shares of restricted stock awarded under the Key Employee Stock Investment Award Program and held by each of the named individuals at December 31, 2000, and the aggregate value of these shares based on a market value of $1.75 per share at December 31, 2000, is as follows: Mr. Dunham, 94,500 restricted shares with a value of $165,375; Mr. Arnett, 36,000 restricted shares with a value of $63,000; Mr. Graham, 47,500 27 restricted shares with a value of $83,125; Mr. Millenbruch, 66,000 restricted shares with a value of $115,500; and Mr. Moffitt, 47,250 restricted shares with a value of $82,688. (3) "All Other Compensation" consists of supplemental insurance costs, Matching Company Contributions to the Savings Plan, cash or single premium annuities purchased to cover the shortfall of Matching Company Contributions to the Savings Plan due to Internal Revenue Code limitations, and the value of split dollar insurance benefits in the following respective amounts for 2000: Mr. Dunham, $2,949, $6,800, $34,237, $17,041; Mr. Arnett, $4,400, $5,667, $13,998, $3,292; Mr. Graham, $1,489, $6,800, $14,992, $7,049; Mr. Millenbruch, $10,429, $5,667, $28,041, $9,736; Mr. Moffitt, $2,495, $6,800, $9,322, $6,536; and Mr. Barnette, $5,209, $2,267, $15,989, $0. Split Dollar Insurance is in lieu of the Group Term Life Insurance generally provided by Bethlehem to its salaried employees. Each executive pays his own premium for the term life portion of the insurance policy. Bethlehem is reimbursed for the total premium amount advanced out of the proceeds of the insurance policy if the individual dies while the split dollar arrangement is in effect or out of the built-up cash value of the policy if the arrangement terminates prior to the death of the individual. As security for repayment, Bethlehem is a collateral assignee of the policy to the extent of any such unreimbursed premium. (4) Mr. Barnette retired on April 30, 2000. The amount shown under "Salary" for Mr. Barnette in 2000 includes $150,000 paid pursuant to his consulting arrangement discussed under "Employment Contracts and Termination of Employment and Change-in-Control Arrangements." Employment Contracts and Termination of Employment and Change-in-Control Arrangements Bethlehem has entered into change in control agreements with Messrs. Dunham, Millenbruch, Arnett, Graham and Moffitt. The agreements provide generally that the executive officer is entitled to certain severance benefits if the executive officer's employment is terminated other than for cause, retirement or disability within two years after a change in control (as defined below) or if the executive officer terminates his or her employment for good reason within such two-year period, or for any reason during the 30-day period following the first anniversary of the change in control. The benefits include the following: . a lump-sum payment equal to three times annual base salary and average bonus; . a lump-sum payment with respect to the benefits to which the executive officer is entitled under Bethlehem's Excess Benefit Plan or the Supplemental Benefits Plan of Bethlehem Steel Corporation and Subsidiary Companies; . the continuation of life, disability and accident insurance and medical plan coverage for three years; and . an additional payment to compensate the executive officer with respect to any Federal excise tax liability incurred as a result of payments to be made under the agreement or otherwise in connection with the change in control or the executive officer's termination of employment. For purposes of the agreements, the term "change in control" generally means: . a purchase of Bethlehem Common Stock, or securities convertible into Common Stock pursuant to a tender or exchange offer; 28 . the acquisition by certain third parties of 20% or more of the voting power of Bethlehem's outstanding stock; . a majority change in the composition of Bethlehem's Board of Directors; . the consummation of a merger or consolidation of Bethlehem with another company resulting in more than a 25% change in stock ownership; . the approval by Bethlehem's stockholders of a plan of liquidation; or . the dissolution of Bethlehem or the sale of all or substantially all of Bethlehem's assets. Mr. Barnette has been retained as a consultant following his retirement for two years and, unless terminated by either party by timely notice to the other party, on a year-to-year basis thereafter. He will advise the Corporation on strategic matters and public policy areas of importance to the Corporation, including international trade. Under the arrangement, he will receive $200,000 per year. Stock Option/SAR Grants in 2000(1) Individual Grants ------------------------------------------------------ Historic Percent Potential Realizable (1990-2000) Number of of Total Value at Assumed Annual Rate of Shares Options/SARs Annual Rates of Stock Stock Price Underlying Granted to Exercise Price Appreciation for Appreciation Options/SARs Employees Price Per Expiration Option Term(2) (Decline) Granted(#) in 2000(%) Share($) Date 5%($) 10%($) (88%) - ----------------------------------------------------------------------------------------------------------------------- Duane R. Dunham 100,000 11.64 5.625 4-26-10 353,800 896,500 0 Lonnie A. Arnett 18,000 2.09 5.625 4-26-10 63,684 161,370 0 William H. Graham 15,000 1.75 5.625 4-26-10 53,070 134,475 0 Gary L. Millenbruch 40,000 4.66 5.625 4-26-10 141,520 358,600 0 Augustine E. Moffitt, Jr. 40,000 4.66 5.625 4-26-10 141,520 358,600 0 Curtis H. Barnette 0 0 -- -- 0 0 0 All Optionees (384 executive officers and key employees) 859,250 100.00 5.625 4-26-10 3,040,027 7,703,176 0 - ----------------------------------------------------------------------------------------------------------------------
(1) All stock options granted in 2000 were granted in tandem with stock appreciation rights ("SARs") and have a term of ten years. The awards may be exercised for up to one-fourth of the shares covered by the option each year over a four-year period commencing on the date of grant. The exercise price (per share) of the option is the market price of Bethlehem Common Stock on the date the option is awarded. (2) These amounts represent assumed rates of appreciation only. Actual gains, if any, on stock option exercises and Bethlehem Common Stock holdings depend on the future performance of the Common Stock and overall market conditions. As is shown in the last column, which shows there has been an annual rate of stock price decline for Bethlehem Common Stock during the last 10 years, there can be no assurance that Bethlehem will achieve the amounts reflected in these columns. 29 Aggregated Stock Option/SAR Exercises in 2000 and December 31, 2000, Stock Option Values Number of Shares Value of Unexercised Underlying Unexercised In-the-Money Shares Acquired Value Options/SARs at 12/31/00 (#) Options/SARs at 12/31/00 on Exercise(#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable - ------------------------------------------------------------------------------------------------------------------ Duane R. Dunham 0 0 109,000/147,500 0/0 Lonnie A. Arnett 0 0 70,000/42,750 0/0 William H. Graham 0 0 74,250/43,500 0/0 Gary L. Millenbruch 0 0 190,000/95,000 0/0 Augustine E. Moffitt, Jr. 0 0 55,650/78,750 0/0 Curtis H. Barnette 0 0 610,000/50,000 0/0
PENSION PLAN TABLE Estimated Annual Retirement Benefit ---------------------------------------------------------- 25 30 35 40 Covered Years of Years of Years of Years of Compensation Service Service Service Service - -------------------------------------------------------------------------- $ 300,000 $ 112,500 $ 135,000 $ 157,500 $ 180,000 400,000 150,000 180,000 210,000 240,000 500,000 187,500 225,000 262,500 300,000 600,000 225,000 270,000 315,000 360,000 700,000 262,500 315,000 367,500 420,000 800,000 300,000 360,000 420,000 480,000 900,000 337,500 405,000 472,500 540,000 1,000,000 375,000 450,000 525,000 600,000 - --------------------------------------------------------------------------
The table above shows the estimated annual retirement benefit (before any deductions, including social security benefits) payable in the aggregate to Bethlehem's named executive officers, other than Mr. Barnette, under its qualified defined benefit pension plan, its Excess Benefit Plan and its Supplemental Benefits Plan. The aggregate annual retirement benefit of Mr. Barnette is $750,000, which is comparable to the retirement benefit of retired executive officers with similar responsibilities at peer companies. The benefit levels in the table assume retirement at age 62, the years of service shown and payment in the form of a single life annuity. Individually owned annuities were purchased in 1993, 1997, 1999 and 2000 to secure a portion of the unfunded benefits payable to certain of the named executive officers under the Excess Benefit Plan and the Supplemental Benefits Plan. The amount of the benefits that were funded by the purchase of the annuities was based on the funded level of Bethlehem's defined benefit pension plan at June 30, 1993, for the 1993 annuities, and December 31, 1996, for the 1997 30 annuities. For the 1999 and 2000 annuities, the purchases were based on a funding target, taking into account prior annuity purchases, of 75% of all Excess Benefit Plan and Supplemental Benefits Plan benefits. Covered compensation for purposes of determining retirement benefits for the named executive officers generally consists of salary and incentive compensation reported in the "Bonus" column in the Summary Compensation Table. The monthly retirement benefit payable is generally determined by multiplying average monthly covered compensation (for salary, the highest consecutive 60 months in the last 120 months of continuous service and for incentive compensation, the 5 highest 12-month periods, whether or not consecutive, in the last 120 months of continuous service) times 1.5% times the number of credited years of service. The incentive compensation portion of the benefit is subject to adjustment to the extent it results in the monthly retirement benefit exceeding 55% of average monthly covered compensation. Benefits are also subject to a deduction for social security benefits as well as certain other adjustments. As of December 31, 2000, the credited years of service under the Pension Plan or Supplemental Benefits Plan for Messrs. Dunham, Arnett, Graham, Millenbruch, Moffitt and Barnette were 35 years, 32 years, 28 years, 41 years, 27 years and 37 years, respectively. 31 COMPARATIVE STOCK PERFORMANCE The following graph compares the cumulative total stockholder return on Bethlehem Common Stock for the last five years with the cumulative total return for the same period of the Standard & Poor's 500 Stock Index ("S&P 500") and a peer group of publicly traded integrated steelmakers described below. The graph assumes the investment of $100 in Bethlehem Common Stock, the S&P 500 and the peer group on December 31, 1995, and reinvestment of all dividends. The total return for the peer group has been weighted for market capitalization at the beginning of each period. The peer group consists of The LTV Corporation, National Steel Corporation, the U.S. Steel Group of USX Corporation and Inland Steel Industries. Information has only been included for Inland common stock at December 31, 1995-1997, since Inland transferred its carbon steel business during 1998 to a separately traded public company, making continuing comparison inappropriate. On December 29, 2000, The LTV Corporation filed for protection under Chapter 11 of the U.S. Bankruptcy Code. [GRAPH, BASED ON DATA POINTS LISTED IN TABLE BELOW, APPEARS HERE] 1995 1996 1997 1998 1999 2000 - ------------------------------------------------------------------------------------------- Bethlehem Steel Corporation $100.00 $ 63.96 $ 62.62 $ 60.36 $ 60.36 $ 12.61 - ------------------------------------------------------------------------------------------- S&P 500 $100.00 $122.96 $163.98 $210.84 $255.22 $231.98 - ------------------------------------------------------------------------------------------- Peer Group $100.00 $ 92.29 $ 89.48 $ 63.29 $ 82.22 $ 39.95 - -------------------------------------------------------------------------------------------
32 ADDITIONAL INFORMATION Indemnification Assurance Agreements Bethlehem is required under Article IX of its By-laws to indemnify its directors and officers to the maximum extent permitted by the General Corporation Law of the State of Delaware. In this regard, Bethlehem's policy is and has been: . to indemnify its officers and directors against any costs, expenses and other liabilities to which they may become subject by reason of their service to Bethlehem; and . to insure its directors and officers against such liabilities, as and to the extent permitted by applicable law and in accordance with the principles of good corporate governance. Pursuant to this policy, Bethlehem has entered into individual Indemnification Assurance Agreements with each of its directors and executive officers. In addition, Bethlehem has established an irrevocable letter of credit in an aggregate amount of $5 million, to assure that each director and executive officer is paid for any indemnification amounts to which he or she may become entitled. Section 102(b)(7) of the General Corporation Law of the State of Delaware permits a Delaware corporation to include a provision in its certificate of incorporation eliminating the potential monetary liability of directors to the corporation or its stockholders for breach of a fiduciary duty. However, the provision may not eliminate a director's liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for improper payment of dividends or purchases or redemptions of the corporation's stock, or (iv) for any transaction from which the director receives an improper personal benefit. The Ninth Article of Bethlehem's Second Restated Certificate of Incorporation, as amended, includes such a provision. Other Matters Management and the Board do not know of any matters other than those set forth in the form of proxy that will be presented for consideration at the Meeting. However, if any additional matters properly come before the Meeting, the persons named as proxies in an executed proxy have discretionary authority to vote the shares represented in accordance with their best judgment, absent instructions to the contrary. March 12, 2001 33 BETHLEHEM STEEL CORPORATION 1170 Eighth Avenue Bethlehem, PA 18016-7699 P R This Proxy is Solicited on Behalf of the Board of Directors O for the Annual Meeting of Stockholders, April 24, 2001 X Y The undersigned hereby appoints Duane R. Dunham and Gary L. Millenbruch the proxies (each with power to act alone and with power of substitution) of the undersigned to represent and vote the shares of stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Bethlehem Steel Corporation to be held on April 24, 2001, and at any adjournment or postponement thereof, as hereinafter specified and, in their discretion, upon such other matters as may properly come before the Meeting. Election of Directors. Nominees: 01. B. R. Civiletti, 02. W. H. Clark, 03. J. B. Curcio, 04. D. R. Dunham, 05. L. B. Kaden, 06. H. P. Kamen, 07. W. M. Landuyt, 08. G. L. Millenbruch, 09. S. D. Peterson, 10. J. F. Ruffle If this card is properly executed, shares will be voted in the manner directed herein by the undersigned. If no direction is made, this proxy will be voted FOR Proposals 1, 2, 3 and 4. This card also constitutes voting instructions, as described in the Proxy Statement dated March 12, 2001, for any shares of stock allocated to your accounts under the following plans: Bethlehem Steel Corporation Employee Stock Ownership Plan; Savings Plan for Salaried Employees of Bethlehem Steel Corporation and Subsidiary Companies; and 401(k) Retirement Savings Plan for Certain Represented Employees of Bethlehem Steel Corporation and Subsidiary Companies. [SEE REVERSE SIDE] [X] Please mark your votes as in this example. If this card is properly executed, shares will be voted in the manner directed herein by the undersigned. If no direction is made, this proxy will be voted FOR Proposals 1, 2, 3 and 4. Bethlehem's Board of Directors recommends a vote FOR election of directors and Proposals 2, 3 and 4. FOR WITHHELD FOR AGAINST ABSTAIN 1. Election of [ ] [ ] 2. Ratification of appointment [ ] [ ] [ ] Directors. of Independent Auditors. (see reverse) 3. Approval of 2001 [ ] [ ] [ ] To withhold authority to vote for Stock Incentive Plan. any individual nominee, mark the "FOR" box above and write that 4. Stockholder Proposal [ ] [ ] [ ] nominee's name below. regarding actions to increase stock price.
---------------------------------- Please sign exactly as name appears on this proxy. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give title as such. ------------------------------------- ------------------------------------- SIGNATURE(S) DATE [PROXY CARD - BACK/BOTTOM] VOTING Bethlehem encourages you to take advantage of two new cost-effective and convenient ways to vote your shares. In addition to voting by mail, you may now also vote your proxy 24 hours a day, 7 days a week, by telephone or through the internet. Your telephone or internet vote must be received by 5 p.m., Eastern standard time, on April 23, 2001. Your voting instructions for shares allocated to your accounts under the benefit plans set forth in the Proxy Statement must be received by 5 p.m., Eastern standard time, on April 20, 2001. Your telephone or internet vote authorizes the proxies named on the above proxy card to vote your shares in the same manner as if you marked, signed, and returned your proxy card. VOTE BY PHONE: ON A TOUCH-TONE TELEPHONE DIAL 1-877-779-8683 - ------------- FROM THE U.S. AND CANADA OR DIAL 201-536-8073 FROM OTHER COUNTRIES. You will be asked to enter the Voter Control Number located in the box just below the perforation on the proxy card; then follow the instructions. OR VOTE BY INTERNET: POINT YOUR BROWSER TO THE WEB ADDRESS: - ---------------- http://www.eproxyvote.com/bs. Click on the "PROCEED" icon - You will be asked to enter the Voter Control Number located in the box just below the perforation on the proxy card; then follow the instructions. OR VOTE BY MAIL: Mark, sign, and date your proxy card and return it in the - ------------ postage paid envelope. If you are voting by telephone or the internet, please do not mail your proxy card. [PROXY CARD - FRONT/BOTTOM] INTERNET ACCOUNT ACCESS FOR REGISTERED STOCKHOLDERS You can view your account on the internet at http://gateway.equiserve.com and obtain information regarding your share balance, your account history, and current and historical stock prices. To request an initial password to access your account, simply click on the "Mail New Password" icon on the right side of the "Account Access" login screen and enter the Bethlehem stock issue number 1623 and your Social Security number; then follow the instructions. You may also call the Internet Help Line at 1-877-843-9327 to have your password and account sent to you. Focus on the Vision [logo] Be The Premier Steel Company EX-1 2 ex1.txt EXHIBIT 1 Audit Committee Charter ----------------------- Membership - ---------- The Audit Committee shall at all times be comprised of no less than three (3) Directors of the Corporation who collectively meet the independence, financial literacy and expertise requirements of the New York Stock Exchange. Responsibilities and Powers - --------------------------- The Audit Committee shall assist the Board in reviewing and overseeing the Corporation's processes relating to accounting, auditing, internal financial controls, financial reporting and legal compliance matters and shall have, but shall not be limite (i) to review the performance of the independent auditors and make recommendations to the Board with respect to the appointment, reappointment or termination of the independent auditors; (ii) to review and approve, as appropriate, management's plans for engaging the independent auditors to perform significant non-audit consulting and other services; (iii) to review with the General Auditor and the independent auditors their annual audit plans, including the degree of coordination of plans; (iv) to meet with management, the independent auditors and the General Auditor to discuss the adequacy of the Corporation's internal financial controls; (v) to review with management, the independent auditors and the General Auditor the audited financial statements to be included in the Corporation's Annual Report on Form 10-K and to discuss with the independent auditors the matters required t (vi) to meet separately, in executive session, on a regular basis, with the General Auditor and the independent auditors, to discuss the results of their audits and their evaluations of the Corporation's internal financial controls and financia (vii) to review current developments regarding accounting, auditing and financial reporting; (viii) to review the appointment and dismissal of the General Auditor; 2 (ix) to review with the General Counsel the practices, procedures and any material issues relating to litigation management, provisions for contingent litigation liabilities and the legal compliance program; (x) to review or investigate any other matters relevant to the Audit Committee's responsibilities or that may be delegated to it by the Board and to retain persons having specific competence as necessary to assist the Audit Committee in fulfil (xi) to annually review the adequacy of this Charter and the responsibilities of the Audit Committee and to report any recommended changes to the Board; and (xii) to annually prepare a report to the Corporation's stockholders as required by the regulations of the Securities and Exchange Commission. Relationship with Independent Auditors - -------------------------------------- The independent auditors are ultimately accountable to the Board of Directors and the Audit Committee and the Board of Directors, upon the review and recommendation of the Audit Committee, has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent auditors. The Audit Committee shall ensure that the independent auditors submit on a periodic basis to the Audit Committee a formal written statement delineating all relationships between the independent auditors and the Corporation. The Audit Committee is responsible for actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors and for recommending that the Board of Directors take appropriate action in response to the independent auditors' report to satisfy itself of the independent auditors' independence. EX-2 3 ex2.txt 2001 STOCK INCENTIVE PLAN OF BETHLEHEM STEEL CORPORATION EXHIBIT 2 2001 STOCK INCENTIVE PLAN OF BETHLEHEM STEEL CORPORATION 1. Purpose of the Plan. This Stock Incentive Plan (the Plan) is intended to encourage ownership of Common Stock of Bethlehem Steel Corporation (Bethlehem) by key employees of Bethlehem and its subsidiaries and to provide additional incentive for them to promote the success of the business. 2. Stock Subject to the Plan. Subject to certain adjustments as set forth in Section 15 hereof, there shall be reserved for issuance upon the exercise or surrender of the right to exercise options to be granted under the Plan (Options) and pursuant to stock or stock unit awards (Grants) an aggregate of 6,400,000 shares of the Common Stock of Bethlehem (Common Stock); provided, however, that the number of such shares issued pursuant to Grants shall not exceed 3,000,000, subject in each case to adjustment as set forth in Section 15 hereof. Such shares may be, in whole or in part, as the Board of Directors of Bethlehem (Board) shall from time to time determine, issued shares of Common Stock which have been reacquired by Bethlehem or authorized but unissued shares of Common Stock. Except as otherwise provided in Section 7 hereof, if any Option shall expire, terminate or be forfeited or canceled for any reason without having been exercised or the right to exercise it surrendered in full, the remaining shares covered thereby shall again be available for the purposes of the Plan, and if any Grant shall be forfeited before the restrictions provided for in such Grant shall lapse in full, the remaining shares covered thereby shall again be available for the purposes of the Plan. Options under the Plan may be incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code of 1986 (the Code), as the same may be amended from time to time, or nonqualified stock options and shall be designated accordingly in the applicable Option agreement. Each stock unit shall have a value equal to the fair market value of a share of Common Stock. For purposes of this Plan, the term "fair market value" as of any date shall have the meaning set forth in the agreement referred to in Section 13 hereof. 3. Persons to Whom Awards Shall Be Granted. Options and Grants (Awards) may be granted, separately or in such combinations as the Board may in any individual case determine, to regular key employees (including officers) of Bethlehem or of any subsidiary of Bethlehem who shall be selected as provided in Section 20 hereof. A director of Bethlehem or of a subsidiary who shall not at the time also be an employee of Bethlehem or a subsidiary shall not be eligible to receive an Award. An employee who shall have been granted an Award may be granted one or more additional Awards; however, no employee may receive Awards under the Plan over the period the Plan is in effect for an aggregate of more than 640,000 shares, subject to adjustment as set forth in Section 15 hereof. The term "subsidiary" as used in this Plan means a corporation more than 50% of the voting stock of which shall at the time be owned directly or indirectly by Bethlehem. OPTIONS ------- 4. Option Prices. The purchase price of the Common Stock covered by each Option shall be not less than 100% of the fair market value of the Common Stock at the time of granting the Option. Such fair market value shall be determined by the Board but shall not be less than the mean of the high and low prices of the Common Stock on the New York Stock Exchange on the day the Option shall be granted. No outstanding Option may be amended to lower the purchase price of the Common Stock covered thereby. 5. Term of Options. The term of each Option shall be not more than ten years from the date of granting thereof and shall be subject to earlier termination or forfeiture as herein provided. 2 6. Exercise of Options. An Option may be made exercisable at any time or from time to time, in one or more installments, as the Board in its discretion shall determine; provided, however, that an Option may not be exercised as to less than 100 shares at any one time (or the remaining shares then covered by the Option, if less than 100 shares). The Board may also establish conditions to exercise based upon continued employment, the attainment of specified financial performance goals and other relevant factors. The Board may waive any or all such conditions with respect to any or all Option recipients and may accelerate the expiration of the period during which any Option or portion of an Option shall not be exercisable. The purchase price of the shares of Common Stock purchased upon the exercise of an Option shall be paid in full at the time of exercise in cash or in whole or in part with shares of Common Stock; provided, however, that if shares of Common Stock are to be used to satisfy the exercise price, such shares shall have been acquired (i) at least six months prior to the exercise date or (ii) in an open market transaction. The value of any share used for payment of all or part of the purchase price upon the exercise of an Option shall be the closing sale price of a share of Common Stock on the New York Stock Exchange on the date the Option shall be exercised. Common Stock payments shall be made by delivery of (i) stock certificates in negotiable form or (ii) a completed attestation form prescribed by Bethlehem setting forth the shares of Common Stock owned by the holder which the holder wishes to utilize to satisfy the exercise price. Except as provided in Sections 10, 11 and 14 hereof, an Option may not be exercised in whole or in part unless the holder thereof shall then be an employee of Bethlehem or of a subsidiary. The holder of an Option shall not have any of the rights of a stockholder with respect to the shares covered by his Option until and except to the extent that the Option shall have been duly exercised or the right to exercise the Option shall have been surrendered in whole or in part for shares of Common Stock as provided in Section 7 hereof. 7. Surrender of Options. The Board, upon such terms and conditions as it shall deem appropriate, may (but shall not be obligated to) authorize on behalf of Bethlehem the acceptance of the surrender of the right to exercise an Option or a portion thereof (but only to the extent and in the amounts that such Option shall then be exercisable) and the payment by Bethlehem therefor of an amount equal to the excess of the fair market value of the shares of Common Stock covered by such Option or portion thereof over the Option price of such shares. Such payment shall be made in shares of Common Stock (valued at fair market value) or in cash, or partly in cash and partly in shares of Common Stock, as the Board shall determine. For 3 the purposes of this Section 7, such fair market value shall be deemed to be the closing sale price of the Common Stock on the New York Stock Exchange on the date of surrender or, with respect to surrenders during the period beginning on the third business day following the date of release by Bethlehem of its quarterly financial results and ending on the twelfth business day following the date of such release, such fair market value shall be determined by the Board but shall not exceed the highest closing sale price or be less than the lowest closing sale price of the Common Stock on the New York Stock Exchange during such period. The shares of Common Stock covered by an Option or portion thereof, the right to exercise which shall have been so surrendered, shall not again be available for the purposes of the Plan. 8. Option Agreements. Each Option shall be evidenced by a written Option agreement which agreement (and any amendment thereof) shall contain such terms and provisions, consistent with the requirements of the Plan, as the Board in its discretion shall determine. Option agreements need not be identical. 9. Continuing Employment of Option Recipients. An Option agreement may provide that (i) any shares of Common Stock issued upon the exercise of the Option provided for therein, (ii) any payment (whether in shares of Common Stock or in cash or some combination thereof) made by Bethlehem upon the surrender as provided in Section 7 hereof of the right to exercise the Option provided for therein, (iii) the Option itself provided for therein or (iv) any combination of the foregoing shall be forfeited and returned to Bethlehem if the recipient shall cease to remain in the employ of Bethlehem or one or more of its subsidiaries during the period or periods specified by such agreement. The holder of an Option shall, as one of the terms of the Option agreement relating thereto, agree to remain in the employ of Bethlehem or one or more of its subsidiaries in order to exercise the Option. Such employment shall be at the pleasure of each employing corporation and at such compensation as such employing corporation shall reasonably determine. Any such condition to remain in the employ of Bethlehem or its subsidiaries shall not apply (i) if employment shall terminate or be terminated by reason of retirement, death or permanent disability or (ii) if a "change in control" as defined in this Section 9 shall have occurred. For purposes of this Plan, the term "change in control" shall mean (i) the first purchase of shares pursuant to a tender offer or exchange offer (other than a tender offer or exchange offer by Bethlehem) for all or part of Bethlehem's Common Stock or any securities convertible into such Common Stock that would result in a person or group owning 15% or more of the Common Stock, (ii) the receipt by Bethlehem of a Schedule 13D or other advice indicating that a person or group is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange 4 Act of 1934) of 15% or more of Bethlehem's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3, (iii) such person or group is the beneficial owner of 5% or more of Bethlehem's Common Stock and makes a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) any consolidation or merger of Bethlehem or any of its subsidiaries in which Bethlehem will not be the continuing or surviving corporation or pursuant to which shares of Common Stock of Bethlehem would be converted into cash, securities or other property, other than a merger of Bethlehem in which the holders of Common Stock of Bethlehem immediately prior to the merger would have at least 66-2/3% of the ownership of common stock of the surviving corporation immediately after the merger, (v) the date of the approval by stockholders of Bethlehem of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Bethlehem or (vi) the adoption of any plan or proposal for the liquidation or dissolution of Bethlehem. 10. Retirement or Termination of Employment of Option Recipients by Reason of Permanent Disability; Death of Option Recipient. If an employee to whom an Option shall have been granted shall retire, or if his employment shall terminate or be terminated by reason of permanent disability, such employee (and, if he shall die within five years after such retirement or such termination by reason of permanent disability, then the estate of such employee or a person who shall have acquired the right to exercise such Option by bequest or inheritance) may exercise such Option in whole or in part, and/or the Board may authorize the acceptance of the surrender of the right to exercise such Option or any portion thereof as provided in Section 7 hereof, at any time within five years after such retirement or after such termination by reason of permanent disability, but not after the expiration of the term of the Option. If an employee to whom an Option shall have been granted shall die after such retirement or such termination by reason of permanent disability and during the applicable period during which such Option may be exercised, his estate or the person who shall have acquired the right to exercise such Option by bequest or inheritance shall be deemed to have offered, immediately prior to the termination of such period, to surrender the right to exercise such Option pursuant to the provisions of Section 7 hereof, unless such Option shall have theretofore been exercised, or the right to exercise such Option shall have theretofore been so surrendered, or such Option shall have been forfeited. If the employment of an employee to whom an Option shall have been granted shall be terminated otherwise than by reason of retirement, death or permanent disability, such Option shall, to the extent not theretofore forfeited or exercised or the right to exercise it theretofore surrendered, be canceled upon such termination of employment. If so provided in the related Option agreement, the shares of Common Stock issued upon the exercise of 5 the Option or the shares of Common Stock or cash, or combination thereof, paid by Bethlehem upon the surrender of the Option shall be forfeited and returned to Bethlehem. An Option shall not be affected by any change of duties or position of the holder or any temporary leave of absence granted to him by the employing corporation. Nothing in the Plan, or in any Option agreement entered into pursuant to the Plan, shall confer upon any employee any right to continue in the employ of Bethlehem or of any of its subsidiaries or interfere in any way with the right of Bethlehem or any such subsidiary to terminate the employment of such employee at any time. For purposes of this Plan, the term "permanent disability" means disability by bodily injury or disease, either occupational or non-occupational in cause, preventing the employee on the basis of satisfactory medical evidence from engaging in any employment of the type normally performed by the employee. For purposes of this Plan, the term "retirement" means termination of employment with entitlement to an immediate pension under a pension plan of Bethlehem or one or more of its subsidiaries. If an employee to whom an Option shall have been granted shall die while employed by Bethlehem or one or more of its subsidiaries or during such time as an Option is exercisable following termination of employment pursuant to Section 10, such Option may be exercised in whole or in part, and/or the Board may authorize the acceptance of the surrender of the right to exercise such Option or any portion thereof as provided in Section 7 hereof, by the estate of such employee (or by a person who shall have acquired the right to exercise such Option by bequest or inheritance) at any time within five years after the death of such employee but not after the expiration of the term of the Option. 11. Change in Control. Anything in this Plan to the contrary notwithstanding, if a change in control (as defined in Section 9 hereof) shall occur, the right to exercise all outstanding Options, to the extent such Options shall not theretofore have been forfeited or exercised or the right to exercise such Options theretofore surrendered, shall automatically vest in accordance with their respective terms. Upon the occurrence of a change in control, an employee to whom an Option shall have been granted may exercise the portion, if any, of such Option that shall then be exercisable, and any and all installments of such Option that shall not then be exercisable and shall not theretofore have been forfeited shall automatically become exercisable on the date or dates established in the Option agreement relating thereto as the date or dates on which such installment or installments shall become exercisable, regardless of whether the conditions, if any, to exercise, based upon continued employment, the 6 attainment of specified financial performance goals or any other factor, shall have been or shall thereafter be satisfied. Such employee or, if such employee shall die, the estate of such employee (or a person who shall have acquired the right to exercise such Option by bequest or inheritance) may exercise each such portion that shall become exercisable pursuant to the immediately preceding sentence during the six-month period after it shall have become exercisable, but not after the expiration of the term of the Option. GRANTS 12. Grants. A Grant may be in the form of a stock or a stock unit award and shall be subject to such terms and conditions as the Board in its discretion shall determine. The recipient of a stock unit award will have only the rights of a general unsecured creditor of Bethlehem until delivery or issuance of shares of Common Stock, cash, securities or other property, as specified in the applicable stock unit agreement. Upon the delivery or vesting date as specified in the applicable stock unit agreement, the recipient of a stock unit award shall receive, in respect of each stock unit not previously forfeited, one share of Common Stock, or cash, securities or other property equal in value to a share of Common Stock, or a combination thereof, as specified in the applicable stock unit agreement. The terms and conditions of any such award may include, without limitation, conditions for issuance of shares of Common Stock pursuant thereto at any time subsequent to the granting thereof or in installments from time to time or providing for forfeiture of such Grant or the shares issued or theretofore issued pursuant thereto in designated circumstances; provided, however, that upon the issuance of shares pursuant to a Grant, including, without limitation, the issuance of shares of Common Stock due to the lapse of restrictions or achievement of performance goals with respect to a restricted stock unit Grant, the recipient shall, with respect to such shares, be and become a Bethlehem stockholder except to the extent otherwise provided in such Grant. The Board may in its discretion award unrestricted shares of Common Stock in consideration of services theretofore rendered by the recipient. The Board in its discretion may require, among other things, that the recipient pay the par value for the shares to be issued pursuant to a Grant. Each Grant shall be evidenced by a written instrument in such form as the Board shall determine including, without limitation, a certificate for shares of Common Stock bearing a legend indicating the restrictions of the Grant or the establishment of a book entry account which is subject to the restrictions of the Grant. In the event of a recipient's termination of employment for any reason prior to the lapse of restrictions applicable to a Grant made to such recipient, the Board may determine in its sole discretion that any or all rights to shares of Common Stock as to which there shall still remain unlapsed restrictions shall be forfeited by such recipient to Bethlehem without payment or any consideration by Bethlehem, and neither the recipient nor any successors, 7 heirs, assigns or personal representatives of such recipient shall thereafter have any further rights or interest in such shares, or that the restrictions with respect to all or a portion of such shares shall terminate. 13. Restricted Stock or Stock Unit Agreements. Each Grant of restricted shares or restricted stock units shall be evidenced by a written restricted stock or restricted stock unit agreement which agreement (and any amendment thereof) may contain such terms and provisions, consistent with the requirements of the Plan, as the Board in its discretion shall determine. Restricted stock or stock unit agreements need not be identical. Such agreements shall contain the following terms and conditions: (a) Restriction Period. A Grant of restricted shares or restricted stock units made pursuant to this Plan may be subject to such terms, conditions and restrictions, including, without limitation, substantial risks of forfeiture based upon requirements relating to continued employment, the attainment of specified financial performance goals or other relevant factors and for such period or periods as shall be determined by the Board at the time that the Grant shall be awarded. The Board shall have the power to permit in its discretion an acceleration of the expiration of the applicable restriction period with respect to any part of or all the restricted Common Stock awarded to any recipient and to waive any or all terms, conditions or restrictions contained in any or all restricted stock or stock unit agreements. (b) Lapse of Restrictions. Each restricted stock or stock unit agreement shall specify the terms and conditions upon which any restrictions on the right to receive shares representing restricted stock or stock units awarded under the Plan shall lapse as determined by the Board. Upon the lapse of such restrictions, the recipient or his legal representative shall have the right to receive a certificate or certificates for shares of Common Stock without any restriction, or cash, securities or other property as specified in the applicable agreement. (c) Section 162(m) Awards. As provided above, the Board may in its discretion make a Grant of restricted shares subject to such terms, conditions and restrictions as it shall determine. If the Board shall desire that a Grant qualify as "performance based" compensation under Section 162(m) of the Code, the Compensation Committee (as described below) shall make the Grant in conformance with the requirements of Section 162(m) of the Code. The vesting of such Grants shall be subject to the Compensation Committee's written certification that one or more pre-established, objective performance goals have been satisfied. The specific goals established by the Compensation Committee shall be determined with reference to one or more financial performance goals including, but not limited to, 8 market price of Common Stock, total shareholder return of Common Stock relative to the stock of other companies selected by the Board, market share of Bethlehem or a business unit thereof, earnings, net income, earnings per share and return on equity or costs. (d) Fair Market Value. Each restricted stock unit agreement shall specify how the fair market value of a stock unit is to be determined. The determination of fair market value need not be identical for all such agreements. TERMS OF GENERAL APPLICABILITY ------------------------------ 14. Nontransferability of Awards. Except as otherwise determined by the Board and set forth in an employee's Award agreement, an Award shall not be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised or surrendered during the lifetime of the employee only by him or, if he shall be incompetent, his legal representative. With the approval of the Board, a nonqualified stock Option may be transferred by gift to any member of the holder's immediate family or to a trust for the benefit of one or more of such immediate family members. For the purposes of this Section 14, "immediate family" shall mean the spouse, children and grandchildren, parents, grandparents, former spouses, siblings, nieces, nephews, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law, sisters-in-law, including adoptive or step relationships, and any person sharing the employee's household (other than as a tenant or employee). 15. Adjustments upon Changes in Capitalization. In the event of changes in the outstanding Common Stock by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations or liquidations or similar corporate events, the number and class of shares to be issued pursuant to outstanding Awards, and as to which Awards may be granted under the Plan, shall be appropriately adjusted by the Board. Notwithstanding any provision of the Plan, upon a change in control (as defined in Section 9 hereof), the Board may, in its discretion and without requiring the consent of holders of Awards, (a) provide for the assumption of outstanding Awards or the substitution of new Awards that are comparable to the Awards substituted therefor, as determined by the Board in its sole discretion, in each case by the Company or (if the Company is not the surviving or resulting corporation following a change in control) the surviving or resulting corporation following the change in control, or any parent corporation of the Company or any such surviving or resulting corporation, if applicable, or (b) provide that outstanding Awards shall be canceled in exchange for a payment of cash, securities or other property in an 9 amount, determined by the Board in its sole discretion, necessary to provide the holder of each Award with the same consideration that would have been paid to such holder had such holder's Awards been exercised or distributed, as the case may be, in full immediately prior to the change in control. An adjustment shall not be made in the minimum number of shares which may be purchased at any time. 16. No Loans in Connection with Awards. Neither Bethlehem nor any subsidiary may directly or indirectly lend money to any employee to acquire or carry shares of Common Stock purchased upon the exercise of an Option or to pay in whole or in part for shares to be issued pursuant to a Grant. 17. Tax Withholding. Bethlehem or a subsidiary shall have the power and the right to deduct or withhold or require a recipient of an Award to remit to Bethlehem or the subsidiary the amount of any taxes required to be withheld in connection with the grant, vesting or exercise of an Award. The Board may permit any taxes required to be withheld to be paid in cash, in already- owned shares of Common Stock or by the withholding of shares of Common Stock otherwise issuable upon the exercise or vesting of any such Award, or any combination of the foregoing. The Board may from time to time establish procedures with respect to stock withholding consistent with applicable requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission. 18. Effectiveness of the Plan. The Plan shall become effective on April 24, 2001 upon its approval by the stockholders at the 2001 Annual Meeting of Stockholders or at any adjournment thereof. Unless the Plan shall be so approved, it shall be null and void. 19. Time of Granting of Awards. Nothing contained in the Plan or in any resolution adopted or to be adopted by the Board or by any committee to which the Board shall have delegated power pursuant to Section 20 hereof or by the stockholders of Bethlehem with respect to the Plan shall constitute the granting of an Award. The granting of an Award shall take place on the date on which the Board shall approve the granting of such Award or such later date as the Board shall designate as the date of granting of such Award. 10 20. Administration of the Plan. Subject to the express provisions of the Plan, the Board shall have plenary authority in its discretion to determine the terms and conditions to be included in any Award (which terms and conditions may differ with respect to recipients), the time or times at which, and the employees of Bethlehem and its subsidiaries to whom, Awards shall be granted, the type of such Awards, the purchase price (if any, in the case of Grants) and the number of the shares or stock units to be covered by each Award, the conditions of continuing employment, the time or times when each Option may be exercised or the right to exercise such Option may be surrendered and when restrictions provided for by any Grant may lapse and whether in whole or in installments; to interpret the Plan; to prescribe, amend and rescind the rules and regulations relating to it; and to make all other determinations which the Board shall deem necessary or advisable for the administration of the Plan. The Board may, however, at any time, or from time to time, delegate to the Compensation Committee, or such other committee or committees (which shall consist of not less than three members of the Board) appointed by the Board, any of or all the powers and duties of the Board under the Plan (except those relating to (i) the determination whether the shares of Common Stock reserved for use in connection with the Plan shall be issued shares or unissued shares, (ii) the appointment of any such committee and (iii) the termination or amendment of the Plan). The Board may from time to time appoint members of any such committee in substitution for or in addition to members previously appointed, may fill vacancies, however caused, in any such committee and may discharge any such committee. So long as any such delegation shall be in force, any action by the Compensation Committee, or any other such committee within the scope of such delegation, shall be and be deemed to be action by the Board under the Plan. Anything herein to the contrary notwithstanding, (i) Awards intended to qualify as "performance based" compensation under Section 162(m) of the Code shall be made by the Compensation Committee, or another committee appointed by the Board, and any such committee shall, for all purposes related to such Awards, be comprised solely of two or more "outside directors", as defined in Treasury Regulation Section 1.162-27(e)(3), and shall have the authority to establish and administer performance goals and to certify that performance goals are attained and (ii) with respect to all Awards (including those described above), none of the employees of Bethlehem or any subsidiary shall as a member of the Board or of the Compensation Committee or of any such other committee have any vote with regard to the granting of an Award to such employee, the purchase price (if any, in the case of Grants) of the shares of Common Stock covered by any such Award, the time at which any such Award shall be granted, the number of shares covered thereby, when an Option may be exercised or the right to exercise it surrendered or when restrictions with respect to shares of restricted stock shall lapse and whether in whole or in installments, the conditions under which the Award or shares of Common Stock issued pursuant thereto shall be forfeited or the provisions of the related Option or restricted stock agreement. 11 Words in the masculine gender used herein shall be deemed to include the feminine gender. 21. Government and Other Regulations. The obligation of Bethlehem to sell and deliver shares of Common Stock under the Options and pursuant to the Grants shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as deemed necessary or appropriate by counsel for Bethlehem, and (ii) the condition that such shares shall have been duly listed on the New York Stock Exchange. 22. Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of Bethlehem for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable including, without limitation, the granting of stock Options or stock otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 23. Amendment of the Plan. The Plan may be amended by the stockholders of Bethlehem. The Board may also amend the Plan in such respects as it shall deem advisable; provided, however, that the Board may not, without approval of the stockholders of Bethlehem (i) (except as provided in Section 15 hereof) increase the maximum number of shares of Common Stock as to which Awards may be granted under the Plan, (ii) change the manner of determining the Option prices except to change the manner of determining the fair market value of the Common Stock as set forth in Sections 4 and 7 hereof, (iii) increase the maximum term of each Option as provided in Section 5 hereof, (iv) change the provisions of the second paragraph of Section 20 hereof or (v) extend the term of the Plan as provided in Section 24 hereof. No amendment of the Plan may adversely affect any rights under an outstanding Option or Grant without the consent of the holder thereof. 24. Termination of the Plan. Unless extended by approval of the stockholders, the Plan will terminate on December 31, 2005; provided that the Board or the stockholders may terminate the Plan at 12 an earlier date. No termination of the Plan may adversely affect any rights under an outstanding Option or Grant without the consent of the holder thereof. 25. Governing Law. To the extent that Federal laws do not otherwise control, the 2001 Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 13 704: 705: -----END PRIVACY-ENHANCED MESSAGE-----