FEDERAL SCREW WORKS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
Notice is Hereby Given, that the Annual Meeting of Shareholders of
FEDERAL SCREW WORKS, a Michigan corporation, will be held at the offices of
the Company, 535 Griswold, Ste. 2400, Detroit, Michigan 48226, on THURSDAY,
OCTOBER 22, 1998 at 10:00 a.m. (Detroit time), for the following purposes:
1. To elect two directors for a term of three years and until their
successors shall be duly elected and qualified.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business September 1, 1998 are
entitled to notice of and to vote with respect to this solicitation.
By Order of the Board of Directors,
FEDERAL SCREW WORKS
W. T. ZurSchmiede, Jr., Secretary
Principal executive office:
535 Griswold, Ste. 2400
Detroit, Michigan 48226-3602
Detroit, Michigan
September 25, 1998
PLEASE FILL IN, SIGN AND MAIL PROMPTLY THE
ACCOMPANYING PROXY, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING.
PROXY STATEMENT
For
ANNUAL MEETING OF SHAREHOLDERS
This statement is furnished in connection with the solicitation of
Proxies being made by the Board of Directors of Federal Screw Works
(hereinafter designated the "Company"), to be used at the Annual Meeting of
Shareholders of the Company to be held on THURSDAY, OCTOBER 22, 1998 and at
any adjournment or adjournments of the meeting, for the purposes set forth in
the accompanying Notice of Annual Meeting of Shareholders. The meeting will
be held at the principal executive offices of the Company, 535 Griswold, Ste.
2400, Detroit, Michigan 48226.
The Company has only one class of securities, consisting at the close
of business on September 1, 1998 of 1,086,412 issued and outstanding shares
of common stock of the par value of $1.00 per share. Each of the 1,086,412
shares is entitled to one vote at the Shareholders' meeting. Although the
common stock transfer books will not be closed, only Shareholders of record
as of the close of business on September 1, 1998 are entitled to receive
notice of and to vote with respect to this solicitation. The approximate date
on which the proxy statement and form of proxy are to be first sent or given
to security holders is September 25, 1998.
Execution and return of a Proxy will not in any way affect a
Shareholder's right to attend the meeting and to vote in person, and a
Shareholder giving a Proxy has the power to revoke it at any time before it
is exercised. Properly executed Proxies in the accompanying form, received in
due time, and not previously revoked, will be voted at the meeting, or any
adjournment of the meeting, as specified in the meeting.
Election of Directors
The Company's Articles of Incorporation and Bylaws provide that the
number of Directors, as determined from time to time by the Board of
Directors, may be increased or decreased, but may not be less than three. The
Board of Directors has fixed the number of Directors at six. The Board of
Directors is divided into three classes, with each class consisting of two
Directors. At the 1998 Annual Meeting two Directors will be elected for a
three-year term, and in each case until their successors are elected and
qualified. The nominees are two present Directors of the Company whose terms
expire at the meeting. Other Directors whose terms have not expired will
continue in office in accordance with their previous elections. The favorable
vote of at least two-thirds (2/3) of the issued and outstanding shares of
common stock will be required to elect Directors. An abstention by a
Shareholder or a Broker non-vote has the effect of a negative vote. Votes
cast are counted by two Inspectors of Election, one of which is the State
Street Bank & Trust Co., the Company's Stock Transfer Agent. Management has
nominated for election the persons named in the following table, which sets
forth certain information about each of the nominees and each Director whose
term will continue after the Annual Meeting. The persons named in the
enclosed form of Proxy will vote such Proxy for the election of the nominees
described in the following table. Although management does not contemplate
that any of the nominees will be unable to serve, in the event that any
nominee is unable to serve as Director at the date of the Annual Meeting, the
Proxy will be voted for any other nominee who may be designated by the
present Board of Directors, or the Board of Directors may appropriately
reduce the number of Directors
1
to be elected and to comprise the Board. The names of such nominees, and of
the Directors who will continue as such for their respective terms, their
principal occupations and the year in which each first became a member of the
Board of Directors of the Company are as follows:
Term Director
Name and Principal Occupation Expires Since
- ----------------------------- ------- -----
Nominees standing for election to term expiring in 2001:
F. D. Tennent+
Business Consultant. Senior Vice President--
Finance & Secretary of the Company, 1976 to 1986.
Treasurer, 1983 to 1986; Vice President--Finance
& Secretary-Treasurer of the Company, 1969 to
1976. Age 72 .................................... 1998 1978
W. T. ZurSchmiede, Jr.*
Chairman of the Board & Chief Executive Officer
of the Company since 1978; Chief Financial
Officer, Secretary and Treasurer, since 1988.
President and Chief Executive Officer of the
Company, 1970 to 1978. Age 72 ................... 1998 1959
Directors continuing in office for their respective terms:
Dr. Thomas W. Butler, Jr.+
President, Thomas W. Butler & Associates, Inc.,
business consultants. Vice President, The Genlyte
Group, 1985 to 1987, manufacturer of lighting
systems. Dean, School of Engineering and Computer
Science, Oakland University, Rochester, Michigan,
1984 to 1985. Vice President, Engineering and
Research, AMF Inc., manufacturers of leisure and
industrial products, 1974 to 1984. Age 75. ...... 1999 1978
Hugh G. Harness*
Business Consultant. President of the Company,
1985 through Jan. 1994. Executive Vice President,
1982 to 1985; Senior Vice President--Corporate
Development, 1976 to 1982; Vice
President--Corporate Development, 1975 to 1976,
all of the Company. Member of Harness, Dickey and
Pierce law firm, Patent Counsel to the Company,
1954 to 1975. Age 67. ........................... 2000 1965
Thomas ZurSchmiede*
President of the Company, Feb. 1994. Vice
President--Big Rapids Division, 1988-1994; Vice
President--Corporate Development, 1984-1988;
Director of Corporate Development, 1983 to 1984,
all of the Company. General Manager, Votrax
Division of the Company, 1983. Age 47. .......... 2000 1984
Robert F. ZurSchmiede*
Vice President--Romulus Divisions of the Company
since 1986. Vice President and General Manager of
the Romulus Division, 1984 to 1986; Assistant
General Manager of the Romulus Division, 1983 to
1984; Assistant Manufacturing Manager, Romulus
Division, 1982 to 1983, all of the Company. Sales
Representative for the Company, 1981 to 1982. Age
45. ............................................. 1999 1984
<FN>
* Member of Executive Committee of the Company's Board of Directors.
+ Member of Audit Committee of the Company's Board of Directors.
2
Director's Remuneration and Committees of the Board
Directors who are also employees of the Company receive no compensation
in addition to their salaries and benefits received as employees. Directors
who are not employees of the Company are paid a retainer fee of $6,000
quarterly for all services as a Director. In addition, the Chairman of the
Audit Committee receives an additional $1,000 quarterly and the Chairman of
the Salary Compensation Committee receives an additional $1,000 quarterly.
The Company has entered into an agreement with each Director under which the
Company confirms to the Director the indemnification provided for directors
under the Michigan Business Corporation Act. These agreements also require
the Company to secure its indemnification obligations by bank letters of
credit, trusts or other arrangements.
To attract, retain and motivate service on the Company's Board of
Directors, the Company has a retirement plan for Directors who are not also
employees of the Company. A Director who has served at least five years on
the Board of Directors is entitled to a retirement benefit beginning as of
the first day of the fiscal quarter following the date of termination of his
or her directorship. The benefit will be paid quarterly for a period of time
equal to the years of Board service of the Director, but not to exceed
fifteen years (ten years if the recipient is not the Director or his spouse).
Each payment will be in the amount of the quarterly base retainer fee being
paid to the Director at the time of his or her termination as a Director or
$4,500, whichever is greater. Directors who are former employees of the
Company but who have at least one year of service on the Board as a
non-employee of the Company will be entitled to the same benefits as if all
of their Board service had been as a non-employee. The plan is funded
pursuant to the terms of a so-called Rabbi trust created September 13, 1995.
The trust is irrevocable, but in the event all benefits payable under the
plan have been paid, all amounts remaining in the trust would be returned to
the Company. In the event of the insolvency (as defined in the trust
agreement) of the Company, all amounts held in trust would be subject to the
claims of the Company's creditors.
During the fiscal year ended June 30, 1998, the Board of Directors held
six meetings. The Company has standing Audit, Salary Compensation, Finance
and Restricted Stock Bonus Committees, but does not have a standing
Nominating Committee or any Committee performing similar functions.
The Audit Committee, comprising Messrs. Tennent (Chairman) and Butler
(Vice Chairman), held two meetings during the year. Generally, the Audit
Committee recommends to the full Board the engagement or discharge of the
independent public accountants to be appointed for the Company; reviews the
proposed scope of the annual audit and the findings of the independent public
accountants upon completion of the annual audit; reviews the independence of
the public accountants and considers the range of their audit and non-audit
fees; reviews with the independent public accountants and with appropriate
corporate personnel the adequacy of internal procedures, and controls and
monitors the Company's published policies on management integrity.
The Finance Committee, comprising Messrs. ZurSchmiede, Jr. (Chairman),
Thomas ZurSchmiede, Harness and Tennent, held two meetings during the year.
The Finance Committee studies and makes recommendations to the Board
concerning fundamental financial policies of the Company with particular
attention to the incurrence of material corporate debt and material capital
expenditures.
The Salary Compensation Committee comprising Messrs. Tennent
(Chairman), Butler (Vice Chairman), and ZurSchmiede, Jr., held five meetings
during the year. The Committee recommends the salaries of all elected
officers, including bonuses, and is responsible for the continuing study of
executive compensation, so that the Company may remain competitive in that
regard.
The Restricted Stock Bonus Committee, comprising Board members who are
not employees of the Company and who are not eligible for any stock award
pursuant to the Company's Restricted Stock Bonus Plan (Messrs. Tennent,
Chairman and Butler) administers the Company's Restricted Stock Bonus Plan.
The Committee recommends the persons who are to receive such awards, the form
and amount of awards to be made to each person and the conditions under which
awards are restricted. The Restricted Stock Bonus Committee did not meet
during the year.
3
Compensation Committee Report
The Salary Compensation Committee of the Board of Directors ("the
Committee") is composed of three senior members of the Board. The primary
responsibility of the Committee is to monitor the Company's compensation
policies and programs. The Committee recommends to the full Board the
salaries of all elected officers, the allocation of any cash bonus fund among
elected officers and the criteria applicable to the accrual of the cash bonus
fund. The Committee is responsible for the continuing study of executive
compensation generally, so that the Company may remain competitive in that
regard, and in doing so engages and consults outside compensation
specialists. The two non-officer members of the Committee also comprise the
Restricted Stock Bonus Committee which recommends persons to receive
restricted stock awards, the form and amount of awards to be made, and the
conditions under which awards are restricted.
Executive Compensation Policy
The base salaries of the executive officers of the Company are based on
the Company's performance and each executive's contribution to the
operational success of the Company as a whole, particularly in view of the
very demanding conditions in the automotive industry. Based on the Company's
operating results, and following an ongoing study of executive salaries in
general, and the Company's executive salaries in particular, as they relate
to the Company's overall performance and the performance of the Company's
stock, the Salary Compensation Committee recommended a ten percent increase
in base salary to each executive named in the Summary Compensation Table on
page 6 of this proxy statement, which increase was subsequently implemented
by the Board of Directors effective November 1, 1997. The Compensation
Committee will continue its evaluation of each executive's performance under
the Company's highly competitive circumstances, as well as the Company's
performance, including improving production efficiencies with an emphasis on
quality and parts requiring high technology. While the Compensation Committee
takes into consideration the factors mentioned above, the Committee does rely
to a large degree upon subjective (rather than objective) standards and
evaluations to determine executive compensation.
During fiscal 1998 the Compensation Committee and the Board of
Directors made exhaustive and detailed studies, with its actuaries and
consultants, of the possibility of installing a Supplemental Executive
Retirement Plan (SERP) to replace cash payments made to those employees who
are not able to participate fully, due to certain Internal Revenue Service
regulations, in the Company's long standing Salaried Employees Pension Plan,
a defined benefit program. The studies resulted in the Salary Compensation
Committee recommending to the Board of Directors, and the Board subsequently
adopting, a new SERP effective as of July 1, 1998, which SERP is further
discussed in this proxy statement on page 12. The annual funding cost of the
SERP will be approximately equal to, and substitute for, the annual cost of
the cash payments previously made to those executives unable to participate
fully in the qualified Salaried Pension Plan.
The Compensation Committee will continue to emphasize the Company's
long-term performance and increases in shareholder value, will support a
bonus incentive program based on the financial performance of the Company,
and will offer meaningful and competitive retirement and supplemental
benefits that are consistent with the Company's objective of rewarding and
retaining key employees.
The Cash Bonus Plan described in footnote (1) to the Summary
Compensation Table on page 6 was adopted in 1989, and is similar to a plan in
place for many years prior to 1989. Bonuses awarded under the Plan are
discretionary. The Plan is structured in such a way that no bonus amount is
accrued in any fiscal year unless earnings exceed a base amount equal to
eight percent of shareholders' equity as of the beginning of the year.
CEO Compensation
The compensation of the Chief Executive Officer is fixed by the full
Board of Directors (other than the CEO), after considering recommendations of
the Compensation Committee. The Committee reviews the performance of the CEO
and makes recommendations consistent with the objectives, performance, and
results mentioned above. The Committee engages and consults with outside
compensation consultants, and considers overall competitive compensation
arrangements of other automotive industry suppliers as well as a broad range
of companies, some of which may not be comparable to the Company for
Performance Graph purposes. However, because of the extremely competitive
automotive markets served by the Company, the Committee does not specifically
link remuneration of the CEO solely to quantitative measures of performance.
4
In determining the CEO's compensation, the Committee further considers
the Company's improvement, on an operating basis, of its financial position,
improvement in its financial structure, and improvement in shareholder value.
As with the other executives, factors considered by the Committee in
recommending the CEO's compensation to the full Board are generally
subjective.
Under the Long Term Incentive Plan described in the Company's 1997
Proxy Statement, a bonus would have been due to the CEO only if certain
specified performance goals were met by the Company for the fiscal years 1997
and 1998. One of these goals was narrowly missed and no bonus was paid out
under the Plan.
During fiscal 1998, the Salary Compensation Committee reviewed a
contract executed April 1, 1986, between the Company and W.T. ZurSchmiede,
Jr., as discussed annually in the Company's proxy statement, which contract
is a retirement supplement for W.T. ZurSchmiede, Jr., in amount $50,000 per
year for ten years, upon retirement. The Salary Compensation Committee
recommended to the Board of Directors, and the Board subsequently passed a
resolution increasing the annual pension supplement by $15,000 per year. Such
retirement supplement is further discussed on page 11 of this proxy
statement.
Compensation Committee
Thomas W. Butler, Jr.
F. D. Tennent
W. T. ZurSchmiede, Jr.
Compensation Committee Interlocks and Insider Participation
One Member of the Committee, W.T. ZurSchmiede, Jr. is an officer of the
Company and, the Committee Chairman, F.D. Tennent is a former officer. There
are no "interlocks" as defined by the Securities and Exchange Commission.
5
Executive Compensation
The following table sets forth information with respect to the
compensation paid by the Company during the Company's last three fiscal years
to (i) the Chief Executive Officer of the Company and (ii) each of the four
highest compensated executive Officers of the Company whose compensation
exceeded $100,000.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ---------------
Restricted
Other Annual Stock All Other
Name and Principal Position Year Salary Bonus (1) Compensation (2) Awards (3) Compensation (4)
--------------------------- ---- ------ --------- ---------------- ---------- ----------------
W. T. ZurSchmiede, Jr. ...... 1998 $330,000 $283,600 $42,200 0 $16,578
Chairman of the Board and 1997 301,250 275,000 42,200 0 14,857
Chief Executive Officer, 1996 295,000 181,000 42,200 0 13,575
Chief Financial Officer,
Secretary and Treasurer
Thomas ZurSchmiede .......... 1998 325,000 283,600 43,160 0 39,009
President and C.O.O. 1997 296,250 275,000 43,160 0 30,177
1996 290,000 181,000 0 0 27,648
Robert F. ZurSchmiede ....... 1998 269,333 283,600 39,150 0 27,516
Vice President -- 1997 245,000 275,000 39,150 0 21,891
Romulus Divisions 1996 240,000 181,000 0 0 19,507
J. M. O'Brien ............... 1998 269,333 283,600 43,732 0 37,043
Vice President -- 1997 245,000 275,000 43,732 0 28,888
Sales and Marketing 1996 240,000 181,000 43,732 0 26,123
Jeffrey M. Harness .......... 1998 235,667 283,600 33,327 0 16,831
Vice President -- Chelsea 1997 214,585 216,000 33,327 0 13,423
and Brighton Divisions 1996 210,000 202,000 33,327 0 11,533
<FN>
- ----------------
(1) A Cash Bonus Plan, the eligible participants in which are the Officers of
the Company, was adopted for the fiscal year ended June 30, 1989, and has
been in effect during each subsequent year. The bonus fund is subject to
a discretionary award by the Board to those eligible participants
recommended to the Board by the Salary Compensation Committee which
receives a recommendation from the CEO and the President. Any accrued
bonus fund not awarded may be carried forward for award in the current or
subsequent years. Under the Plan, no allocation is made to the bonus fund
in any fiscal year in which pre-tax earnings fail to exceed a base amount
equal to eight (8%) percent of beginning of the year shareholders'
equity. In any year that pre-tax earnings exceed the base amount, an
allocation is made to the bonus fund calculated as a percentage of
pre-tax earnings, the percentage being equal to the sum of one percent
(1%) plus .04 of one percent (1%) for each $10,000 that pre-tax earnings
exceed the base amount. The maximum percentage allowable is 9-1/2%. For
the fiscal year ended June 30, 1998, the base amount was $3,206,423, the
percentage allowance was 9-1/2%, and the fund allocation was $1,418,000,
all of which was awarded by the Board. The Plan has been continued for
the fiscal year to be ended June 30, 1999, with the base amount of
pre-tax earnings required for allocation being increased to $3,742,413 as
a result of a $6,699,888 increase in shareholders' equity. Pre-tax
earnings is defined to exclude the effect of FAS 106.
(2) The amount shown for each officer in 1998 includes special payments to
assist them in obtaining life insurance in lieu of the Company
undertaking such expense directly, and gross-up payments for tax
liabilities on such insurance premium payments, at each officer's
effective tax rate, as follows: W. T. ZurSchmiede, Jr., $22,385
(premium), $19,815 (tax liability gross-up); J. M. O'Brien, $23,200 and
$20,532; Jeffrey M. Harness, $18,180 and $15,147; Thomas ZurSchmiede,
$23,370 and $19,790; and Robert F. ZurSchmiede, $21,590 and $17,560.
6
(3) Subject to the contingencies of death or retirement under the Company's
Salaried Employees' Retirement Plan, the Restricted Stock Bonus Plans
require that each Participant "earn out" awarded shares over a period
which extends to the earlier of ten years or the Participant's normal
retirement date. During the period of restriction, the certificates
representing the shares are deposited with the Company. The dividend paid
to shareholders of the Company is paid on these shares. At June 30, 1998,
the aggregate number and market value (at the then amount of $50.50 per
share) of unvested restricted shares of Company common stock held by each
of the named executive Officers were: W. T. ZurSchmiede, Jr., 1,400
shares valued at $70,700; Robert F. ZurSchmiede, 1,400 shares valued at
$70,700; Thomas ZurSchmiede, 1,400 shares valued at $70,700; J. M.
O'Brien, 1,400 shares valued at $70,700; and Jeffrey M. Harness, 1,000
shares valued at $50,500. No restricted stock awards were made in the
1996, 1997, or 1998 fiscal years.
(4) The amounts shown consist of the Company-paid portion of the premiums on
additional term life insurance, and cash payments, including tax
liabilities, to compensate each officer for the reduction in the
Company's Salaried Pension Plan contribution for 1998 due to certain
Internal Revenue Service regulations, as follows: W. T. ZurSchmiede, Jr.,
$16,578 (term insurance); Thomas ZurSchmiede, $3,114 (term insurance) and
$36,035 (pension reduction and related tax-liability compensation);
Robert F. ZurSchmiede, $3,172 and $25,956; J. M. O'Brien, $2,944 and
$34,398; and Jeffrey M. Harness, $1,697 and $15,340.
7
Comparative Performance Graph
The graph below compares the cumulative total shareholder return on the
common stock of the Company for the last five fiscal years with the
cumulative total return on the S&P 500 Index and a Peer Group over the same
period (assuming initial investment of $100 in the Company's common stock,
the S&P 500 Index and the Peer Group, and reinvestment of all dividends).
COMPARISON OF 5 YEAR TOTAL RETURN
FEDERAL SCREW WORKS, S&P 500 INDEX & A PEER GROUP
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Federal Screw Works .... $100 $114 $158 $193 $363 $399
S&P 500 Index .......... $100 $101 $128 $161 $217 $282
Peer Group ............. $100 $100 $107 $165 $232 $280
<FN>
(1) The Peer Group for the graph shown above includes Chicago Rivet & Machine
Co., Penn Engineering & Manufacturing Corp., SPS Technologies, SPX Corp.,
Simpson Industries, Inc., Park Ohio Industries, Inc., and Hastings Mfg.
Co. In determining the Peer Group, the Company selected primarily
automotive suppliers, companies which may be considered generally
comparable in size or larger, with similar labor markets, are direct or
partial competitors to the Company, are primarily metal working
companies, and companies with a steady record of earnings. The index is
weighted based upon the beginning of period market capitalization values.
8
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of September 1, 1998, information
with respect to beneficial ownership of the Company's common shares by any
shareholder known to the Company to beneficially own 5% or more of the
Company's outstanding common shares.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
------------------- ----------------------- --------
Dimensional Fund Advisors Inc. (1) 73,500 6.76%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
FMR Corp. (2) 108,800 10.01%
82 Devonshire Street
Boston, Massachusetts 02109-3614
Robert F. ZurSchmiede (3) 81,664 7.5 %
Hugh G. Harness (3) 105,222 9.7 %
W.T. ZurSchmiede, Jr. (3) 132,726 12.2 %
Thomas ZurSchmiede (3) 70,078 6.4 %
<FN>
- ----------------
(1) On September 3, 1998, the Company received confirmation of their holding
as of September 1, 1998 from Dimensional Fund Advisors Inc.
(2) On September 3, 1998, the Company received confirmation of their holding
as of September 1, 1998 from FMR Corp.
(3) The Company's mailing address may be used. The Nature of Beneficial
Ownership is set forth under Security Ownership of Management.
9
Security Ownership of Management
The following table sets forth the number of shares of the Company's
common stock beneficially owned as of September 1, 1998 by each director,
each officer named in the Summary Compensation Table, and directors and
executive officers as a group.
Amount and Nature
of Beneficial Ownership Percent
as of September 1, 1998 of Class
----------------------- --------
Directors and Executive Officers who are Directors:
less
than
Dr. Thomas W. Butler, Jr. ......................... 1,200 1%
Hugh G. Harness ................................... 105,222(1) 9.7%
less
than
F. D. Tennent ..................................... 1,000 1%
W. T. ZurSchmiede, Jr. ............................ 132,726(2) 12.2%
Thomas ZurSchmiede ................................ 70,078(3) 6.4%
Robert F. ZurSchmiede ............................. 81,664(4) 7.5%
Executive Officers who are not Directors:
J. M. O'Brien ..................................... 25,000 2.3%
Vice President-Sales and Marketing of the Company
since 1986; Vice President-General Sales Manager,
1984 to 1986; General Sales Manager, 1982 to 1984,
all of the Company.
Jeffrey M. Harness ................................ 29,558 2.7%
Vice President and General Manager-Chelsea
Division and Brighton Division of the Company since 1994;
Vice President and General Manager-Chelsea Division,
1992 to 1994; General Manager-Chelsea Division, 1985 to 1992;
Sales Manager-Chelsea Division, 1984 to 1985, all of
the Company.
All Directors and Officers of the Company as a group. 434,848 40.0%
<FN>
- ----------------
(1) Includes 29,328 shares as to which Mr. Harness has sole voting and
investment power. Also includes 41,876 shares owned by Mr. Harness' wife,
22,118 shares owned by his children, and 1,000 shares owned by his
mother, the beneficial ownership of which may be attributable to Mr.
Harness, and 6,600 shares owned by the W. T. ZurSchmiede, Sr. Foundation,
of which Mr. and Mrs. Harness and Mr. ZurSchmiede, Jr. comprise the three
Trustees. Mr. Harness disclaims beneficial ownership of all but 29,328
shares owned by him and 4,300 shares owned jointly with Mrs. Harness.
6,600 of the shares attributed to Mr. Harness are also attributed to Mr.
ZurSchmiede, Jr., who shares the related voting and investment power. Mr.
Harness is Mr. ZurSchmiede, Jr.'s brother-in-law. The elimination of
duplicate holdings reduces the percent of class to 9.1%.
(2) Includes 11,750 shares as to which Mr. ZurSchmiede has sole voting and
investment power. Also includes 114,376 shares owned by Mr. ZurSchmiede's
daughters and their spouses, individually and as custodian for
grandchildren, and 6,600 shares owned by the W. T. ZurSchmiede, Sr.
Foundation, of which he is a Trustee, the beneficial ownership of all of
which may be attributable to Mr. ZurSchmiede. Mr. ZurSchmiede disclaims
beneficial ownership of all but 11,750 shares owned by him. 6,600 of the
shares attributed to Mr. ZurSchmiede are also attributed to Mr. Harness,
who shares the related voting and investment power. The elimination of
duplicate holdings reduces the percent of class to 11.6%.
10
(3) Includes 65,278 shares as to which Mr. ZurSchmiede has sole voting and
investment power. Also includes 4,800 shares held as co-trustee for a
niece and nephews, which shares are also attributable to Robert F.
ZurSchmiede, who shares the related voting and investment powers. Mr.
ZurSchmiede disclaims beneficial ownership of all but 65,278 shares owned
by him. Mr. ZurSchmiede is a son of W. T. ZurSchmiede, Jr. The
elimination of duplicate holdings reduces the percentage of class to 6%.
(4) Includes 76,864 shares as to which Mr. ZurSchmiede has sole voting and
investment power. Also includes 4,800 shares held as co-trustee for a
niece and nephews which shares are also attributable to Thomas
ZurSchmiede, who shares the related voting and investment powers. Also
includes 27,300 shares for which Mr. ZurSchmiede is custodian for his
children, the beneficial ownership of which may be attributable to Mr.
ZurSchmiede. Mr. ZurSchmiede disclaims beneficial ownership of all but
49,564 shares owned by him. Mr. ZurSchmiede is a son of W. T.
ZurSchmiede, Jr. The elimination of duplicate holdings reduces the
percentage of class to 7%.
Certain Relationships and Related Transactions
Mr. Hugh G. Harness took early retirement as President and C.O.O. of the
Company effective February 1, 1994. Mr. Harness agreed to perform consulting
services for the Company for eight years with compensation for those services
commencing in 1994 at $130,200, with annual reductions of $5,000 a year to
$95,200 in 2001. Mr. Harness' monthly retirement supplement is $4,000, payable
for 120 months, commencing at his retirement. Mr. Harness' participation in the
Cash Bonus Plan was terminated.
Restricted Stock Bonus Plans
The Board of Directors adopted a Restricted Stock Bonus Plan in 1979,
and an Employee Restricted Stock Bonus Plan in 1983, for allocation of
restricted shares of the Company's common stock to officers and other
employees of the Company in recognition of their past contributions, and to
encourage their future contributions, to the profitability of the Company.
Allocations of restricted shares to individual employees are recommended to
the Board by the Restricted Stock Bonus Committee, taking into consideration
evaluations by management. Among the factors considered by the Committee are
improvement in earnings, the Company's performance in relation to others in
its field of business, the results of the particular Division of the Company
in which an individual is employed, the performance of individual employees
and such other factors as the Committee may deem relevant. The Plan is
administered by the Restricted Stock Bonus Committee of the Board, none of
the members of which are employees of the Company or eligible to receive such
awards. No bonus shares were awarded during fiscal 1998. See further note 3
to the Summary Compensation Table, on page 6.
Retirement Supplement
In 1986, W. T. ZurSchmiede, Jr. entered into an agreement with the
Company pursuant to which he has earned supplemental retirement and death
benefits by serving continuously in the Company's employment from that time
until age 65. Supplemental retirement benefits under the agreement are
payable monthly after Mr. ZurSchmiede's retirement for 120 months, but the
Company may terminate such payments if Mr. ZurSchmiede fails or refuses to
provide advice and counsel to the Company after retirement when reasonably
asked to do so. The monthly benefit of $4,166 under the original agreement
has been increased to $5,416 by amendment adopted by the Company in 1998. In
the event of Mr. ZurSchmiede's death, his designated beneficiary is entitled
to a supplemental death benefit equal to the balance of any unpaid monthly
retirement benefits. Except for the benefit increase effective 1998, all
benefits have been fully funded by charges to operations in prior years.
Salaried Pension Plan
The Company maintains a Salaried Pension Plan, which covers all
salaried employees. The remuneration covered by the qualified Plan is base
salary only. The approximate years of credited service for the officers named
in the Summary Compensation Table are: W. T. ZurSchmiede, Jr., 31, Robert F.
ZurSchmiede, 20, Thomas ZurSchmiede, 17; J. M. O'Brien, 23; Jeffrey M.
Harness, 18. Effective July 1, 1998, the maximum salary taken into account in
calculating plan benefits is limited to $80,000, in order to comply with
11
requirements of the Internal Revenue Code. Company contributions are computed
on an actuarial basis which provides for fixed benefits in the event of
retirement at a specific age or after a specified number of years of service.
Contributions by the Company are, therefore, made to the Plan in the
aggregate and the amount of the contribution, payment, or accrual in respect
of a specified person is not and cannot readily be separately or individually
calculated by the regular actuaries for the Plan.
In addition, effective July 1, 1998, the Company established a
Supplemental Executive Retirement Plan, (SERP) for the benefit of certain
participants designated by the Compensation Committee. The SERP benefit is
equal to the difference between the normal monthly benefit received under the
Pension Plan and the unrestricted benefit. The unrestricted benefit is the
lesser of the monthly pension benefit as calculated using the average base
and bonus compensation for the previous ten plan years as determined under
the qualified Pension Plan without regard to compensation limits or 175% of
total average base compensation determined without regard to the qualified
plan compensation limits.
The following table illustrates representative retirement benefits at
the maximum levels payable under the Salaried Pension Plan and the
Supplemental Executive Retirement Plan for various earnings and credited
service periods:
Average
Compensation
During the Final Annual Normal Retirement Benefits
Ten Years (1) For Years of Credited Service Indicated(2)
---------------- ------------------------------------------
15 20 25 30
-- -- -- --
$ 80,000 .... $ 22,800 $ 30,400 $ 38,000 $ 38,000
$100,000 .... $ 28,500 $ 38,000 $ 47,500 $ 47,500
$200,000 .... $ 57,000 $ 76,000 $ 95,000 $ 95,000
$300,000 .... $ 85,500 $114,000 $142,500 $142,500
$400,000 .... $114,000 $152,000 $190,000 $190,000
$500,000 .... $142,500 $190,000 $237,500 $237,500
$600,000 .... $171,000 $228,000 $285,000 $285,000
$700,000 .... $199,500 $266,000 $332,500 $332,500
<FN>
- ----------------
(1) The Compensation covered by the plans under which the benefits are
summarized in the table above equals the sum of base salary and annual
bonus payments, as reported in the Summary Compensation Table for the
named executive officers for the last three fiscal years, and is equal to
the final ten-year average of such amounts.
(2) Payable on a Life and 10 Year Certain basis. Life Only Option is not
available under the Plan. For married participants, however, the form of
benefit payment is the qualified 50% or 100% Joint and Survivor Annuity,
unless another form is elected. Benefits are increased actuarially for
late retirement. The benefit amounts set forth are not subject to any
reduction for Social Security benefits.
401K Savings Plan
The Company adopted, effective September 1, 1993, a 401(k) tax deferred
savings plan. This plan is available to all eligible employees, including
employees who are participants in the plan in accordance with their union
contract. The plan is non-contributory, that is, the Company does not match
any portion of the employees' contributions. The Company does, however, bear
the costs of administering the plan, which are expected to be about $15,000
per year. Employees may contribute up to 20% of their annual compensation,
but not more than the maximum amount permitted under the Internal Revenue
Code. Comerica Bank is the Trustee of the plan. Contributions are invested in
one or more of eighteen mutual funds, administered by Comerica Bank, as
selected by each employee.
Relationship with Independent Public Accountants
The Board of Directors has reappointed Ernst & Young as independent
accountants to audit the financial statements of the Company for the current
fiscal year. One or more members of the firm of Ernst & Young are expected to
be present at the Annual Meeting of Shareholders, will be available to
respond to appropriate questions, and will be afforded the opportunity to
make a statement.
12
Compliance With Section 16(a) of the Exchange Act
Under Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors and its executive officers and persons who own more than
ten percent of the Company's equity securities are required to report
ownership of the Company's common stock and any changes in that ownership to
the Securities and Exchange Commission and to furnish to the Company copies
of all Section 16(a) forms they file. Based solely on review of the copies of
such forms furnished to the Company, and written representations of its
directors and executive officers, the Company believes that during the fiscal
year ended June 30, 1998 those filing requirements were met.
Concerning Other Matters Which May Come Before the Meeting
At the meeting, reports will be received from the Officers of the
Company relative to the operation, management and conduct of the Company
during the fiscal year ended June 30, 1998, but it is not contemplated that
there will be any vote in respect of any of said matters. Management is not
aware of any other matters to be presented for action at the meeting.
However, should any other matters requiring the vote of the Shareholders
arise, the persons named in the enclosed form of Proxy will vote such Proxy
according to their best judgment.
Proposals for 1999 Annual Meeting
Shareholder proposals pursuant to Rule 14(a-8) promulgated under the
Securities Exchange Act of 1934 must be received by the Company no later than
May 31, 1999 in order to be included in the Company's Proxy Statement and
Form of Proxy for that meeting. Such proposals must also meet the other
requirements of the rules of the Securities and Exchange Commission relating
to shareholders' proposals.
Concerning Expenses of Proxy Solicitation
The cost of soliciting Proxies will be borne by the Company. Proxies
may be solicited by mail, telegraph or telex, or by directors, officers and
regular employees of the Company in person or by telephone. The Company has
retained the services of Corporate Investor Communications, Inc. to assist in
the distribution of Proxy materials and to solicit Proxies from banks,
brokers and nominees at a cost not to exceed $4,500 plus reasonable
out-of-pocket expenses. The Company will also reimburse brokerage houses and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding the Proxy Statement and the Annual Report to the
beneficial owners of common stock of the Company.
It is important that Proxies be returned promptly to assure that a
quorum of the Company's shares be represented at the Annual Meeting.
Shareholders who do not expect to attend the meeting in person are urged to
execute and return, without delay, the enclosed form of Proxy in the
enclosed, stamped envelope.
By Order of the Board of Directors
W. T. ZurSchmiede, Jr., Secretary
Detroit, Michigan
September 25, 1998
P.S. Although not a part of the Proxy soliciting material, a copy of the
Company's Annual Report for the fiscal year ended June 30, 1998 is
enclosed herewith.
13
[ Form of Proxy -- Front ]
FEDERAL SCREW WORKS
The undersigned hereby constitutes and appoints H.G. Harness and R.F.
ZurSchmiede or either of them, attorneys and proxies with full power of
substitution to vote at the Annual Meeting of Shareholders of Federal Screw
Works, to be held on Thursday, October 22, 1998, or at any adjournments
thereof.
The shares represented by this proxy will be voted as directed. Unless
authority is withheld, this proxy will be voted to elect as directors the
nominees shown.
Discretionary authority is hereby conferred as to any other matters as may
properly come before the meeting. The undersigned acknowledges receipt of the
Notice of Annual Meeting of Shareholders, the Proxy Statement dated September
25, 1998 and the Annual Report of Federal Screw Works to its shareholders for
the year ended June 30, 1998. The undersigned ratifies all that the proxies
or any of them or their substitutes may lawfully do or cause to be done by
virtue hereof and revokes all former proxies.
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name
appears, a majority must sign. If a corporation, this signature should be
that of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED?
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
[ Form of Proxy -- Back ]
/ X / PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ---------------------------------- !. Election of Directors:
FEDERAL SCREW WORKS For All With- For All
- ---------------------------------- Nominees hold Except
/ / / / / /
F.D. Tennent
W.T. ZurSchmiede, Jr.
NOTE: If you do not wish your shares voted "For" a
particular nominee, mark the "For All Except" box
and strike a line through the nominee. Your
shares will be voted for the remaining Nominee.
RECORD DATE SHARES:
2. To act in their discretion upon the transaction of
such other business as may properly come before the
meeting.
Please be sure to sign and date this Proxy. Date ____________ Mark box at right if address change has been noted
on the reverse side of this card. / /
Shareholder sign here ____________ Co-owner sign here _________
DETACH CARD DETACH CARD