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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
NORTHWESTERN STEEL & WIRE CORP.
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(Name of Registrant as Specified in Its Charter)
NORTHWESTERN STEEL & WIRE CORP.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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[NORTHWESTERN STEEL AND WIRE COMPANY LETTERHEAD]
January ___, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Northwestern Steel and Wire Company, to be held on Thursday, February 18, 1999,
at 10:30 a.m. Central Standard Time at Bank of America, Shareholders' Room -
21st Floor, 231 South LaSalle Street, Chicago, Illinois.
The following Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the Meeting. During the Meeting we will
also report on the operations of the Company. Our 1998 Annual Report
accompanies this Proxy Statement.
It is important that your shares be represented at the Meeting regardless
of the size of your holdings. If you are unable to attend in person, we urge
you to participate by voting your shares by proxy. You may do so by filling out
and returning the enclosed proxy card.
If you arrive early, you are invited to have coffee and meet informally
with the Directors.
Sincerely,
Frederick J. Rocchio, Jr.
Chief Executive Officer and President
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[NORTHWESTERN STEEL AND WIRE COMPANY LETTERHEAD]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 18, 1999
The Annual Meeting of Shareholders of Northwestern Steel and Wire Company
(the "Company") will be held on Thursday, February 18, 1999, at 10:30 a.m.
Central Standard Time at Bank of America, Shareholders' Room - 21st Floor, 231
South LaSalle Street, Chicago, Illinois, for the following purposes:
(1) To elect seven Directors to hold office until the next annual meeting
of Shareholders.
(2) To adopt the 1998 Employee Incentive Compensation Plan.
(3) To adopt the 1998 Non-Employee Directors' Stock Option Plan.
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on January 7, 1999
as the record date for determining shareholders entitled to notice of, and to
vote, at the Annual Meeting and any adjournments thereof.
We encourage you to attend the Annual Meeting and vote your shares in
person. To be sure your shares are represented at the meeting, you are
requested to date, sign and return promptly the accompanying proxy in the
enclosed envelope provided. You may revoke your proxy at any time before it is
actually voted by notice in writing to the undersigned.
By order of the Board of Directors
Thomas Vercillo
Secretary
Sterling, Illinois
January __, 1999
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NORTHWESTERN STEEL AND WIRE COMPANY
121 WALLACE STREET
STERLING, ILLINOIS 61081-0618
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PROXY STATEMENT
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The Annual Meeting of Shareholders (the "Annual Meeting") of Northwestern
Steel and Wire Company (the "Company") will be held at 10:30 a.m., Central
Standard Time, Thursday, February 18, 1999, at Bank of America, Shareholders'
Room - 21st Floor, 231 South LaSalle Street, Chicago, Illinois. The
accompanying proxy is solicited by the Board of Directors of the Company for use
at the Annual Meeting and any adjournments thereof.
GENERAL INFORMATION
VOTING SECURITIES
The Board of Directors has fixed the close of business on January 7, 1999
as the record date for determining shareholders entitled to notice of and to
vote at the Annual Meeting. As of the record date, the Company had outstanding
______________ shares of Common Stock. Each of the outstanding shares of Common
Stock is entitled to one vote.
PROXIES
Frederick J. Rocchio, Jr. and Thomas Vercillo, named on the proxy card
accompanying this Proxy Statement, were selected by the Board of Directors of
the Company to serve as proxies. Messrs. Rocchio and Vercillo are each
executive officers of the Company. Each executed and returned proxy will be
voted in accordance with the directions indicated thereon, or if no direction is
indicated, in accordance with the recommendations of the Board of Directors
contained in this Proxy Statement. Each shareholder giving a proxy has the
power to revoke it at any time before the shares it represents are voted.
Revocation of a proxy is effective upon receipt by the Secretary of the Company
of either (i) an instrument revoking the proxy, or (ii) a duly executed proxy
bearing a later date. Additionally, a shareholder may change or revoke a
previously executed proxy by voting in person at the Annual Meeting.
REQUIRED VOTE
A plurality of the votes cast in person or by proxy is required (i) to
elect directors, (ii) to approve the 1998 Employee Incentive Compensation Plan
and (iii) the 1998 Non-Employee Directors' Stock Option Plan.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the shareholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
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ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders for the fiscal year ended July
31, 1998 containing financial and other information pertaining to the Company,
is being furnished to shareholders simultaneously with this Proxy Statement.
MAILING AND EXPENSES
This Proxy Statement and accompanying form of proxy were first released to
shareholders on or about January __, 1999. Expenses incurred in the
solicitation of proxies will be borne by the Company.
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named in the enclosed form of Proxy, unless otherwise directed
therein by the shareholder giving the Proxy, intend to vote such Proxy FOR the
election of the nominees named below as directors and intend to vote the number
of shares owned by such shareholders for each nominee. If any nominee becomes
unavailable for election or unable to serve as a director, the persons named in
the enclosed form of Proxy intend to cast votes for a person that will be
designated by the Board of Directors of the Company. Management has no reason
to doubt the availability of any of the nominees to serve and no reason to
believe that any of the nominees will be unavailable or unwilling to serve if
elected to office.
NOMINEES
Prior to the Annual Meeting, the Company's Board of Directors consisted of
two classes of directors, each elected for a period of two years. The Board has
amended the Company's By-laws to provide for only one class of directors to be
elected annually. The Board of Directors has nominated the following persons,
who if elected at the Annual Meeting, will serve as directors until the earlier
of the Annual Meeting of the Company's shareholders following fiscal 1999 or
until their successors are duly elected and qualified.
NAME AGE SERVED AS DIRECTOR SINCE
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William F. Andrews (1)(2) 67 1994
Darius W. Gaskins, Jr. (4) 59 1994
Thomas A. Gildehaus 58 1997
David L. Gore 60 1997
James A. Kohlberg (4) 40 1992
Christopher Lacovara (2)(3)(4) 33 1992
Frederick J. Rocchio, Jr. (2) 51 1998
________________
(1) Member of Audit Committee
(2) Member of Executive Committee.
(3) Member of Pension Committee.
(4) Member of Compensation Committee.
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William F. Andrews is Chairman of Scovill Fasteners, Inc., a
designer,manufacturer and distributor of apparel fasteners and specialty
industrialfasteners. From 1995 to 1998 Mr. Andrews was also Chairman
of Schrader-Bridgeport International Inc., a manufacturer of tire valves
andpressure control devices. From 1993 to 1995, Mr. Andrews was Chairman,
ChiefExecutive Officer, and President of Amdura Corporation, a manufacturer
ofhardware and industrial equipment. Mr. Andrews is also a Director of Black
BoxCorporation, Dayton Superior Corp., Johnson Controls, Inc., Katy
Industries,Navistar, Inc. and Southern New England Telephone Company.
Darius W. Gaskins, Jr. has been a Partner of Carlisle, Fagan, Gaskins
& Wise, Inc., a management consulting firm, since 1993, and a Partner of
HighStreet Associates, Inc., an investment partnership, since 1991. From 1994
to1995, Mr. Gaskins was Chairman of Leaseway Transportation Corporation,
adistribution services provider. Mr. Gaskins is also a Director of Anacomp,Inc.,
Sapient Corporation, and ROHN Industries, Inc., formerly UNR Industries,Inc.
("UNR").
Thomas A. Gildehaus has been a Director of the Company since January 1997.
From April 1997 to November 1998, Mr. Gildehaus was Chairman and Chief Executive
Officer of the Company. From 1992 to April 1997, Mr. Gildehaus was President,
Chief Executive Officer and a Director of UNR, a manufacturer of infrastructure
products used in the wirelesscommunication industry. Mr. Gildehaus is also an
advisory director of Bank of America Illinois.
David L. Gore has been an attorney in private practice regarding labor
law since 1994. From 1982 to 1994, Mr. Gore was a member of the firm of
Kleiman,Whitney, Wolfe & Gore, handling a variety of legal matters for the
UnitedSteel workers of America (the "Union").
James A. Kohlberg has been Managing Partner of Kohlberg & Co., L.P.
("Kohlberg") since 1994 and Co-Managing Partner from 1987 to 1994. Mr. Kohlberg
is also a Director of ABT.
Christopher Lacovara has been a Principal of Kohlberg since 1995 and
an associate of Kohlberg from 1988 to 1994.
Frederick J. Rocchio, Jr. has been the President and Chief Executive
Officer and a Director since November 1998. From 1997 to November 1998, Mr.
Rocchio was the Executive Vice President, Development and Technology for
Birmingham Steel Corporation ("Birmingham") and from 1995 to 1997 was President,
Steel Services Business Unit for Birmingham. From 1991 to 1995, Mr. Rocchio was
the Vice President, Integrated Steelmaking and Hot Rolling Operations for Inland
Steel Company.
Pursuant to the Company's agreement with the Union, the International
President of the Union may designate an individual for appointment to the Board
of Directors. Subject to the approval of, and then recommendation by, the Chief
Executive Officer, the Board shall consider such designee. In accordance with
this procedure, Mr. Gore was appointed to the Board of Directors effective June
5, 1997 and is nominated for election at the upcoming Annual Meeting of
Shareholders.
If at the time of the Annual Meeting any of the nominees should be unable
or decline to serve, the persons named in the proxy will vote for such
substitute nominee or nominees as the Board of Directors recommends, or vote to
allow the vacancy created thereby to remain open until filled by the Board as
the Board recommends. The Board of Directors has no reason to believe that any
nominee will be unable or will decline to serve as a director if elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
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PROPOSAL 2
ADOPTION OF THE NORTHWESTERN STEEL AND WIRE COMPANY
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
BACKGROUND
Effective August 1, 1998, the Board of Directors adopted the Northwestern
Steel and Wire Company 1998 Employee Incentive Compensation Plan (the "Plan")
pursuant to which options to acquire up to 2,000,000 shares of Common Stock may
be issued pursuant to the grant or exercise of stock options, stock appreciation
rights, restricted stock, deferred stock or performance awards (collectively
referred to as "Awards" ) on the terms described below. Assuming the adoption
of Proposal 2, if options for 2,000,000 shares of Common Stock available under
the Plan were issued, such shares would constitute approximately ___% of the
issued and outstanding Common Stock as of July 31, 1998. The Plan will not be
implemented if it is not approved by a majority of the votes cast, in person or
by proxy, at the Annual Meeting. The Board believes that the size of the Plan,
as amended, is appropriate.
The Board of Directors believes implementing incentive compensation plans
is necessary to hire and retain experienced management in the steel industry and
outweighs any burden on, or dilution of, the Common Stock as a result of the
award of stock options. A number of executive officers of the Company have
recently retired and the Board of Directors believes it to be in the Company's
best interest to have an incentive compensation plan in order to attract
qualified management personnel. The Board also believes that the Plan will
provide the following benefits: (i) the encouragement of the acquisition by key
employees of a proprietary interest in the Company; (ii) the ability to fashion
attractive incentive awards based upon the performance of the Company and the
price for Common Stock; and (iii) better alignment of the interests of officers,
employees and consultants with the interests of the Company's shareholders. In
adopting the Plan, the Board of Directors noted that many other companies have
adopted equity plans to compensate their officers, employees and consultants.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF THE
PLAN, AND BELIEVES THAT THE PLAN IS APPROPRIATE TO COMPENSATE OFFICERS, KEY
EMPLOYEES AND CONSULTANTS.
The following brief summary of certain features of the Plan is qualified in
its entirety by reference to the full text of the Plan which is attached as
Exhibit A.
SUMMARY OF PROVISIONS
The Board of Directors approved the adoption of the Plan effective as of
August 1, 1998, subject to shareholder approval. The purpose of the Directors'
Plan is to promote the overall financial objectives of the Company and its
shareholders by motivating the persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan is currently administered by the Compensation Committee (the
"Committee").
The Plan provides for the award of up to 2,000,000 shares of Common Stock,
all of which are reserved for directors, officers, employees and consultants
("Participants"). No more than 400,000 shares of Common Stock reserved under
the Plan may be granted to any Participant during any fiscal year. The Plan's
major provisions include:
Stock Options may be either "incentive stock options" (within the meaning
of Section 422 of the Code) or nonstatutory options (collectively, "Stock
Options"). The exercise price per share purchasable under an option shall be
determined at the time of grant by the Committee. Participants will be given up
to ten years in which to exercise a Stock Option, or a shorter period for vested
options once a Participant
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terminates employment. Payment may be made in cash or in the form of
unrestricted shares the Participant already owns or by other means. At the
Company's option it may provide a Participant with a loan or guarantee of a loan
for the exercise price of an option. The right to exercise an option may be
conditioned upon the completion of a period of service or other conditions.
Stock Appreciation Rights ("SARs") entitle a Participant to receive an
amount in cash, shares or both, equal to (i) the excess of the fair market value
of one share over the exercise price per share specified in the related Stock
Option (or by the Committee in the absence of a related Stock Option) multiplied
by (ii) the number of shares to which the SAR relates. The right to exercise an
SAR may be conditioned upon the completion of a period of service or other
conditions. SARs shall be exercisable at such time and to the extent the
related Stock Option is exercisable (or, as determined by the Committee in the
absence of a related Stock Option), or for a shorter period once a Participant
terminates employment.
Shares of Restricted Stock ("Restricted Stock") may also be awarded under
the Plan, which is the grant of shares of Common Stock that requires (in order
for such shares to become unrestricted) the completion of a period of service or
the attainment of specified performance goals by the Participant or the Company
or a subsidiary, division or department of the Company or such other criteria as
the Committee may determine in order to retain the shares. Upon a Participant's
Termination of Employment (as defined in the Plan), the Restricted Stock still
subject to restriction generally will be forfeited by the Participant. The
Committee may waive these restrictions in the event of hardship or other special
circumstances.
Deferred Stock ("Deferred Stock") is stock that can be awarded to a
Participant delivered in the future, at a specified time and under specified
conditions. The Committee will determine the Participants to whom, and the time
or times at which, any Deferred Stock shall be awarded, the number of shares of
Deferred Stock to be awarded to any Participant, the duration of the period
during which and the conditions under which receipt of the shares will be
deferred and any other terms and conditions of the Deferred Stock.
Performance Awards are grants of cash or shares of Common Stock or the
right to receive shares in the future that are subject to restrictions on
transfer and retention based on satisfaction of certain performance criteria by
the Company, the Participant or both. If the specified performance objectives
established by the Committee are attained during the time period specified by
the Committee, and if the Participant continues in employment through the
performance period, the restrictions on transfer and retention will be removed.
Depending on a Participant's responsibilities, the performance criteria
will be based on any of the following, either alone or in any combination, and
either on a consolidated or business unit level, as the Committee may determine:
(1) total stockholder return; (2) such total stockholder return as compared to
total return (on a comparable basis) of a publicly available index, such as, but
not limited to, the Standard & Poor's 500 or the Nasdaq-U.S. Index; (3) net
revenue; (4) net income; (5) pre-tax income; (6) EBITDA (earnings before
interest, taxes, depreciation and amortization); (7) EBITDA margin (EBITDA as a
percentage of net revenue); (8) operating income; (9) operating margin
(operating income as a percentage of net revenue); (10) earnings per share; (11)
return on equity; (12) return on capital; and (13) return on investment.
Performance Awards in respect of which the Company's deduction is subject to
Section 162(m) of the Code, may only be paid if the performance objectives are
achieved, except where the Participant's employment is terminated for an
extraordinary reason, in which case the Participant may receive a proportionate
award.
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Other Awards. The Committee may also grant Common Stock as a bonus, in
lieu of Company obligations to pay cash or other property under other plans or
compensatory arrangements, or as deemed by the Committee to be consistent with
the purposes of the Plan. The Committee may grant dividend equivalents
entitling a Participant to receive cash, Common Stock, or other property equal
in value to dividends paid with respect to a specified number of shares of
Common Stock.
Amendments and Modifications. The Plan, as adopted, is not limited as to
its duration. The Board may amend, alter, or discontinue the Plan, subject to
certain limits.
Change in Control. In the event of a Change in Control of the Company (as
defined in the Plan):
(1) The Committee may, in its sole discretion, elect to terminate
and cash out all Stock Options outstanding as of the date of such Change
in Control (whether vested or not) by paying each Participant an amount in
cash equal to (i) the excess of the Change in Control Price (as defined in
the Plan) for the Common Stock that is subject to each particular Option
over the Option Price per share times the number of shares of Common Stock
subject to such Option, or (ii) $0.10 times the number of shares of Common
Stock subject to each particular Option in the event the Change in Control
Price is less than the Option Price per share. In the event of a Change
in Control resulting from a corporate transaction (other than a corporate
transaction resulting from a tender or exchange offer for fifty percent
(50%) or less of the voting securities of the Company) and provided that
the Committee has not elected to terminate and cash out all Stock Options
in accordance with the previous sentence, the entity which has acquired
control of the Company may exchange all Stock Options outstanding as of
the date of such Change in Control (whether vested or not) for options
under an equivalent plan of such entity which shall have an equivalent
value and vesting schedule. If such entity which has acquired control of
the Company does not exchange all Stock Options outstanding as of the date
of such Change in Control (whether vested or not) for options under an
equivalent plan of such entity which shall have an equivalent value and
vesting schedule and the Committee has not elected to terminate and cash
out all Stock Options, such Stock Options, to the extent not vested,
shall become fully vested and exercisable to the full extent of the
original grant.
(2) Any SAR outstanding as of the date of such Change in Control
which are not then exercisable and vested will become fully exercisable
and vested to the full extent of the original grant.
(3) The restrictions and deferred limitations applicable to any
shares of Restricted Stock and Deferred Stock will lapse, and such shares
of Restricted Stock and Deferred Stock will become free of all
restrictions and become fully vested and transferable to the full extent
of the original grant. Also, the performance goals and other restrictions
with respect to any outstanding award of Performance Shares or Annual
Incentives may be deemed to be satisfied in full and fully distributable.
(4) Unless the Committee provides otherwise, a Participant shall
have the right, by giving notice during the 60-day period from and after a
Change in Control to the Company, to elect to surrender all or part of a
stock-based Award to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the Change in
Control Price per share of Common Stock on the date of such election shall
exceed the amount which the Participant must pay to exercise the award per
share of Common Stock, multiplied by the number of shares of Common Stock
granted under such award.
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EFFECT OF FEDERAL INCOME TAXATION
The following summary of tax consequences with respect to the awards
granted under the Plan is not comprehensive and is based upon laws and
regulations in effect on January 1, 1999. Such laws and regulations are subject
to change. The summary is intended for the information of shareholders
considering how to vote and not as tax guidance to Participants in the Plan.
Participants in the Plan should consult their own tax advisors as to the tax
consequences of participation.
Stock options granted under the Plan may be either incentive stock options
qualified under Section 422 of the Code ("ISOs") or options that are not ISO's,
referred to herein as "NQSOs". There are generally no Federal income tax
consequences either to the option holder or to the Company upon the grant of a
stock option. On exercise of an ISO, the option holder will not recognize any
income and the Company will not be entitled to a deduction for tax purposes,
although such exercise may give rise to liability for the option holder under
the alternative minimum tax provisions of the Code. Generally, if the option
holder disposes of shares acquired upon exercise of an ISO within two years of
the date of grant or one year of the date of exercise, the option holder will
recognize compensation income and the Company will be entitled to a deduction
for tax purposes in the amount of the excess of the fair market value of the
shares on the date of exercise over the option exercise price (or the gain on
sale, if less). Otherwise, the Company will not be entitled to any deduction
for tax purposes upon disposition of such shares, and the entire gain for the
option holder will be treated as a capital gain. On exercise of an NQSO, the
amount by which the fair market value of the shares on the date of exercise
exceeds the option exercise price will generally be taxable to the option holder
as compensation, subject to income and payroll taxes, and will generally be
deductible for tax purposes by the Company. The dispositions of shares acquired
upon exercise of an NQSO will generally result in a capital gain or loss for the
option holder with the holding period commencing on the date of the exercise,
but will have no consequences for the Company.
Stock Appreciation Rights - Upon the grant of an SAR, the Participant will
not recognize any taxable income and the Company will not be entitled to a
deduction. Upon the exercise of an SAR, the consideration paid to the
Participant upon exercise of the SAR will constitute compensation taxable to the
Participant as ordinary income. In determining the amount of the consideration
paid to the Participant upon the exercise of an SAR for the Company Common
Stock, the fair market value of the shares on the date of exercise is used. The
Company, in computing its Federal income tax, generally will be entitled to a
deduction in an amount equal to the compensation taxable to the Participant
(including payroll taxes thereon).
Other Awards - With respect to awards granted under the Plan that result in
the payment or issuance of cash or shares of the Common Stock or other property
that is either not restricted as to transferability or not subject to a
substantial risk of forfeiture, the Participant must generally recognize
ordinary income equal to the cash or the fair market value of shares or other
property received on the date any such restrictions lapse. Thus, deferral of
the time of payment or issuance will generally result in the deferral of the
time the Participant will be liable for income taxes with respect to such
payment or issuance. The Company generally will be entitled to a deduction in
an amount equal to the ordinary income received by the Participant. With
respect to awards involving the issuance of shares of the Company Common Stock
or other property that is restricted as to transferability and subject to a
substantial risk of forfeiture, the Participant must generally recognize
ordinary income equal to the fair market value of the shares or other property
received as of the first time the shares or other property becomes transferable
or not subject to a substantial risk of forfeiture, whichever occurs earlier.
The Company will be entitled to a deduction in an amount equal to ordinary
income received by the Participant. A Participant may elect to be taxed at the
time of receipt of shares or other property rather than upon lapse of
restrictions on transferability
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or the substantial risk of forfeiture, but if the Participant subsequently
forfeits such shares or property he would not be entitled to any tax deduction,
including as a capital loss, for the value of the shares or property on which he
previously paid tax. The Participant must file such election with the Internal
Revenue Service within 30 days of the receipt of the shares or other restricted
property.
Section 162(m) of the Code - Section 162(m) to the Code generally disallows
a public company's tax deduction for compensation to the Named Officers in
excess of $1,000,000 in any tax year. Compensation that qualifies as
"performance-based compensation" is excluded from the $1,000,000 deductibility
cap, and therefore remains fully deductible by the Company that pays it.
The Company intends that options, SARs granted with an exercise price or
grant price equal to at least 100% of fair market value of the underlying shares
at the date of grant, and Performance Awards granted under the Plan to
employees whom the Committee expects to be Named Officers at the time a
deduction arises in connection with such Awards, qualify as "performance-based
compensation." Such award will qualify as "performance based compensation" if
the Plan is approved by the shareholders at the Annual Meeting. Other Awards
may be granted under the Plan which will not so qualify, so that compensation
paid to persons who are Named Officers in connection with such awards will, to
the extent such compensation and other compensation subject to the Section
162(m) deductibility cap in a given year exceeds $1,000,000, be subject to the
Section 162(m) deductibility cap. A principal objective of the Board of
Directors of the Company in recommending the Plan for stockholder approval is to
secure corporate tax deductions under Section 162(m) while preserving the
flexibility to approve, when appropriate, compensation arrangements which the
Committee deems in the best interests of the Company and its stockholders, but
which may not always qualify for tax deductibility under Section 162(m) or other
sections of the Code.
Parachute Payments - In the event any payments or rights accruing to a
Participant upon a Change in Control, or any other payments awarded under the
Plan, constitute "parachute payments" under Section 280G of the Code, depending
upon the amount of such payments accruing and the other income of the
Participant from the Company, the Participant may be subject to an excise tax
(in addition to ordinary income tax) and the Company may be disallowed a
deduction for the amount of the actual payment.
PROPOSAL 3
ADOPTION OF THE NORTHWESTERN STEEL AND WIRE COMPANY
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
BACKGROUND
The Company has maintained a Directors' Stock Option Plan since 1992. The
present plan has granted all shares available under such plan and therefore,
effective August 1, 1998, the Board of Directors adopted the Northwestern Steel
and Wire Company 1998 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") pursuant to which options to acquire up to 100,000 shares of Common Stock
may be issued on the terms described below. Assuming the adoption of Proposal
3, if options for 100,000 shares of Common Stock available under the Directors'
Plan were issued, such shares would constitute approximately ___% of the issued
and outstanding Common Stock as of July 31, 1998. The Directors' Plan will not
be implemented if it is not approved by a majority of the votes cast, in person
or by proxy, at the Annual Meeting. The Board believes that the number of
shares available under the Directors' Plan is appropriate.
The Board of Directors believes that the well recognized benefits of stock
option plans outweigh any burden to the shareholders attendant to the award of
stock options, and include: (i) the encouragement of the acquisition of
non-employee directors of a proprietary interest in the Company; and (ii) better
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alignment of the interests of non-employee directors with the interests of the
Company' shareholders. In adopting the Directors' Plan, the Board of Directors
noted that many other companies have adopted equity plans to compensate their
non-employee directors. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE IN FAVOR OF THE DIRECTORS' PLAN, AND BELIEVES THAT THE DIRECTORS' PLAN IS
APPROPRIATE TO COMPENSATE NON-EMPLOYEE DIRECTORS.
The following brief summary of certain features of the Directors' Plan is
qualified in its entirety by reference to the full text of the Directors' Plan
which is set forth in Exhibit B.
SUMMARY OF PROVISIONS
The Board of Directors approved the adoption of the Directors' Plan
effective as of August 1, 1998, subject to stockholder approval. The purpose of
the Directors' Plan is to promote the overall financial objectives of the
Company and its shareholders by motivating non-employee directors to further
align the interest of such directors with those of the Company's shareholders
and to achieve long-term growth and performance of the Company. The Directors'
Plan is currently administered by the Compensation Committee (the "Committee").
The Directors' Plan provides for the award of up to 100,000 shares of
Common Stock. The Directors' Plan major provisions include:
Stock Options are limited to nonstatutory options ("Options" or "NQSOs").
Each person who is a non-employee director on the effective date of the Plan
shall become a Participant without further action by the Board or the Committee.
Each person who is subsequently elected or appointed as a non-employee director
shall become a Participant and shall, on his date of election or appointment,
without further action by the Board or the Committee, be granted an Option to
purchase two thousand five hundred (2,500) shares of Common Stock. Thereafter,
on the date each annual meeting of shareholders of the Company after which a
Participant continues as a non-employee director, in any year following the year
of the initial grant of an Option to such Participant, such Participant shall be
granted an Option to purchase two thousand five hundred (2,500) shares of Common
Stock. If the number of shares of Common Stock available to grant under the
Plan on a scheduled date of grant is insufficient to make all automatic grants
required to be made pursuant to the Plan on such date, then each eligible
non-employee director shall receive an Option to purchase a pro rata number of
the remaining shares of Common Stock available under the Plan. If there is no
whole number of shares remaining to be granted, then no grants shall be made
under the Plan. The exercise price per share purchasable under an option shall
be the fair market value on the grant date. Generally, unless otherwise
determined by the Committee, Participants will be given ten years in which to
exercise an Option, or a shorter period once a Participant voluntarily ceases to
be a non-employee director. Payment may be made in cash or, if approved by the
Committee, in the form of unrestricted shares the Participant already owns or by
other means.
Amendments and Modifications. The Directors' Plan, as adopted, is not
limited as to its duration. The Board may amend, alter, or discontinue the
Directors' Plan, subject to certain limits.
Change in Control. In the event of a Change in Control of the Company (as
defined in the Directors' Plan), the Committee may, in its sole discretion,
elect to terminate and cash out all Options outstanding as of the date of such
Change in Control (whether vested or not) by paying each Participant an amount
in cash equal to (i) the excess of the Change in Control Price (as defined in
the Directors' Plan) for the Common Stock that is subject to each particular
Option over the Option price per share times the
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number of shares of Common Stock subject to such Option, or (ii) $0.10 times the
number of shares of Common Stock subject to each particular Option in the event
the Change in Control Price is less than the Option price per share. In the
event of a Change in Control resulting from a corporate transaction (other than
a corporate transaction resulting from a tender or exchange offer for fifty
percent (50%) or less of the voting securities of the Company) and provided that
the Committee has not elected to terminate and cash out all Stock Options in
accordance with the previous sentence, the entity which has acquired control of
the Company may exchange all Options outstanding as of the date of such Change
in Control (whether vested or not) for options under an equivalent plan of such
entity which shall have an equivalent value and vesting schedule. If such entity
which has acquired control of the Company does not exchange all Options
outstanding as of the date of such Change in Control (whether vested or not) for
options under an equivalent plan of such entity which shall have an equivalent
value and vesting schedule and the Committee has not elected to terminate and
cash out all Options, such Options, to the extent not vested, shall become fully
vested and exercisable to the full extent of the original grant.
EFFECT OF FEDERAL INCOME TAXATION
The following summary of tax consequences with respect to the awards
granted under the Directors' Plan is not comprehensive and is based upon laws
and regulations in effect on January 1, 1999. Such laws and regulations are
subject to change. The summary is intended for the information of shareholders
considering how to vote and not as tax guidance to Participants in the
Directors' Plan. Participants in the Directors' Plan should consult their own
tax advisors as to the tax consequences of participation.
Stock options granted under the Directors' Plan are nonstatutory options,
referred to herein as "NQSOs". There are generally no Federal income tax
consequences either to the option holder or to the Company upon the grant of a
stock option. On exercise of an NQSO, the amount by which the fair market value
of the shares on the date of exercise exceeds the option exercise price will
generally be taxable to the option holder as compensation, subject to income and
payroll taxes, and will generally be deductible for tax purposes by the Company.
The dispositions of shares acquired upon exercise of an NQSO will generally
result in a capital gain or loss for the option holder with the holding period
commencing on the date of exercise, but will have no consequences for the
Company.
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DIRECTORS
DIRECTOR MEETINGS AND COMMITTEES
The Board of Directors held eight meetings during the fiscal year ended
July 31, 1998, and each director, attended at least 75% of the board meetings
and committee meetings on which he served that were held during the period. The
Board of Directors has established an Executive Committee, an Audit Committee, a
Compensation Committee and a Pension Committee. The Board does not currently
have a formal Nominating Committee but nominations will be considered by the
entire Board. The Executive Committee oversees the Company's operations and
reports to the Board of Directors. The Audit Committee oversees actions taken
by the Company's independent auditors, recommends the engagement of auditors and
reviews the Company's financial policies. The Compensation Committee approves
the compensation of executives of the Company, makes recommendations to the
Board of Directors with respect to standards for setting compensation levels and
administers the Company's incentive plans. The Pension Committee administers
the Company's pension plans. During the fiscal year ended July 31, 1998, the
Compensation Committee met once, the Audit Committee met two times and the
Executive Committee and Pension Committee conferred on a number of occasions
informally.
DIRECTOR COMPENSATION
Pursuant to the Company's Director Stock Option Plan, directors who are not
employees of the Company or affiliates of KNSW, receive 2,500 Options on an
annual basis during their tenure as directors and are paid a quarterly fee of
$3,000. During the fiscal year ended July 31, 1998, Messrs. Andrews, Antonini,
Frazier, Gaskins, and Gore each received 2,500 options to purchase shares of
Common Stock at $3.00 per share.
MANAGEMENT
Set forth below is a table identifying the executive officers of the
Company.
NAME AGE POSITION
- --------------------------- -------- ---------------------------------------------------
Frederick J. Rocchio, Jr. 51 Chief Executive Officer and President
Birchel S. Brown 56 Vice President, Sterling Steel Operations
Kenneth J. Burnett 53 Vice President
Andrew R. Moore 44 Vice President -- Human Resources
Michael S. Venie 49 Vice President -- Sales and Marketing
Thomas Vercillo 48 Chief Financial Officer, Secretary and Treasurer
Frederick J. Rocchio, Jr. has been the President and Cheif Executive Officer and
a Director since November 1998. From 1997 to November 1998, Mr. Rocchio was the
Executive Vice President, Development and Technology for Birmingham Steel
Corporation ("Birmingham") and from 1995 to 1997 was President, Steel Services
Business Unit for Birmingham. From 1991 to 1995, Mr. Rocchio was the Vice
President, Integrated Steelmaking and Hot Rolling Operations for Inland Steel
Company.
Birchel S. Brown has been Vice President-Sterling Steel Operations since
April 1997. From 1994 to 1996, Mr. Brown was Senior Vice President, Operations
of Bar Technologies, Inc. From 1993 to 1994, he was Vice President and Division
Manager for Florida Steel Corp., now known as AmeriSteel Corporation, a
manufacturer of steel products used in building construction. From 1992 to
1993, Mr.
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Brown was Manager of Technology and Support for Gladwin Corp., a firm that
designs and maintains steel casting equipment.
Kenneth J. Burnett, Vice President, had been Vice President of
Operations-Houston of the Company from January 1994 through December 1997.
From 1990 through 1993, he was the Company's Vice President of Operations-Steel
Division.
Andrew R. Moore has been Vice President-Human Resources since October 1996.
Mr. Moore was previously the Manager of Employee Benefits for the Company from
November 1992.
Michael S. Venie has been Vice President-Sales and Marketing since
September 1995. From 1991 through 1995 Mr. Venie was Vice President-Automotive
Marketing of Kaiser Aluminum & Chemical Corporation, a subsidiary of Kaiser
Aluminum Corporation, a producer of aluminum and aluminum products.
Thomas Vercillo has been Chief Financial Officer, Secretary and Treasurer
since August 1998, and has been Corporate Controller since 1996. From 1992
through 1996, Mr. Vercillo was Manager of Corporate Accounting for the Company.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table discloses, for the fiscal years
indicated, individual compensation information on the Company's Chief Executive
Officer and the next four most highly compensated executive officers in fiscal
1998. Such information is also provided for the former Vice President-Wire
Operations and Materials Management who would have been one of the four most
highly compensated executive officers in fiscal 1998 had he stayed through the
end of the fiscal year (such six individuals, the "Named Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- --------------
# OPTION ALL OTHER
NAME AND TITLE FISCAL YEAR SALARY BONUS (1) AWARDS (2) COMPENSATION
- ------------------------ ------------- ---------- ------------ -------------- ----------------
Thomas A. Gildehaus(3)........ 1998 $ 390,000 $ 400,900 500,000 -
Chairman of the Board and 1997 $ 116,750 - 500,000 $ 7,086
Chief Executive Officer
Richard D. Way(4)............. 1998 $ 275,000 $ 200,450 80,000 -
President and Chief 1997 $ 270,125 - - $ 6,475
Operating Officer 1996 $ 207,497 - 35,000 $ 6,025
Timothy J. Bondy(5)........... 1998 $ 197,563 $ 114,657 70,000 -
Vice President, Chief 1997 $ 191,000 - - $ 4,500
Financial Officer, Secretary 1996 $ 111,415 - 70,000 $ 23,342
and Treasurer
Michael S. Venie.............. 1998 $ 169,375 $ 104,234 60,000 $ 1,693 (8)
Vice President-Sales and 1997 $ 165,000 - - $ 4,650
Marketing 1996 $ 141,250 - 60,000 $ 4,113
Birchel S. Brown(6)........... 1998 $ 146,121 $ 120,270 23,000 $ 17,412 (8)
Vice President, 1997 $ 38,920 - - $ 50,000 (9)
Sterling Steel Operations
William H. Hillpot(7)......... 1998 $ 126,411 $ 72,964 23,000 -
Vice President-Wire 1997 $ 138,875 - - -
Operations and Materials 1996 $ 119,750 - 12,000 $ 3,593
Management
____________________
(1) All of the fiscal 1998 bonuses were accrued in fiscal 1998 and paid in
fiscal 1999.
(2) All option grants during fiscal 1998, other than Messrs. Brown and Way,
were regrants for the repricing of existing options. Mr. Brown received a
new option grant for 23,000 shares, with no prior options to reprice. The
options granted to Mr. Way included a new option grant for 20,000 shares
and the repricing of existing options to purchase 60,000 shares. For
additional information on the repricing of options see footnotes to
Option/SAR Grants in Last Fiscal Year table and the section "Repricing of
Options."
(3) Mr. Gildehaus was Chairman of the Board and Chief Executive Officer from
April 14, 1997 until he retired as Chief Executive Officer on November 9,
1998.
(4) Mr. Way was named President and Chief Operating Officer in September 1996
and retired effective January 1, 1999.
(5) Mr. Bondy was hired effective January 1, 1996 and resigned from the Company
effective August 28, 1998.
(6) Mr. Brown was hired effective April 14, 1997.
(7) Mr. Hillpot resigned from the Company effective May 16, 1998.
(8) Relocation expenses.
(9) One time signing bonus.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATE OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
------------------------------------------------------------- ----------------- ----------------
5% 10%
------------- ------------- -------------- --------------- ----------------- ----------------
% OF TOTAL
NUMBER OF OPTIONS EXERCISE PRICE AGGREGATE AGGREGATE
OPTIONS GRANTED TO POTENTIAL POTENTIAL
NAME GRANTED (1) EMPLOYEES (PER SHARE) EXPIRATION DATE REALIZABLE VALUE REALIZABLE VALUE
- ----------------------- ------------- ------------- -------------- --------------- ---------------- ----------------
Thomas A. Gildehaus(3)......... 250,000 27% $ 3.59 9/16/2002 $ 247,963 $ 547,933
250,000 27% $ 4.00 9/16/2002 $ 276,282 $ 610,510
Richard D. Way(4).............. 80,000 9% $ 3.59 9/16/2002 $ 79,348 $ 175,338
Timothy J. Bondy(5)............ 70,000 8% $ 3.59 9/16/2002 $ 69,430 $ 153,421
Michael S. Venie(6)............ 60,000 6% $ 3.59 9/16/2002 $ 59,511 $ 131,504
Birchel S. Brown............... 23,000 2% $ 3.59 9/16/2002 $ 22,813 $ 50,410
William H. Hillpot(7).......... 23,000 2% $ 3.59 9/16/2002 $ 22,813 $ 50,410
- ---------------------
(1) 25% of the options become vested and exercisable upon the grant date
(9/16/97) and 25% vest on each of the next three anniversaries of that
date, commencing one year after the date of grant, subject to acceleration
in the event of a "change in control" of the Company (defined the same as
in the agreements described below under the heading "Change in Control
Agreements").
(2) Potential realizable value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts reflect certain assumed rates of appreciation set forth in
the Securities and Exchange Commission's executive compensation disclosure
rules. Actual gains, if any, on stock option exercises depend on future
performance of the Common Stock and overall market conditions.
(3) 500,000 options granted pursuant to the cancellation and regrant of all
existing options under the 1994 Long Term Incentive Plan pursuant to a
repricing plan of the Compensation Committee of the Board of Directors.
(4) 60,000 options granted pursuant to the cancellation and regrant of all
existing options under the 1994 Long Term Incentive Plan pursuant to a
repricing plan of the Compensation Committee of the Board of Directors.
The Named Officer received an additional grant of 20,000 shares subject to
option.
(5) 70,000 options granted pursuant to the cancellation and regrant of all
existing options under the 1994 Long Term Incentive Plan pursuant to a
repricing plan of the Compensation Committee of the Board of Directors.
(6) 60,000 options granted pursuant to the cancellation and regrant of all
existing options under the 1994 Long Term Incentive Plan pursuant to a
repricing plan of the Compensation Committee of the Board of Directors.
(7) 23,000 options granted pursuant to the cancellation and regrant of all
existing options under the 1994 Long Term Incentive Plan pursuant to a
repricing plan of the Compensation Committee of the Board of Directors.
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OPTION EXERCISES AND FISCAL YEAR END VALUES FOR THE YEAR ENDED JULY 31, 1998
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED VALUE OPTIONS/SARS AT MONEY OPTIONS/SARS AT
ON EXERCISE REALIZED FY-END (#) EXERCISABLE FY-END ($) EXERCISABLE
NAME (#) ($) /UNEXERCISABLE /UNEXERCISABLE(1)
- --------------------- ------------- ---------- ------------------------ -----------------------------
Thomas A. Gildehaus....... 0 0 127,500/375,000 0/0
Richard D. Way............ 0 0 57,500/60,000 0/0
Timothy J. Bondy.......... 0 0 17,500/52,500 0/0
Michael S. Venie.......... 0 0 15,000/45000 0/0
Birchel S. Brown.......... 0 0 5,750/17,250 0/0
William H. Hillpot........ 0 0 55,750/17,250 0/0
______________________
(1) The closing price of the Common Stock on July 31, 1998 was $2.398.
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
At a meeting on September 15, 1997, the Compensation Committee determined
to reprice all options issued and outstanding under the 1994 Long Term Incentive
Plan, except for 250,000 options awarded to Mr. Gildehaus which remain at the
original exercise price of $4.00 per share. A total of 600,725 shares at an
average price of $6.19 per share were to be exchanged for an equal number of
options at $3.59 per share, the fair market value on September 16, 1997. In
making its decision, the Compensation Committee considered the report of Johnson
Associates, a benefits consulting firm. Johnson Associates reviewed various
alternatives, including the valuation of options using the Black-Scholes option
pricing model. The Compensation Committee has concluded that the existing stock
options, which are a key element in the Company's incentive compensation
program, no longer provided sufficient incentives to, nor adequately encouraged,
key personnel to remain in the employ of the Company. The repricing of options
on an even exchange basis is intended to achieve the incentive and retention
value of management stock options.
Compensation Committee Members as of July 31, 1998
James A. Kohlberg(1) Darius W. Gaskins, Jr. Christopher Lacovara
__________________
(1) Chairman of Compensation Committee
TEN YEAR OPTION / SAR REPRICINGS
The following table sets forth certain information concerning the repricing
of stock options granted to the Company's executive officers. The Company has
only repriced options held by the Company's executive officers once during the
past ten years.
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NUMBER OF LENGTH OF
SECURITIES EXERCISE ORIGINAL
UNDERLYING MARKET PRICE PRICE AT OPTION TERM
OPTIONS/ OF STOCK AT TIME OF REMAINING AT
SARS TIME OF REPRICING DATE OF
REPRICED OR REPRICING OR OR NEW EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- --------------------------- ---------- --------------- ---------------- ------------- -------------- --------------
Thomas A. Gildehaus(1) 9/16/97 250,000 $ 3.59 $ 4.00 $ 3.59 8 years, 6 months
Richard D. Way(2) 9/16/97 35,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 17,500 $ 3.59 $ 6.00 $ 3.59 7 years, 7 months
9/16/97 7,500 $ 3.59 $ 9.00 $ 3.59 6 years, 7 months
Timothy Bondy(3) 9/16/97 20,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 50,000 $ 3.59 $ 8.505 $ 3.59 8 years, 4 months
Michael S. Venie 9/16/97 20,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 40,000 $ 3.59 $ 9.625 $ 3.59 8 years
William H. Hillpot(4) 9/16/97 12,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 6,000 $ 3.59 $ 6.00 $ 3.59 7 years, 7 months
9/16/97 5,000 $ 3.59 $ 9.00 $ 3.59 6 years, 7 months
Kenneth J. Burnett 9/16/97 12,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 6,000 $ 3.59 $ 6.00 $ 3.59 7 years, 7 months
9/16/97 5,000 $ 3.59 $ 9.00 $ 3.59 6 years, 7 months
Andrew R. Moore 9/16/97 1,500 $ 3.59 $ 6.75 $ 3.59 8 years, 7 months
9/16/97 1,000 $ 3.59 $ 6.00 $ 3.59 7 years, 7 months
9/16/97 1,000 $ 3.59 $ 9.00 $ 3.59 6 years, 7 months
David B. Oberbillig(5) 9/16/97 8,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 4,000 $ 3.59 $ 6.00 $ 3.59 7 years, 7 months
9/16/97 3,500 $ 3.59 $ 9.00 $ 3.59 6 years, 7 months
Thomas Vercillo 9/16/97 10,000 $ 3.59 (6) $ 3.59 8 years, 7 months
9/16/97 5,000 $ 3.59 $ 6.00 $ 3.59 7 years, 7 months
9/16/97 3,500 $ 3.59 $ 9.00 $ 3.59 6 years, 7 months
- -----------------
(1) Mr. Gildehaus resigned as Chairman and Chief Executive Officer of the
Company effective November 9, 1998.
(2) Mr. Way retired from the Company effective January 1, 1999.
(3) Mr. Bondy resigned from the Company effective August 28, 1998.
(4) Mr. Hilpot resigned from the Company effective May 16, 1998.
(5) Mr. Oberbillig resigned from the Company effective December 1, 1998.
(6) One-third of the options had an exercise price of $7.42 per share and would
have vested on April 25, 1997, one-third of the options had an exercise
price of $8.17 per share and would have vested on April 25, 1998 and
one-third of the options had an exercise price of $8.98 per share and would
have vested on April 25, 1999.
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EMPLOYMENT AGREEMENT
Mr. Gildehaus was subject to an employment agreement
which provided for a minimum annual salary of $390,000, participation in the
Company's annual short term incentive plan and other typical Company benefit
programs. The employment agreement also contained a change in control provision
which would have provided severance benefits if Mr. Gildehaus was terminated for
any reason other than "for cause" or Mr. Gildehaus terminated his employment
with the Company for "good reason", each as defined in the agreement.
Mr. Rocchio is subject to an employment agreement with the Company, dated
October 22, 1998, which provides for a minimum annual salary of $350,000, a
guaranteed bonus of $50,000 for the first fiscal year, participation in the
Company's annual short term incentive plan and other typical Company benefits.
The agreement also provides that Mr. Rocchio will receive a grant of 400,000
options exercisable at the current Market Price on the date of grant. In the
event of termination during the first year of employment, other than for cause,
Mr. Rocchio will be entitled to severance benefits equal to one year of base
compensation. Thereafter, he shall be entitled to two years of base
compensation.
CHANGE IN CONTROL AGREEMENTS
The Company is party to agreements with Mr. Venie, and until their
resignations or retirement were party to agreements with Messrs. Bondy, Hillpot
and Way, which provide that in the event the Company terminates such executive's
employment for a reason other than "cause" as defined in the agreement or the
executive quits his employment with the Company for "good reason" as defined in
the agreement, after a "change of control" of the Company, he will be entitled
to receive payment for (i) up to twelve months of base salary, and (ii) bonus
payout under any bonus plan or program covering the executive as of the change
of control, prorated for that portion of the year prior to separation from
service. In addition, during the period under (i) above, the Company will
provide the executive with benefit plans and programs no less favorable than
those in effect at any time during the 120 days prior to the change of control
or to the extent more favorable, no less favorable than those provided to senior
executives of similar capacity preceding or after the change of control.
For purposes of the agreements, a "change in control" of the Company occurs
if (i) a person or entity becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 30% or more of the combined voting
power of the Company's then outstanding securities entitled to vote in the
election of directors of the Company; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors and any new directors who were approved by a vote of at least three
quarters of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination was previously so
approved, cease for any reason to constitute at least a majority thereof; or
(iii) all or substantially all of the assets of the Company are liquidated or
distributed.
In return for the benefits provided by his agreement, each executive agrees
to continue to perform the regular duties of his current office (and/or such
duties of such other positions to which he may be assigned).
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PENSION PLAN
The Company maintains a pension plan for all eligible employees. A
participant who retires on or after turning 65 and has completed at least five
years of service will qualify for an annual pension equal to 1.155%of the
participant's average earnings for each year of service not in excess of 30
years and 1.26% of the participant's final average earnings for each year of
service in excess of 30 years. Final average earnings are based on total
compensation (exclusive of certain cost-of-living adjustments) during the
participant's highest five consecutive years in the participant's last 15 years
of service. A deferred vested pension benefit normally commencing at age 65 is
provided for any employee who does not qualify for retirement under the plan but
has completed at least five years of service.
Years of service for purposes of the plan with respect to the officers of
the Company named in the Summary Compensation Table are as follows: Mr. Venie, 3
years and Mr. Brown, 1 year. Upon Mr. Way's and Mr. Hillpot's resignations from
the Company, they became vested in the pension plan with 5 years of service.
Neither Mr. Gildehaus nor Mr. Bondy became vested in the pension plan prior to
their resignation from the Company and were therefore not entitled to any
benefits thereunder.
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The following table shows the projected annual pension benefits payable,
under the pension plan at the normal retirement age of 65:
ANNUAL NORMAL PENSION BENEFITS
FOR YEARS OF SERVICE SHOWN (1)
AVERAGE
ANNUAL
PENSION
EARNINGS 5 YEARS 10 YEARS 20 YEARS 30 YEARS 40 YEARS 50 YEARS
- ---------- --------- ---------- ---------- ---------- ---------- ----------
$ 50,000 $ 2,888 $ 5,775 $ 11,550 $ 17,325 $ 23,625 $ 29,925
100,000 5,775 11,550 23,100 34,650 47,250 59,850
150,000 8,663 17,325 34,650 51,975 70,875 89,775
200,000 9,240 18,480 36,960 55,440 75,600 95,760
250,000 9,240 18,480 36,960 55,440 75,600 95,760
300,000 9,240 18,480 36,960 55,440 75,600 95,760
350,000 9,240 18,480 36,960 55,440 75,600 95,760
400,000 9,240 18,480 36,960 55,440 75,600 95,760
_____________________
(1) Normal pension benefits are formula based and are not subject to a social
security offset. With exceptions not applicable to any of the officers
named in the above compensation table, Sections 401(a)(17) and 415 of the
Internal Revenue Code limit the annual pension earnings that can be
considered under the plan to $160,000 and the annual benefits to $125,000.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR COVERED EXECUTIVES
Effective August 1, 1997, the Company adopted a Supplemental Executive
Retirement Plan for Covered Executives (the "Plan"). Participation in the Planis
limited to key employees of the Company, designed by the Compensation Committee,
whose benefits under the Pension Plan B of Northwestern Steel and Wire Company
(the "Pension Plan") and the Northwestern Steel and Wire Company 401(k) Salary
Deferral Plan (the "401(k) Plan") are limited under applicable provisions of the
Internal Revenue Code (the "Code"). The Plan is a nonqualified, unfunded plan.
For each Plan participant, benefits under the Plan have two components.
First component: With respect to the Pension Plan, benefits under the Plan are
provided in amounts equal to the reduction of the participant's accrued benefits
under the Pension Plan as a result of applicable Code limitations, and are paid
based on the participant's election for benefit distribution under the Pension
Plan. Second component: With respect to the 401(k) Plan, each Plan participant
is credited with (i) a Company match equal to two percent (2%) of the portion of
such participant's compensation in excess of applicable Code limitations,
and(ii) an amount equal to the reduction of the Company's non-elective
contributions under the 401(k) Plan pursuant to applicable Code limitations. The
second component of a participant's benefit under the Plan is paid in a lump
sum.
In the event of a change in control, benefits accrued under the Plan as of
the date of such change in control are payable to Plan participants within sixty
(60) days following such change in control.
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As of July 31, 1998, the designated Plan participants consist of Thomas A.
Gildehaus, Richard D. Way, Timothy J. Bondy and Michael S. Venie. The Company
has estimated and reserved $116,000 to cover the benefits which the Plan
participants are eligible to receive pursuant to the Plan.
RULE 16(B) COMPLIANCE
The Company's executive officers, directors and 10% shareholders are
required under the Securities Exchange Act of 1934, as amended, to file reports
of ownership with the Securities and Exchange Commission. Copies of these
reports must also be furnished to the Company. Based solely upon a review of
copies of such reports, or written representations that no reports were
required, the Company believes that all filing requirements applicable to its
executive officers, directors and 10% shareholders were complied with by such
persons.
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REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
This Report outlines the Company's management compensation philosophy and
reviews the compensation decisions made in fiscal 1998 regarding Mr. Gildehaus
and the other executive officers.
MANAGEMENT COMPENSATION PHILOSOPHY
To advance the interests of its shareholders, the Company has based its
management compensation decision on three principles.
First, base salaries should be sufficient to attract and retain qualified
management talent, without exceeding competitive practice at similar
companies in the steelmaking and related industries.
Second, annual incentive programs should provide opportunity for
significant increases in compensation, based on meeting or exceeding
pre-determined performance targets.
Third, a substantial portion of total compensation opportunity should
reflect increased shareholder value, as measured by increases in the
Company's stock price.
CRITERIA USED FOR MAKING COMPENSATION DECISIONS IN FISCAL 1998
This section describes the criteria used by the Compensation Committee
regarding compensation decisions affecting Mr. Gildehaus and the other executive
officers.
Base Salary
In April 1996, based on an independent compensation consulting firm's study
of competitive compensation levels for the Company's key executives, the
Compensation Committee approved salary midpoints for each executive position,
which were based on the executive positions' size adjusted median competitive
base salaries. The Compensation Committee approved base salary adjustments for
3 executive officers in fiscal 1998. Mr. Gildehaus' compensation is set
pursuant to his negotiated employment agreement.
Annual Incentive Program
In September 1997, the Compensation Committee approved the fiscal 1998
incentive program for the key executives of the Company (including the Named
Officers). Target awards ranged from 13% to 31% of base salary. Awards were
calculated by formula, based on the Company's adjusted operating income
performance and cash flow as compared to the Company's business plan. In fiscal
1998, the Company achieved 336% of its adjusted operating income plan and 165%
of its cash flow plan. As a result, the executive officers of the Company
earned $1,153,790 in annual incentive awards for fiscal 1998.
22
25
Long-Term Incentive Program
In an effort to further increase the alignment of interests between key
employees and shareholders, the 1994 Long-Term Incentive Plan was approved at
the Annual Meeting of Shareholders on January 20, 1994. The following awards
were made under the Plan in fiscal 1998 to the Named Officers other than as a
result of the repricing of existing options: an award of 20,000 options to Mr.
Way which are exercisable at $3.59 per share. The fair market value of the
Common Stock on the date of the grant was $3.59 per share. The options vest in
one-third increments on each of the three anniversary dates of the award. For
more information on the repricing of options, see "Executive
Compensation--Compensation Committee Report on Repricing of Options" and
"Executive Compensation--Ten Year Option/SAR Repricings".
Compensation Committee Members as of July 31, 1998
James A. Kohlberg(1) Darius W. Gaskins, Jr. Christopher Lacovara
_______________
(1) Chairman of Compensation Committee
23
26
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested
on July 31, 1993 in the Common Stock of the Company, the S&P 400 Index and the
S&P Steel Index. The return of the Standard & Poor's indices is calculated
assuming reinvestment of dividends during the period presented. The Company has
not paid any dividends. The stock price performance on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG NORTHWESTERN
STEEL AND WIRE COMPANY, S&P STEEL INDEX AND S&P 400 INDEX
ASSUMES $100 INVESTED ON JUNE 31, 1993
[GRAPH]
---------------------------------------------------------------------
DATE NORTHWESTERN S&P STEEL S&P 400
STEEL AND WIRE INDEX INDEX
---------------------------------------------------------------------
7/31/93 $100.00 $100.00 $100.00
---------------------------------------------------------------------
7/31/94 112.12 139.03 107.89
---------------------------------------------------------------------
7/31/95 121.21 116.11 138.67
---------------------------------------------------------------------
7/31/96 62.12 92.32 159.92
---------------------------------------------------------------------
7/31/97 23.48 125.88 240.41
---------------------------------------------------------------------
7/31/98 35.61 95.04 284.98
---------------------------------------------------------------------
24
27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding beneficial
ownership of Common Stock as of January __, 1999, by each person or entity known
to the Company who owns of record or beneficially five percent or more of the
Common Stock, by each named officer, director nominee and all executive officers
and director nominees as a group.
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME OF COMMON STOCK(1) COMMON STOCK
- ---------------------------------------------------- --------------------- -----------------
KNSW Acquisition Company, L.P. (2)............... 8,687,000 ___ %
Dimensional Fund Advisors, Inc. (3).............. 1,423,000 ___
William F. Andrews............................... 18,020 *
Marion H. Antonini............................... 2,500 *
Timothy J. Bondy (4)............................. 17,500 *
Birchel S. Brown................................. 11,500 ___
Warner C. Frazier................................ 10,000 *
Darius W. Gaskins, Jr............................ 20,500 *
Thomas A. Gildehaus (5).......................... 262,500 *
David L. Gore.................................... 2,900 *
William H. Hillpot (6)........................... 50,000 *
James A. Kohlberg (7)............................ 8,687,000 ___
Christopher Lacovara (7)......................... 8,687,000 ___
Michael E. Lubbs................................. 4,461 *
George W. Peck IV................................ 0 *
Michael S. Venie................................. 30,000 *
Richard D. Way (8)............................... 79,538 *
All executive officers and directors and......... 9,297,143 ___
director nominee as a group (18
persons) (7)
___________________
* Less than 1%.
(1) Includes shares issuable pursuant to options which may be exercised within
60 days after January __, 1998.
(2) KNSW owns directly 8,687,000 shares of Common Stock. Kohlberg Associates,
L.P., a Delaware limited partnership ("Associates"), is the general partner
of KNSW. Kohlberg & Kohlberg, L.L.C., is the general partner of
Associates. Messrs. Kohlberg and Lacovara may be deemed to share voting and
dispositive power as to all shares of Common Stock owned by KNSW. Messrs.
Kohlberg and Lacovara disclaim beneficial ownership with respect to such
shares. The address for KNSW is c/o Kohlberg & Co., 111 Radio Circle, Mt.
Kisco, NY 10549.
(3) As reported on a Schedule 13G dated December 31, 1997, filed with the
Securities Exchange Commission ("the Commission") by Dimensional Fund
Advisors, Inc. ("DFA"). According to such Schedule 13G, DFA has sole voting
power with respect to 929,300 shares. The persons who are officers of
Dimensional Fund Advisors Inc. also serve as officers of DFA Investment
Dimensions Group Inc., (the "Fund") and The DFA Investment Trust Company
(the "Trust"), each an open-end management investment company registered
under the Investment Company Act of 1940. According to such Schedule 13G,
in their capacities as officers of the Fund and the Trust, these persons
vote 163,000 additional shares which are owned by the Fund and 330,700
shares which are owned by the Trust. According to the Schedule 13G, DFA has
sole dispositive power over 1,423,000 shares. The address of Dimensional
Fund Advisors, Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401.
(4) Mr. Bondy resigned from the Company effective August 28, 1998 and is no
longer an officer of the Company. The 17,500 shares subject to option will
expire on November 26, 1998.
(5) Mr. Gildehaus resigned as Chairman and Chief Executive Officer of the
Company effective November 9, 1998.
(6) Mr. Hillpot resigned from the Company effective May 16, 1998 and is no
longer an officer of the Company. The 50,000 shares subject to option will
expire on May 16, 1999. Includes ownership interest in the ESOP.
(7) Includes the 8,687,000 shares of Common Stock owned by KNSW. See Note 2.
(8) Mr. Way retired from the Company effective January 1, 1999.
25
28
CERTAIN TRANSACTIONS
In August 1992, the Company underwent a reorganization which included the
sale of 8,687,000 shares of Common Stock (the "1992 Investment") to KNSW
Acquisition Company, L.P. ("KNSW"), which represented at such time approximately
52% of the outstanding Common Stock. KNSW is an affiliate of Kohlberg. At the
time of the 1992 Investment, the Company and Kohlberg entered into a fee
agreement (the "Fee Agreement") pursuant to which Kohlberg agreed to provide
such advisory and management services to the Company and its subsidiaries as the
Board of Directors reasonably requests in consideration for which the Company
pays Kohlberg a fee of $43,435 per fiscal quarter at the beginning of each
quarter. The Fee Agreement provides that Kohlberg, but not the Company, may
terminate the Fee Agreement at any time. The Fee Agreement will terminate
automatically on the earlier of the end of the fiscal year in which KNSW's
percentage interest in the outstanding Common Stock is less than 25% and the
tenth anniversary of the Fee Agreement. Fees may not be increased through July
31, 2000. The Fee Agreement also provides that the Company will indemnify
Kohlberg and its affiliates and their respective partners, officers, directors,
stockholders, agents and employees against any third party claims arising from
the Fee Agreement and the services provided thereunder, the 1992 Investment or
their equity interest in the Company.
Pursuant to the terms of the ESOP prior to its termination and the
distribution of its assets effective March 31, 1997, the Company was obligated
to pay certain of its fees and expenses, which for the year ended July 31, 1998
aggregated $198,121.
SHAREHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of Shareholders intended to be presented by such Shareholders at
next year's Annual Meeting must be received by the Company at its principal
office no later than October 21, 1999 and must satisfy the conditions
established by the Securities and Exchange Commission for shareholder proposals
to be included in the Company's proxy statement for that meeting.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the Annual Meeting, other than those mentioned in the Company's Notice of Annual
Meeting of Shareholders enclosed herewith. If any other matters are properly
brought before the Annual Meeting, it is intended that the persons named in the
proxy will vote as the Board of Directors directs.
By Order of the Board of Directors
Thomas Vercillo
Secretary
Sterling, Illinois
January __, 1999
26
29
EXHIBIT A
NORTHWESTERN STEEL AND WIRE
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
30
TABLE OF CONTENTS
Page
ARTICLE I
ESTABLISHMENT....................................................................1
1.1 Purpose............................................................1
ARTICLE II
DEFINITIONS......................................................................1
2.1 "Affiliate"........................................................1
2.2 "Agreement" .......................................................1
2.3 "Award"............................................................1
2.4 "Beneficiary"......................................................1
2.5 "Board of Directors" or "Board"....................................1
2.6 "Cash Incentive Award".............................................1
2.7 "Cause"............................................................1
2.8 "Change in Control" and "Change in Control Price"..................2
2.9 "Code" or "Internal Revenue Code"..................................2
2.10 "Commission".......................................................2
2.11 "Committee"........................................................2
2.12 "Common Stock".....................................................2
2.13 "Company"..........................................................2
2.14 "Covered Employee".................................................2
2.15 "Deferred Stock"...................................................2
2.16 "Disability".......................................................2
2.17 "Dividend Equivalent"..............................................2
2.18 "Effective Date"...................................................2
2.19 "Exchange Act".....................................................2
2.20 "Fair Market Value"................................................2
2.21 "Grant Date".......................................................3
2.22 "Incentive Stock Option"...........................................3
2.23 "Nasdaq"...........................................................3
2.24 "Non-Qualified Stock Option".......................................3
2.25 "Option Period"....................................................3
2.26 "Option Price".....................................................3
2.27 "Other Stock-Based Awards".........................................3
2.28 "Participant"......................................................3
2.29 "Performance Award"................................................3
2.30 "Plan".............................................................3
2.31 "Representative"...................................................3
2.32 "Restricted Stock".................................................4
2.33 "Retirement".......................................................4
2.34 "Rule 16b-3" ......................................................4
2.35 "Securities Act"...................................................4
2.36 "Stock Appreciation Right".........................................4
2.37 "Stock Option" or "Option".........................................4
2.38 "Termination of Employment"........................................4
2.39 "Transfer".........................................................4
ARTICLE III
ADMINISTRATION...................................................................4
3.1 Committee Structure and Authority..................................4
ARTICLE IV
STOCK SUBJECT TO PLAN............................................................6
i
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4.1 Number of Shares..........................................6
4.2 Release of Shares.........................................6
4.3 Restrictions on Shares....................................6
4.4 Stockholder Rights........................................7
4.5 Reasonable Efforts To Register............................7
4.6 Anti-Dilution.............................................7
ARTICLE V
ELIGIBILITY.............................................................8
5.1 Eligibility...............................................8
5.2 Per Person Award Limitations..............................8
ARTICLE VI
STOCK OPTIONS...........................................................8
6.1 General...................................................8
6.2 Grant and Exercise........................................8
6.3 Terms and Conditions......................................8
6.4 Termination by Reason of Death...........................10
6.5 Termination by Reason of Disability......................10
6.6 Other Termination........................................10
6.7 Cashing Out of Option....................................10
ARTICLE VII
STOCK APPRECIATION RIGHTS..............................................10
7.1 General..................................................10
7.2 Grant....................................................10
7.3 Terms and Conditions.....................................11
ARTICLE VIII
RESTRICTED STOCK.......................................................12
8.1 General..................................................12
8.2 Awards and Certificates..................................12
8.3 Terms and Conditions.....................................12
ARTICLE IX
DEFERRED STOCK.........................................................13
9.1 General..................................................13
9.2 Terms and Conditions.....................................13
ARTICLE X
OTHER AWARDS...........................................................14
10.1 Bonus Stock and Awards In Lieu of Obligations............14
10.2 Dividend Equivalents.....................................14
10.3 Other Stock-Based Awards.................................14
10.4 Performance Awards.......................................14
ARTICLE XI
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN.................17
11.1 Limited Transfer During Offering.........................17
11.2 Committee Discretion.....................................17
11.3 No Company Obligation....................................17
ii
32
ARTICLE XII
CHANGE IN CONTROL PROVISIONS....................................................17
12.1 Impact of Event...................................................17
12.2 Definition of Change in Control...................................18
12.3 Change in Control Price...........................................18
ARTICLE XIII
MISCELLANEOUS...................................................................19
13.1 Amendments and Termination........................................19
13.2 Stand-Alone, Additional, Tandem, and Substitute Awards............19
13.3 Form and Timing of Payment Under Awards; Deferrals................19
13.4 Status of Awards Under Code Section 162(m)........................20
13.5 Unfunded Status of Plan; Limits on Transferability................20
13.6 General Provisions................................................20
13.7 Mitigation of Excise Tax..........................................21
13.8 Rights with Respect to Continuance of Employment..................21
13.9 Awards in Substitution for Awards Granted by Other Corporations...21
13.10 Procedure for Adoption............................................22
13.11 Procedure for Withdrawal..........................................22
13.12 Delay.............................................................22
13.13 Headings..........................................................22
13.14 Severability......................................................22
13.15 Successors and Assigns............................................22
13.16 Entire Agreement..................................................22
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NORTHWESTERN STEEL AND WIRE
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT
1.1 Purpose.
The Northwestern Steel and Wire Company 1998 Employee Incentive
Compensation Plan is hereby established by Northwestern Steel and Wire Company.
The purpose of the Plan is to promote the overall financial objectives of the
Company and its stockholders by motivating those persons selected to participate
in the Plan to achieve long-term growth in stockholder equity in the Company and
by retaining the association of those individuals who are instrumental in
achieving this growth. It is intended that compensation awarded under the Plan
qualifies for tax deductibility under Section 162(m) of the Code to the extent
deemed appropriate by the Committee (as defined herein). The Plan and the grant
of awards hereunder are expressly conditioned upon the Plan's approval by the
stockholders of the Company. If such approval is not obtained, then this Plan
and all Awards (as defined herein) hereunder shall be null and void ab initio.
The Plan is adopted, subject to stockholder approval, effective August 1, 1998.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" or "Award Agreement" means, individually or collectively,
any agreement entered into pursuant to the Plan pursuant to which an Award is
granted to a Participant.
2.3 "Award" means any Option, Stock Appreciation Right, Restricted Stock,
Deferred Stock, Stock, Dividend Equivalent, Other Stock-Based Award, Performance
Award or Cash Incentive Award, together with any other right or interest granted
to a Participant under the Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in such Participant's most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted hereunder. If, upon
a Participant's death, there is no designated Beneficiary or surviving
designated Beneficiary, then the term Beneficiary means the person, persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cash Incentive Award" means a conditional right granted to a
Participant under Section 10.4(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified period.
2.7 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such
34
agreement or arrangement or the agreement or arrangement does not define the
term "cause" or a substantially equivalent term, then Cause shall mean (a)
any act or omission which the Company believes is of a criminal nature and the
result of which the Company believes is detrimental to the interests of the
Company or an Affiliate, (b) the material breach of a fiduciary duty owing to
the Company, including, without limitation, fraud or embezzlement or (c)
conduct, or the omission of conduct, on the part of the Participant which
constitutes a material breach of any statutory or common-law duty of loyalty to
the Company or an Affiliate.
2.8 "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 12.2 and 12.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.11 "Committee" means the person or persons appointed by the Board of
Directors to administer the Plan.
2.12 "Common Stock" means the shares of the Company's Common Stock, $.01
par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.13 "Company" means Northwestern Steel and Wire Company, an Illinois
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.15 "Deferred Stock" means a right, granted to a Participant under
Section 9.1 hereof, to receive Common Stock, cash or a combination thereof at
the end of a specified deferral period.
2.16 "Disability" means the physical or mental condition of the
Participant, as determined by the Committee, as a result of which such
Participant would be entitled to payment of monthly disability benefits under
any Company disability plan. If the Participant is not eligible for benefits
under any disability plan of the Company, such Participant shall be deemed to
have a Disability if the Committee determines that such Participant's physical
or mental condition would entitle such Participant to benefits under any Company
disability plan if such Participant were eligible therefor.
2.17 "Dividend Equivalent" means a right, granted to a Participant under
Section 10.2, to receive cash, Common Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Common Stock.
2.18 "Effective Date" means August 1, 1998.
2.19 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.20 "Fair Market Value" means the value determined on the basis of the
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
2
35
(a) if the Common Stock is listed on a national securities
exchange or quoted on Nasdaq, the closing price of the Common Stock on
the relevant date (or, if such date is not a business day or a day on
which quotations are reported, then on the immediately preceding date on
which quotations were reported), as reported by the principal national
exchange on which such shares are traded (in the case of an exchange) or
by Nasdaq, as the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on Nasdaq, but is actively traded in the
over-the-counter market, the average of the closing bid and asked prices
for the Common Stock on the relevant date (or, if such date is not a
business day or a day on which quotations are reported, then on the
immediately preceding date on which quotations were reported), or the
most recent preceding date for which such quotations are reported; and
(c) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (a) or (b), the fair market value
determined in good faith by the Committee.
2.21 "Grant Date" means the date as of which an Agreement is entered into
pursuant to the Plan.
2.22 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" which satisfies the requirements of
Section 422 of the Code.
2.23 "Nasdaq" means The Nasdaq Stock Market, including the Nasdaq
National Market.
2.24 "Non-Qualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.25 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.26 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.27 "Other Stock-Based Awards" means Awards granted to a Participant
under Section 10.3 hereof.
2.28 "Participant" means a person who satisfies the eligibility
conditions of Article V and with whom an Agreement has been entered into under
the Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the person to whom the Award was originally
granted.
2.29 "Performance Award" means a right, granted to a Participant under
Section 10.4 hereof, to receive Awards based upon performance criteria specified
by the Committee.
2.30 "Plan" means the Northwestern Steel and Wire Company 1998 Incentive
Compensation Plan, as herein set forth and as may be amended from time to time.
2.31 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the
3
36
Participant upon or following the Participant's death; or (d) any person to
whom an Option has been permissibly transferred; provided that only one of the
foregoing shall be the Representative at any point in time as determined under
applicable law and recognized by the Committee.
2.32 "Restricted Stock" means Common Stock granted to a Participant under
Section 8.1 hereof, that is subject to certain restrictions and to a risk of
forfeiture.
2.33 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65.
2.34 "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Commission under
Section 16 of the Exchange Act.
2.35 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.36 "Stock Appreciation Right" means a right granted under Article VII.
2.37 "Stock Option" or "Option" means a right, granted to a Participant
under Section 6.1 hereof, to purchase Common Stock at a specified price during
specified time periods.
2.38 "Termination of Employment" means the occurrence of any act or event
that actually or effectively causes or results in the person's ceasing, for
whatever reason, to be an officer or employee of, or consultant to, the Company
or of any subsidiary of the Company, or to be an officer, director or employee
of, or consultant to, any entity that provides services to the Company or a
subsidiary of the Company, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its subsidiaries of all businesses owned or operated by the
Company or its subsidiaries. With respect to any person who is not an employee
with respect to the Company, an Agreement shall establish what act or event
shall constitute a Termination of Employment for purposes of the Plan. A
transfer of employment from the Company to a subsidiary, or from a subsidiary to
the Company, will not be a Termination of Employment, unless expressly
determined by the Committee. A Termination of Employment shall occur for an
employee who is employed by a subsidiary of the Company if the subsidiary shall
cease to be a subsidiary and the Participant shall not immediately thereafter
become an employee of the Company or a subsidiary of the Company.
2.39 "Transfer" means any sale, gift, assignment, distribution,
conveyance, pledge, hypothecation, encumbrance or other transfer of title,
whether by operation of law or otherwise.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. The Plan shall be administered by
a committee (the "Committee") of the Board of Directors composed of no fewer
than two directors designated by the Board of Directors. Membership of the
Committee shall be constituted so as to comply at all times with all applicable
requirements of Rule 16b-3 and Section 162(m) of the Code. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all of the members, shall be the acts of the Committee. A member of the
Committee shall not exercise any discretion respecting himself or herself under
the Plan. The Board shall have the authority to remove, replace or fill any
vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice
4
37
to the Board. The Board may select different Committees to administer Awards for
different classes of Participants. The Committee may allocate among one or more
of its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) to select those persons to whom Awards may be granted from
time to time;
(b) to determine whether and to what extent Awards are to be
granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, any Option Price or Option
Period, any exercise restriction or limitation or exercise acceleration,
forfeiture or waiver, and any performance criteria);
(e) to adjust the terms and conditions, at any time or from time
to time, of any Award, subject to the limitations of Section 13.1;
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall be
deferred;
(g) to determine under what circumstances an Award may be settled
in cash or Common Stock;
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable
to the Plan, Awards and the issuance of shares of Common Stock under the
Plan and to require of a Participant that appropriate action be taken
with respect to such requirements;
(k) to cancel, with the consent of Participants or as otherwise
provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make final determinations with respect to
the remaining number of shares of Common Stock available under this Plan;
(m) to require, as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding
from a Participant of such amount of any Federal, state or local taxes as
may be necessary in order for the Company or any other employer to obtain
a deduction or as may be otherwise required by law;
(n) to determine whether and under what circumstances a
Participant has incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a
right or obligation to purchase Common Stock from a Participant and, if
so, the terms and conditions on which such Common Stock is to be
purchased;
(p) to determine the restrictions or limitations on the transfer
of Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
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(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion and, in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to de novo review if challenged
in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be two million (2,000,000) shares of
Common Stock authorized for issuance on the Effective Date. Such shares may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
4.2 Release of Shares. Subject to Section 6.3(f), if any shares of Common
Stock that are subject to any Award cease to be subject to an Award or are
forfeited, if any Award otherwise terminates without issuance of shares of
Common Stock being made to the Participant, or if any shares (whether or not
restricted) of Common Stock are received by the Company in connection with the
exercise of an Award, including the satisfaction of tax withholding, such
shares, in the discretion of the Committee, may again be available for
distribution in connection with Awards under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Agreement. The Company shall not
be required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (i) the listing of such shares on any stock
exchange or Nasdaq (or other public market) on which the Common Stock may then
be listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under Federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain a deduction with
respect to the exercise of an Award. The Company may cause any certificate for
any share of Common Stock to be delivered to be properly marked with a legend or
other notation reflecting the limitations on transfer of such Common Stock as
provided in this Plan or as the Committee may otherwise require. The Committee
may require any person exercising an Award to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares of Common Stock in compliance with applicable
law or otherwise. Fractional shares shall not be delivered, but shall be rounded
to the next lower whole number of shares.
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4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award and other actions required, such shares shall have been recorded on
the Company's official stockholder records as having been issued or transferred.
Upon exercise of an Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued or transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Reasonable Efforts To Register. The Company will use its reasonable
efforts to register under the Securities Act the Common Stock delivered or
deliverable pursuant to Awards on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, when the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its reasonable efforts to cause the
registration statement to become effective and to file such supplements and
amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the Award Period of the last Award outstanding, (b) the date
the Company is no longer a reporting company under the Exchange Act and (c) the
date all Participants have disposed of all shares delivered pursuant to any
Award.
4.6 Anti-Dilution. In the event, after the Effective Date, of any Company
stock dividend, stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a stand-alone or consolidated basis), reorganization, rights
offering, partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, which does not constitute a Change in Control
(as defined in Section 12.2), then the Committee shall adjust or substitute, as
the case may be, the number of shares of Common Stock available for Awards under
the Plan, the number of shares of Common Stock covered by outstanding Awards,
the exercise price per share of outstanding Awards, and performance conditions
and any other characteristics or terms of the Awards as the Committee shall deem
necessary or appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that the Committee may limit any such
adjustment so as to maintain the deductibility of the Awards under Code Section
162(m) and that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional shares as shall reasonably be determined by the
Committee.
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ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, and employees of, and consultants to, the Company
or any subsidiary of the Company, who shall be in a position, in the opinion of
the Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award,
the Committee may give consideration to the person's functions and
responsibilities, the person's contributions to the Company and its
subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Committee.
5.2 Per Person Award Limitations. In each fiscal year during any part of
which this Plan is in effect, a Participant may not be granted Awards relating
to more than four hundred thousand (400,000) shares of Common Stock, subject to
adjustment as provided in Section 4.6, under each of Articles VI, VII, VIII and
IX and Sections 10.1, 10.2, 10.3 and 10.4(b). In addition, the maximum aggregate
amount that may be paid out as final Cash Incentive Awards or other cash Awards
in any fiscal year to any Participant shall be $600,000.
ARTICLE VI
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Stock Options
under the Plan at any time or from time to time. Stock Options may be either
Incentive Stock Options or Non-Qualified Stock Options. An Option shall entitle
the Participant to receive shares of Common Stock upon exercise of such Option,
subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an Award
Agreement (the terms and provisions of which may differ from other Agreements),
including, without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant. To the extent that any Stock Option
is not designated as an Incentive Stock Option or, even if so designated, does
not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified
Stock Option. Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall
be fixed by the Committee; provided that no Stock Option shall be
exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an
individual who owns more than ten percent (10%) of the combined voting
power of all classes of stock of the Company, a corporation which is a
parent corporation of the Company or any subsidiary of the Company (each
as defined in Section 424 of the Code), the Option Period shall not
exceed five (5) years from the date of grant. No Option which is intended
to be an Incentive Stock Option shall be granted more than ten
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(10) years from the date the Plan is adopted by the Company or the date
the Plan is approved by the stockholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee in its
sole and absolute discretion; provided, however, that in the case of an
Incentive Stock Option granted to an individual who owns more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company, a corporation which is a parent corporation of the Company or
any subsidiary of the Company (each as defined in Section 424 of the
Code), the Option Price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per share on the date the Option
is granted.
(c) Exercisability. Subject to Section 12.1, Stock Options shall
be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part, and, subject to the foregoing, may at any time
accelerate the exercisability of any Stock Option. If the Committee
intends that an Option be an Incentive Stock Option, the Committee may,
in its discretion, provide that the aggregate Fair Market Value
(determined at the date the Option is granted) of the Common Stock as to
which such Incentive Stock Option which is exercisable for the first time
during any calendar year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article
VI, a Participant may exercise Stock Options, in whole or in part, at any
time during the Option Period by the Participant's giving to the Company
written notice of exercise on a form provided by the Committee (if
available) specifying the number of shares of Common Stock subject to the
Stock Option to be purchased. Such notice shall be accompanied by payment
in full of the purchase price by cash or check or such other form of
payment as the Company may accept. If set forth in an Agreement or
otherwise approved by the Committee, payment in full or in part may also
be made (i) by delivering Common Stock
already owned by the Participant having a total Fair Market Value on the
date of such delivery equal to the Option Price; (ii) by the execution
and delivery of a note or other evidence of indebtedness (and any
security agreement thereunder) satisfactory to the Committee and
permitted in accordance with Section 6.3(e); (iii) by the delivery of
cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise the Option (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); or (iv) by any combination of the foregoing. In the case of an
Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common
Stock subject to the Stock Option may be authorized only at the time the
Stock Option is granted. No shares of Common Stock shall be issued until
full payment therefor, as determined by the Committee, has been made.
(e) Company Loan or Guarantee. Upon the exercise of any Option
and subject to the pertinent Agreement and the discretion of the
Committee, the Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of credit or guarantee shall obligate the Company for an
amount to exceed the lesser of the aggregate Fair Market Value per share
of the Common Stock on the date of exercise, less the par value of the
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shares of Common Stock to be purchased upon the exercise of the Award,
or the amount permitted under applicable laws or the regulations and
rules of the Federal Reserve Board and any other governmental agency
having jurisdiction.
(f) Non-transferability of Options. Except as provided herein or
in an Agreement, no Stock Option or interest therein shall be
transferable by the Participant other than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable
during the Participant's lifetime only by the Participant.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of one year
following termination of employment.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for a period of one year following termination of employment, and
the Participant's death at any time following such Termination of Employment
due to Disability shall not affect the foregoing. In the event of the
Participant's Termination of Employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement or if the Termination of Employment is involuntary on the part
of the Participant (but is not due to death or Disability or with Cause), any
Stock Option held by such Participant shall immediately terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the a
period of the ninety (90) days immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever is shorter. Unless otherwise provided in an Agreement or determined by
the Committee, if a Participant incurs a Termination of Employment which is
voluntary on the part of the Participant (and is not due to Retirement) or if
the Participant's Termination of Employment is for Cause, any Stock Option held
by such Participant shall terminate immediately, without any exercise thereof.
The death or Disability of a Participant after a Termination of Employment
otherwise provided herein shall not extend the time permitted to exercise an
Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Stock Option
to be exercised by paying the Participant an amount, in cash or Common Stock,
equal to the excess of the Fair Market Value of the Common Stock that is subject
to the Option over the Option Price times the number of shares of Common Stock
subject to the Option on the effective date of such cash-out.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 General. The Committee shall have authority to grant Stock
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of a Stock Option
shall result in the cancellation of a corresponding portion of the Stock
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Appreciation Right. In the case of a Non-Qualified Stock Option, such rights may
be granted either at or after the time of grant of such Stock Option. In the
case of an Incentive Stock Option, such rights may be granted only at the time
of grant of such Stock Option. A Stock Appreciation Right may also be granted on
a stand-alone basis. Each Stock Appreciation Right granted under this Plan shall
be evidenced by an Agreement, which shall embody the terms and conditions of
such Stock Appreciation Right and which shall be subject to the terms and
conditions set forth in this Plan.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right
shall be established by the Committee. If granted in conjunction with a
Stock Option, the Stock Appreciation Right shall have a term which is the
same as the Option Period and shall be exercisable only at such time or
times and to the extent the related Stock Options would be exercisable in
accordance with the provisions of Article VI. A Stock Appreciation Right
which is granted on a stand-alone basis shall be for such period and
shall be exercisable at such times and to the extent provided in an
Agreement. Stock Appreciation Rights shall be exercised by the
Participant's giving written notice of exercise on a form provided by the
Committee (if available) to the Company specifying the portion of the
Stock Appreciation Right to be exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right
granted in conjunction with a Stock Option, a Participant shall be
entitled to receive an amount in cash, shares of Common Stock or both as
determined by the Committee or as otherwise permitted in an Agreement
equal in value to the excess of the Fair Market Value per share of
Common Stock over the Option Price per share of Common Stock specified
in the related Agreement multiplied by the number of shares in respect
of which the Stock Appreciation Right is exercised. In the case of a
Stock Appreciation Right granted on a stand-alone basis, the Agreement
shall specify the value to be used in lieu of the Option Price per share
of Common Stock. The aggregate Fair Market Value per share of the Common
Stock shall be determined as of the date of exercise of such Stock
Appreciation Right.
(c) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent
that a Stock Option would be transferable under the Plan, unless
otherwise provided in an Agreement.
(d) Termination. A Stock Appreciation Right shall terminate at
such time as a Stock Option would terminate under the Plan, unless
otherwise provided in an Agreement.
(e) Effect on Shares Under the Plan. Upon the exercise of a Stock
Appreciation Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 4.1 on the number of
shares of Common Stock to be issued under the Plan, but only to the
extent of the number of shares of Common Stock covered by the Stock
Appreciation Right at the time of exercise based on the value of the
Stock Appreciation Right at such time.
(f) Incentive Stock Option. A Stock Appreciation Right granted in
tandem with an Incentive Stock Option shall not be exercisable unless
the Fair Market Value of the Common Stock on the date of exercise
exceeds the Option Price. In no event shall any amount paid pursuant to
the Stock Appreciation Right exceed the difference between the Fair
Market Value on the date of exercise and the Option Price.
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ARTICLE VIII
RESTRICTED STOCK
8.1 General. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time, either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the persons to whom and the time or times at which grants of Restricted Stock
will be awarded, the number of shares of Restricted Stock to be awarded to any
Participant, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards. Each Award shall be
confirmed by, and be subject to the terms of, an Agreement. The Committee may
condition the grant of Restricted Stock upon the attainment of specified
performance goals by the Participant or by the Company or an Affiliate
(including a division or department of the Company or an Affiliate) for or
within which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock
Awards need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance
of shares of Common Stock otherwise provided in the Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award as determined by
the Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of
the Plan and the Agreement, during a period set by the Committee
commencing with the date of such Award (the "Restriction Period"), the
Participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber any interest in shares of Restricted Stock.
(b) Rights. Except as provided in Section 8.3(a), the Participant
shall have, with respect to shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common Stock
that is the subject of the Restricted Stock, including, if applicable,
the right to vote the shares and the right to receive any cash
dividends. Unless otherwise determined by the Committee and subject to
the Plan, cash dividends on the class of Common Stock that is the
subject of the Restricted Stock shall be automatically deferred and
reinvested in additional Restricted Stock, and dividends on the class of
Common Stock that is the subject of the Restricted Stock payable in
Common Stock shall be paid in the form of Restricted Stock of the same
class as the Common Stock on which such dividends were paid.
(c) Acceleration. Based on service, performance by the Participant
or by the Company or an Affiliate, including any division or department
for which the Participant is employed, or such other factors or criteria
as the Committee may determine, the Committee may provide for the lapse
of restrictions in installments and may accelerate the vesting of all or
any part of any Award and waive the restrictions for all or any part of
such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in
the Restricted Stock. Unless otherwise provided in an Agreement or
determined by the Committee, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death
or Disability, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant, except the Committee
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shall have the discretion to waive in whole or in part any or all
remaining restrictions with respect to any or all of such Participant's
Restricted Stock.
(e) Delivery. If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction
Period, certificates for such shares shall be delivered to the
Participant.
(f) Election. A Participant may elect to further defer receipt of
the Restricted Stock for a specified period or until a specified event,
subject in each case to the Committee's approval and to such terms as
are determined by the Committee. Subject to any exceptions adopted by
the Committee, such election must be made one (1) year prior to
completion of the Restriction Period.
ARTICLE IX
DEFERRED STOCK
9.1 General. The Committee shall have authority to grant Deferred Stock
under the Plan at any time or from time to time, either alone or in addition to
other Awards granted under the Plan. The Committee shall determine the persons
to whom and the time or times at which Deferred Stock will be awarded, the
number of shares of Deferred Stock to be awarded to any Participant, the
duration of the period (the "Deferral Period") prior to which the Common Stock
will be delivered, and the conditions under which receipt of the Common Stock
will be deferred and any other terms and conditions of the Awards. Each Award
shall be confirmed by, and be subject to the terms of, an Agreement. The
Committee may condition the grant of Deferred Stock upon the attainment of
specified performance goals by the Participant or by the Company or an
Affiliate, including a division or department of the Company or an Affiliate for
or within which the Participant is primarily employed, or upon such other
factors or criteria as the Committee shall determine. The provisions of Awards
of Deferred Stock need not be the same with respect to any Participant.
9.2 Terms and Conditions. Award of Deferred Stock shall be subject to
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of
the Plan and the Agreement, Awards of Deferred Stock, or any interest
therein, may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of the Deferral
Period (or Elective Deferral Period as defined in Section 9.2(e), where
applicable), the Committee may elect to deliver Common Stock, cash equal
to the Fair Market Value of such Common Stock or a combination of cash
and Common Stock to the Participant for the shares covered by the Award
of Deferred Stock.
(b) Rights. Unless otherwise determined by the Committee and
subject to the Plan, cash dividends on the Common Stock that is the
subject of the Award of Deferred Stock shall be automatically deferred
and reinvested in additional Deferred Stock, and dividends on the Common
Stock that is the subject of the Award of Deferred Stock payable in
Common Stock shall be paid in the form of Deferred Stock of the same
class as the Common Stock on which such dividends were paid.
(c) Acceleration. Based on service, performance by the Participant
or by the Company or the Affiliate, including any division or department
for which the Participant is employed, or such other factors or criteria
as the Committee may determine, the Committee may provide for the lapse
of deferral limitations in installments and may accelerate the vesting
of all or any part of any Award and waive the deferral limitations for
all or any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be
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fully vested in the Deferred Stock. Unless otherwise provided in an
Agreement or determined by the Committee, upon a Participant's
Termination of Employment for any reason during the Deferral Period
other than death or Disability, the rights to the shares still covered
by the Award shall be forfeited by the Participant, except the Committee
shall have the discretion to waive in whole or in part any or all
remaining deferral limitations with respect to any or all of such
Participant's Deferred Stock.
(e) Election. A Participant may elect further to defer receipt of
the Deferred Stock payable under an Award (or an installment of an
Award) for a specified period or until a specified event (an "Elective
Deferral Period"), subject in each case to the Committee's approval and
to such terms as are determined by the Committee. Subject to any
exceptions adopted by the Committee, such election must be made at least
one (1) year prior to completion of the Deferral Period for the Award
(or of the applicable installment thereof).
ARTICLE X
OTHER AWARDS
10.1 Bonus Stock and Awards In Lieu of Obligations. The Committee is
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under other plans or compensatory arrangements. Common Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee.
10.2 Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Common
Stock, other Awards, or other property equal in value to dividends paid with
respect to a specified number of shares of Common Stock. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents will be paid or distributed when
accrued or will be deemed to have been reinvested in additional Common Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
10.3 Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Common Stock, purchase rights for Common Stock,
Awards with value and payment contingent upon performance of the Company or any
other factors designated by the Committee, and Awards valued by reference to the
book value of Common Stock or the value of securities of or the performance of
specified subsidiaries. The Committee shall determine the terms and conditions
of such Awards. Common Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 10.3 shall be purchased for such
consideration and paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Common Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 10.3.
10.4 Performance Awards.
(a) Performance Conditions. The right of a Participant to exercise
or receive a grant or settlement of any Award, and its timing, may be
subject to performance conditions specified by the Committee. The
Committee may use business criteria and other measures of performance it
deems appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under
any Award subject to performance conditions, except as limited under
Sections
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10.4(b) and 10.4(c) hereof in the case of a Performance Award
intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If
the Committee determines that a Performance Award to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant and/or settlement of such Performance Award shall be
contingent upon achievement of preestablished performance goals and
other terms set forth in this Section 10.4(b).
(I) Performance Goals Generally. The performance goals for
any such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with
respect to such criteria, as specified by the Committee consistent
with this Section 10.4(b). Performance goals shall be objective
and shall otherwise meet the requirements of Code Section 162(m),
including the requirement that the level or levels of performance
targeted by the Committee result in the performance goals being
"substantially uncertain."
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis, and/or
for specified subsidiaries or business units of the Company
(except with respect to the total stockholder return and earnings
per share criteria), shall be used exclusively by the Committee in
establishing performance goals for such Performance Awards: (1)
total stockholder return; (2) such total stockholder return as
compared to total return (on a comparable basis) of a publicly
available index, such as, but not limited to, the Standard &
Poor's 500 or the Nasdaq-U.S. Index; (3) net revenue; (4) net
income; (5) pre-tax income; (6) EBITDA (earnings before interest,
taxes, depreciation and amortization); (7) EBITDA margin (EBITDA
as a percentage of net revenue); (8) operating income; (9)
operating margin (operating income as a percentage of net
revenue); (10) earnings per share; (11) return on equity; (12)
return on capital; and (13) return on investment. The foregoing
business criteria shall also be exclusively used in establishing
performance goals for Cash Incentive Awards granted under Section
10.4(c) hereof.
(iii) Performance Period: Timing For Establishing
Performance Goals. Achievement of performance goals in respect of
such Performance Awards shall be measured over such periods as may
be specified by the Committee. Performance goals shall be
established on or before the dates that are required or permitted
for "performance-based compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms.
Settlement of such Performance Awards may be in cash or Common
Stock, or other Awards, or other property, in the discretion of
the Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with
such Performance Awards, but may not exercise discretion to
increase any such amount payable in respect of a Performance Award
subject to this Section 10.4(b). The Committee shall specify the
circumstances in which such Performance Awards shall be forfeited
or paid in the event of a Termination of Employment or a Change in
Control prior to the end of a performance period or settlement of
Performance Awards, and other terms relating to such Performance
Awards.
(c) Cash Incentive Awards Granted to Designated Covered Employees.
The Committee may grant Cash Incentive Awards to Participants including
those designated by the Committee as likely to be Covered Employees,
which Awards shall represent a conditional right to receive a payment in
cash, unless otherwise determined by the Committee, after the end of a
specified fiscal year or fiscal quarter or other period specified by the
Committee, in accordance with this Section 10.4(c).
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(I) Cash Incentive Award. The Cash Incentive Award for
Participants the Committee regards as likely to be regarded as
Covered Employees shall be based on achievement of a performance
goal or goals based on one or more of the business criteria set
forth in Section 10.4(b), and may be based on such criteria for
any other Participant. The Committee may specify the amount of the
individual Cash Incentive Award as a percentage of any such
business criteria, a percentage thereof in excess of a threshold
amount or another amount which need not bear a strictly
mathematical relationship to such business criteria. The Committee
may establish a Cash Incentive Award pool that includes
Participants the Committee regards likely to be Covered Employees,
which shall be an unfunded pool, for purposes of measuring Company
performance in connection with Cash Incentive Awards. The amount
of the Cash Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of
the business criteria set forth in Section 10.4(b) hereof in the
given performance period, as granted by the Committee. The
Committee may specify the amount of the Cash Incentive Award pool
as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount or another amount which
need not bear a strictly mathematical relationship to such
business criteria.
(ii) Potential Cash Incentive Awards. Not later than the
date required or permitted for "qualified performance-based
compensation" under Code Section 162(m), the Committee shall
determine the Participants who will potentially receive Cash
Incentive Awards for the specified fiscal year, quarter or other
period, either as individual Cash Incentive Awards or out of an
Cash Incentive Award pool established by such date and the amount
or method for determining the amount of the individual Cash
Incentive Award or the amount of such Participant's portion of the
Cash Incentive Award pool.
(iii) Payout of Cash Incentive Awards. After the end of the
specified fiscal year, quarter or other period, as the case may
be, the Committee shall determine the amount, if any, of potential
individual Cash Incentive Award payable to a Participant or of any
Cash Incentive Award pool and the maximum amount of potential Cash
Incentive Award payable to each Participant in any Cash Incentive
Award pool. The Committee may, in its discretion, determine that
the amount payable to any Participant as a final Cash Incentive
Award shall be increased or reduced from the amount of his or her
potential Cash Incentive Award, including a determination to make
no final Award whatsoever, but may not exercise discretion to
increase any such amount in the case of a Cash Incentive Award
intended to qualify under Code Section 162(m). The Committee shall
specify the circumstances in which a Cash Incentive Award shall be
paid or forfeited in the event of Termination of Employment by the
Participant or a Change in Control prior to the end of the period
for measuring performance or the payout of such Cash Incentive
Award, and other terms relating to such Cash Incentive Award in
accordance with the Plan. Upon the completion of the measuring
period and the determination of the right to payment and the
amount, the Committee shall direct the Company to make payment.
(d) Written Determinations. All determinations by the Committee as
to the establishment of performance goals and the potential Performance
Awards or Cash Incentive Awards related to such performance goals and as
to the achievement of performance goals relating to such Awards, the
amount of any Cash Incentive Award pool and the amount of final Cash
Incentive Awards, shall be made in writing in the case of any Award
intended to qualify under Code Section 162(m). The Committee may not
delegate any responsibility relating to such Performance Awards or Cash
Incentive Awards.
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ARTICLE XI
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
11.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or
distribution of shares received directly or indirectly as, or pursuant to an
exercise of, any Award.
11.2 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company, upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article XI shall be construed by the Committee in its sole
discretion and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article XI, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
11.3 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XII
CHANGE IN CONTROL PROVISIONS
12.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 12.2):
(a) The Committee may, in its sole discretion, elect to terminate
and cash out all Stock Options outstanding as of the date of such Change
in Control (whether vested or not) by paying each Participant an amount
in cash equal to (i) the excess of the Change in Control Price (as
defined in Section 12.3) for the Common Stock that is subject to each
particular Option over the Option Price per share times the number of
shares of Common Stock subject to such Option, or (ii) $0.10 times the
number of shares of Common Stock subject to each particular Option in
the event the Change in Control Price is less than the Option Price per
share. In the event of a Change in Control resulting from a Corporate
Transaction (as defined in Section 12.3) (other than a Corporate
Transaction resulting from a tender or exchange offer for fifty percent
(50%) or less of the voting securities of the Company) and provided that
the Committee has not elected to terminate and cash out all Stock
Options in accordance with the previous sentence, the entity which has
acquired control of the Company may exchange all Stock Options
outstanding as of the date of such Change in Control (whether vested or
not) for options under an equivalent plan of such
entity which shall have an equivalent value and vesting schedule. If
such entity which has acquired control of the Company does not exchange
all Stock Options outstanding as of the date of such Change in Control
(whether vested or not) for options under an equivalent plan of such
entity which shall have an equivalent value and vesting schedule and the
Committee has not elected to terminate and cash out all Stock Options,
such Stock Options, such Stock Options, to the extent not vested, shall
become fully vested and exercisable to the full extent of the original
grant.
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(b) Any Stock Appreciation Rights outstanding as of the date of
such Change in Control and not then exercisable shall become fully
exercisable to the full extent of the original grant;
(b) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock or other Award shall lapse, and such
Restricted Stock, Deferred Stock or other Award shall become free of all
restrictions and become fully vested and transferable to the full extent
of the original grant.
(c) The performance goals and other conditions with respect to any
outstanding Performance Award or Cash Incentive Award shall be deemed to
have been satisfied in full, and such Award shall be fully
distributable, if and to the extent provided by the Committee in the
Agreement relating to such Award or otherwise, notwithstanding that the
Award may not be fully deductible to the Company under Section 162(m) of
the Code.
(d) Notwithstanding any other provision of the Plan, unless the
Committee shall provide otherwise in an Agreement, a Participant shall
have the right, whether or not the Award is fully exercisable or may be
otherwise realized by the Participant, by giving notice during the sixty
(60) day period from and after a Change in Control to the Company, to
elect to surrender all or part of a stock-based Award to the Company and
to receive cash, within thirty (30) days of such notice, in an amount
equal to the amount by which the "Change in Control Price" (as defined
in Section 12.3) per share of Common Stock on the date of such election
shall exceed the amount which the Participant must pay to exercise the
Award per share of Common Stock under the Award (the "Spread"),
multiplied by the number of shares of Common Stock granted under the
Award as to which the right granted under this Section 12.1 shall have
been exercised.
12.2 Definition of Change in Control. For purposes of this Plan, a "Change
in Control" shall be deemed to have occurred if (a) any corporation, person or
other entity (other than the Company, a majority-owned subsidiary of the Company
or any of its subsidiaries, or an employee benefit plan (or related trust)
sponsored or maintained by the Company), including a "group" as defined in
Section 13(d)(3) of the Exchange Act, becomes the beneficial owner of stock
representing more than thirty percent (30%) of the combined voting power of the
Company's then outstanding securities; (b)(i) the stockholders of the Company
approve a definitive agreement to merge or consolidate the Company with or into
another corporation other than a majority-owned subsidiary of the Company, or to
sell or otherwise dispose of all or substantially all of the Company's assets,
and (ii) the persons who were the members of the Board of Directors of the
Company prior to such approval do not represent a majority of the directors of
the surviving, resulting or acquiring entity or the parent thereof; (c) the
stockholders of the Company approve a plan of liquidation of the Company; or (d)
within any period of 24 consecutive months, persons who were members of the
Board of Directors of the Company immediately prior to such 24-month period,
together with any persons who were first elected as directors (other than as a
result of any settlement of a proxy or consent solicitation contest or any
action taken to avoid such a contest) during such 24-month period by or upon the
recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board of Directors of the Company at the time of such election, cease to
constitute a majority of the Board.
12.3 Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on Nasdaq during the sixty (60) day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer, merger, consolidation, liquidation or sale
of all or substantially all of the assets of the Company (in each case a
"Corporate Transaction"), the highest price per share of Common Stock paid in
such Corporate Transaction, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on the Fair Market Value of the Common Stock on the date any
such Incentive Stock Option or Stock Appreciation Right is exercised. To the
extent that the consideration paid in any such Corporate Transaction consists
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all or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
ARTICLE XIII
MISCELLANEOUS
13.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under a Stock Option, Stock
Appreciation Right, Restricted Stock Award or Award of Deferred Stock
theretofore granted without the Participant's consent, except such an amendment
(a) made to avoid an expense charge to the Company or an Affiliate, or (b) made
to permit the Company or an Affiliate a deduction under the Code. In addition,
no such amendment shall be made without the approval of the Company's
stockholders to the extent such approval is required by law or agreement.
The Committee may amend the Plan at any time subject to the same
limitations (and exceptions to limitations) as applied to the Board and further
subject to any approval or limitations the Board may impose.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent or reduce an Option Price,
except such an amendment made to avoid an expense charge to the Company or an
Affiliate or qualify for a deduction.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interests accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interests accounting
shall be available, including the substitution of Common Stock having a Fair
Market Value equal to the cash otherwise payable hereunder for the right which
caused the transaction to be ineligible for pooling of interests accounting.
13.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee shall require the surrender
of such other Award or award in consideration for the grant of the new Award. In
addition, Awards may be granted in lieu of cash compensation, including in lieu
of cash amounts payable under other plans of the Company or any subsidiary.
13.3 Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash may be paid in lieu of
Common Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events (in addition to a
Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 13.1 of the Plan) or permitted at the election of
the Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting
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or crediting of Dividend Equivalents in respect of installment or deferred
payments denominated in Common Stock.
13.4 Status of Awards Under Code Section 162(m). It is the intent of the
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
13.5 Unfunded Status of Plan; Limits on Transferability. It is intended
that the Plan be an "unfunded" plan for incentive and deferred compensation. The
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. Unless otherwise provided in this Plan or in an Agreement,
no Award shall be subject to the claims of Participant's creditors, and no Award
may be transferred, assigned, alienated or encumbered in any way other than by
will or the laws of descent and distribution or to a Representative upon the
death of the Participant.
13.6 General Provisions.
(a) Representation. The Committee may require each person
purchasing or receiving shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the
shares without a view to the distribution thereof. The certificates for
such shares may include any legend which the Committee deems appropriate
to reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to any Award, the Participant
shall pay to the Company (or other entity identified by the Committee),
or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal,
state, local or foreign taxes of any kind required by law to be withheld
with respect to such amount required in order for the Company or an
Affiliate to obtain a current deduction. If the Participant disposes of
shares of Common Stock acquired pursuant to an Incentive Stock Option in
any transaction considered to be a disqualifying transaction under the
Code, the Participant must give written notice of such transfer and the
Company shall have the right to deduct any taxes required by law to be
withheld from any amounts otherwise payable to the Participant. Unless
otherwise determined by the Committee, withholding obligations may be
settled with Common Stock, including Common Stock that is part of the
Award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or
arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall
be permissible only if sufficient shares of Common Stock are available
under the Plan for such reinvestment (taking into account then
outstanding Options and other Awards).
(e) Designation of a Representative. The Committee shall establish
such procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
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(f) Controlling Law. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed in accordance with
the laws of the State of Illinois (other than its law respecting choice
of law). The Plan shall be construed to comply with all applicable law
and to avoid liability to the Company, an Affiliate or a Participant,
including, without limitation, liability under Section 16(b) of the
Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the
value of any shares of Common Stock, cash or other thing of value under
this Plan or an Agreement to be transferred to the Participant, and no
shares of Common Stock, cash or other thing of value under this Plan or
an Agreement shall be transferred unless and until all disputes between
the Company and the Participant have been fully and finally resolved and
the Participant has waived all claims to such against the Company or an
Affiliate.
(h) Fail Safe. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3, as applicable. To the
extent any action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
13.7 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 13.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 13.7 shall apply with
respect to any person only if, after reduction for any applicable Federal excise
tax imposed by Section 4999 of the Code and Federal income tax imposed by the
Code, the Total Payments accruing to such person would be less than the amount
of the Total Payments as reduced, if applicable, under the foregoing provisions
of the Plan and after reduction for only Federal income taxes. In addition, the
foregoing provisions of this Section 13.7 are not meant to be exclusive with
regard to any Participant, and the Company or an Affiliate may, pursuant to
employment, severance or other agreements, provide for additional payments to a
Participant due to a Participant's rights under an award constituting a
"parachute payment."
13.8 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract.
13.9 Awards in Substitution for Awards Granted by Other Corporations.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes a designated employer
under the Plan. The terms and conditions of the Awards so granted may vary from
the terms and conditions set forth in this
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Plan at the time of such grant as the Committee may deem appropriate to
conform, in whole or in part, to the provisions of the awards in substitution
for which they are granted.
13.10 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
13.11 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
13.12 Delay. The Company shall have the right to suspend or delay any time
period described in the Plan or an Agreement if the Committee shall determine
that the action may constitute a violation of any law or result in liability
under any law to the Company, an Affiliate or a stockholder of the Company until
such time as the action required or permitted shall not constitute a violation
of law or result in liability to the Company, an Affiliate or a stockholder of
the Company.
13.13 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
13.14 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
13.15 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
13.16 Entire Agreement. This Plan and the Agreements constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and any Agreement, the terms
and conditions of the Plan shall control.
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IN WITNESS WHEREOF, this instrument has been executed by the
undersigned as of the ____ day ___________, 1998.
NORTHWESTERN STEEL AND WIRE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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EXHIBIT B
NORTHWESTERN STEEL AND WIRE COMPANY
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
57
TABLE OF CONTENTS
Page
ARTICLE I
ESTABLISHMENT....................................................................1
1.1 Purpose...................................................................1
ARTICLE II
DEFINITIONS......................................................................1
2.1 "Affiliate"...............................................................1
2.2 "Agreement" or "Option Agreement".........................................1
2.3 "Board of Directors" or "Board"...........................................1
2.4 "Change in Control".......................................................1
2.5 "Code" or "Internal Revenue Code".........................................2
2.6 "Commission"..............................................................2
2.7 "Committee"...............................................................2
2.8 "Common Stock"............................................................2
2.9 "Company".................................................................2
2.10 "Director"................................................................2
2.11 "Disability"..............................................................2
2.12 "Effective Date"..........................................................2
2.13 "Exchange Act"............................................................2
2.14 "Fair Market Value".......................................................2
2.15 "Grant Date"..............................................................2
2.16 "Nasdaq"..................................................................3
2.17 "Option"..................................................................3
2.18 "Option Period"...........................................................3
2.19 "Option Price"............................................................3
2.20 "Participant".............................................................3
2.21 "Plan"....................................................................3
2.22 "Representative"..........................................................3
2.23 "Rule 16b-3" .............................................................3
2.24 "Securities Act"..........................................................3
2.25 "Termination of Directorship".............................................3
ARTICLE III
ADMINISTRATION...................................................................3
3.1 Committee Structure and Authority.........................................3
ARTICLE IV
STOCK SUBJECT TO PLAN............................................................4
4.1 Number of Shares..........................................................4
4.2 Release of Shares.........................................................4
4.3 Restrictions on Shares....................................................5
4.4 Stockholder Rights........................................................5
4.5 Reasonable Efforts To Register............................................5
4.6 Adjustments...............................................................5
4.7 Limited Transfer During Offering..........................................5
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Page
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ARTICLE V
OPTIONS..............................................................6
5.1 Eligibility...................................................6
5.2 Grant and Exercise............................................6
5.3 Terms and Conditions..........................................6
5.4 Termination...................................................7
5.5 Cashing Out of Option.........................................7
ARTICLE VI
MISCELLANEOUS........................................................7
6.1 Amendments and Termination....................................7
6.2 General Provisions............................................7
6.3 Special Provisions Regarding a Change in Control..............8
6.4 Delay.........................................................9
6.5 Headings......................................................9
6.6 Severability..................................................9
6.7 Successors and Assigns........................................9
6.8 Entire Agreement..............................................9
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NORTHWESTERN STEEL AND WIRE COMPANY
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT
1.1 Purpose. The Northwestern Steel and Wire Company 1998 Non-employee
Directors' Stock Option Plan is hereby established by Northwestern Steel and
Wire Company (the "Company"), effective as of August 1, 1998. The purpose of the
Plan is to promote the overall financial objectives of the Company and its
stockholders by motivating directors of the Company who are not employees, to
further align the interests of such directors with those of the stockholders of
the Company and to achieve long-term growth and performance of the Company. The
Plan and the grant of Options hereunder are expressly conditioned upon the
Plan's approval by the stockholders of the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
limited liability company, association, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company, including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Option Agreement" means, individually or
collectively, any agreement entered into pursuant to this Plan pursuant to which
an Option is granted to a Participant.
2.3 "Board of Directors" or "Board" means the Board of Directors of
the Company.
2.4 "Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, or an employee benefit
plan (or related trust) sponsored or maintained by the Company), including a
"group" as defined in Section 13(d)(3) of the Exchange Act becomes the
beneficial owner of stock representing more than thirty percent (30%) of the
combined voting power of the Company's then outstanding securities; (b)(i) the
stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent solicitation contest or any action taken to avoid such a contest)
during such 24-month period by or upon the recommendation of persons who were
members of the Board of Directors of the Company immediately prior to such
24-month period and who constituted a majority of the Board of Directors of the
Company at the time of such election, cease to constitute a majority of the
Board.
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2.5 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.6 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.7 "Committee" means the person or persons appointed by the Board of
Directors to administer the Plan.
2.8 "Common Stock" means the shares of the Common Stock, par value
$.01 per share, of the Company, whether presently or hereafter issued, and any
other stock or security resulting from adjustment thereof as described
hereinafter or the common stock of any successor to the Company which is
designated for the purpose of the Plan.
2.9 "Company" means Northwestern Steel and Wire Company, an Illinois
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.10 "Director" means each and any director who serves on the Board
and who is not an officer or employee of the Company or any of its Affiliates.
2.11 "Disability" means the physical or mental condition of the
Participant, as determined by the Committee, as a result of which such
Participant would be entitled to payment of monthly disability benefits under
any Company disability plan. If the Participant is not eligible for benefits
under any disability plan of the Company, such Participant shall be deemed to
have a Disability if the Committee determines that such Participant's physical
or mental condition would entitle such Participant to benefits under any Company
disability plan if such Participant were eligible therefor.
2.12 "Effective Date" means August 1, 1998.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.14 "Fair Market Value" means the value determined on the basis of
the good faith determination of the Committee, pursuant to the applicable method
described below:
(a) if the Common Stock is listed on a national securities
exchange or quoted on Nasdaq, the closing price of the Common Stock on
the relevant date (or, if such date is not a business day or a day on
which quotations are reported, then on the immediately preceding date
on which quotations were reported), as reported by the principal
national exchange on which such shares are traded (in the case of an
exchange) or by Nasdaq, as the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on Nasdaq, but is actively traded in the
over-the-counter market, the average of the closing bid and asked
prices for the Common Stock on the relevant date (or, if such date is
not a business day or a day on which quotations are reported, then on
the immediately preceding date on which quotations were reported), as
reported by the over-the-counter market; and
(c) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (a) or (b), the fair market
value determined in good faith by the Committee.
2.15 "Grant Date" means the date as of which an Option is granted
pursuant to the Plan.
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2.16 "Nasdaq" means The Nasdaq Stock Market, including the Nasdaq
National Market.
2.17 "Option" means the right to purchase the number of shares of
Common Stock specified by the Plan at a price and for a term fixed by the Plan,
and subject to such other limitations and restrictions as the Plan and the
Committee impose.
2.18 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article V.
2.19 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 5.3.
2.20 "Participant" means a Director to whom an Option has been granted
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such appointed Representative. The term shall also include a trust for the
benefit of the Participant, the Participant's parents, spouse or descendants; a
partnership the interests in which are for the benefit of the Participant, the
Participant's parents, spouse or descendants; or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee. Notwithstanding the
foregoing, the term "Termination of Directorship" shall mean the Termination of
Directorship of the Director.
2.21 "Plan" means the Northwestern Steel and Wire Company 1998
Non-Employee Directors' Stock Option Plan, as herein set forth and as may be
amended from time to time.
2.22 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred by the Committee;
provided that only one of the foregoing shall be the Representative at any point
in time as determined under applicable law and recognized by the Committee.
2.23 "Rule 16b-3" means Rule 16b-3, as promulgated under the Exchange
Act, as amended from time to time, or any successor thereto, in effect and
applicable to the Plan and Participants.
2.24 "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
2.25 "Termination of Directorship" means the occurrence of any act or
event that actually or effectively causes or results in the person's ceasing,
for whatever reason, to be a director of the Company, including, without
limitation, death, Disability, dismissal, termination of directorship at the
election of the Participant, retirement, or termination of directorship as a
result of the discontinuance, liquidation, sale or transfer by the Company or
its subsidiaries of all businesses owned or operated by the Company or its
subsidiaries.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. The Plan shall be administered
by the Committee which, except as provided herein, shall be comprised of one or
more persons appointed by the Board. In the absence of an appointment, the Board
shall be the Committee;
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62
provided that only those members of the Board who participate in the decision
relative to Options under the Plan shall be deemed to be part of the
"Committee" for purposes of the Plan. A majority of the Committee shall
constitute a quorum at any meeting thereof (including telephone conference), and
the acts of a majority of the members present, or acts approved in writing by a
majority of the entire Committee without a meeting, shall be the acts of the
Committee for purposes of the Plan. The Committee may authorize any one or more
of its members or an officer of the Company to execute and deliver documents on
behalf of the Committee. A member of the Committee shall not exercise any
discretion respecting himself or herself under the Plan. The Board shall have
the authority to remove, replace or fill any vacancy of any member of the
Committee upon notice to the Committee and the affected member. Any member of
the Committee may resign upon notice to the Board. The Committee may allocate
among one or more of its members, or may delegate to one or more of its agents,
such duties and responsibilities as it determines.
The Committee shall have the authority, subject to the terms of the
Plan, to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem advisable, to
interpret the terms and provisions of the Plan and any Option issued under the
Plan and to otherwise supervise the administration of the Plan. The Committee's
policies and procedures may differ with respect to Options granted at different
times or to different Participants.
Any determination made by the Committee pursuant to the provisions of
the Plan shall be made in its sole discretion. All decisions made by the
Committee pursuant to the provisions of the Plan shall be final and binding on
all persons, including the Company and Participants. Any determination shall not
be subject to de novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for issuance
pursuant to Options under the Plan shall be one hundred thousand (100,000)
shares of Common Stock authorized for issuance on the Effective Date. Such
shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
determine the number of shares of Common Stock available for Stock Options, and
in its discretion may include (without limitation) as available for distribution
any shares of Common Stock that have ceased to be subject to Stock Options, any
shares of Common Stock subject to any Stock Options that are forfeited, any
Stock Options that otherwise terminate without issuance of shares of Common
Stock being made to the Participant, or any shares (whether or not restricted)
of Common Stock that are received by the Company in connection with the exercise
of a Stock Option, including the satisfaction of any tax liability or the
satisfaction of a tax withholding obligation. If any shares could not again be
available for Options to a particular Participant under applicable law, such
shares shall be available exclusively for Options to Participants who are not
subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon
exercise of an Option shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in the Option Agreement. The Company
shall not be required to issue or deliver any certificates for shares of Common
Stock, cash or other property prior to (i) the listing of such shares on any
stock exchange, Nasdaq or other public market on which the Common Stock may then
be listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain a deduction with
respect to the exercise of the Option. The Company may cause any certificate for
any share of Common Stock
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to be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in the Plan or
as the Committee may otherwise require. The Committee may require any person
exercising an Option to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Option until, after proper exercise
of the Option and other actions required, such shares shall have been recorded
on the Company's official stockholder records as having been issued or
transferred. Upon exercise of an Option or any portion thereof, the Company
will have thirty (30) days in which to issue the shares, and the Participant
will not be treated as a stockholder for any purpose whatsoever prior to such
issuance. No adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date such shares are recorded as issued
or transferred in the Company's official stockholder records, except as
provided herein or in an Agreement.
4.5 Reasonable Efforts To Register. The Company will use its reasonable
efforts to register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, when the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its reasonable efforts to cause the
registration statement to become effective and to file such supplements and
amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the Option Period of the last Option outstanding, (b) the date
the Company is no longer a reporting company under the Exchange Act, and (c) the
date all Participants have disposed of all shares delivered pursuant to any
Option. The Company may delay the foregoing obligation if the Committee
reasonably determines that any such registration would materially and adversely
affect the Company's interests or if there is no material benefit to
Participants.
4.6 Adjustments. In the event, after the Effective Date, of a stock
dividend, stock split, combination or exchange of shares, recapitalization or
other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a stand-alone or consolidated basis), reorganization, rights
offering, partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, which does not constitute a Change in Control,
then the Committee shall adjust or substitute, as the case may be, the number of
shares of Common Stock available for Options under the Plan, the number of
shares of Common Stock covered by outstanding Options, the exercise price per
share of outstanding Options, and any other characteristics or terms of the
Options as the Committee shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated by
rounding to the next lower whole number of shares with appropriate payment for
such fractional shares as shall reasonably be determined by the Committee.
4.7 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Option.
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ARTICLE V
OPTIONS
5.1 Eligibility. Each Director shall be granted Options to purchase
shares of Common Stock as provided herein, and in an Agreement.
5.2 Grant and Exercise. Each person who is a Director on the
Effective Date shall become a Participant without further action by the Board
or the Committee. Each person who is subsequently elected or appointed as
a Director shall become a Participant and shall, on his date of election or
appointment, without further action by the Board or the Committee, be granted an
Option to purchase two thousand five hundred (2,500) shares of Common Stock.
Thereafter, on the date each annual meeting of stockholders of the Company after
which a Participant continues as a Director, in any year following the year of
the initial grant of an Option to such Participant, such Participant shall be
granted an Option to purchase two thousand five hundred (2,500) shares of Common
Stock. If the number of shares of Common Stock available to grant under the Plan
on a scheduled date of grant is insufficient to make all automatic grants
required to be made pursuant to the Plan on such date, then each eligible
Director shall receive an Option to purchase a pro rata number of the remaining
shares of Common Stock available under the Plan; provided further, however, that
if such proration results in fractional shares of Common Stock, then such Option
shall be rounded down to the nearest number of whole shares of Common Stock. If
there is no whole number of shares remaining to be granted, then no grants shall
be made under the Plan. Each Option granted under the Plan shall be evidenced by
an Option Agreement, in a form approved by the Committee, which shall embody the
terms and conditions of such Option and which shall be subject to the express
terms and conditions set forth in the Plan. Such Option Agreement shall become
effective upon execution by the Participant.
5.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including in each case the
following:
(a) Option Period. The Option Period of each Option shall be ten (10)
years.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be the Fair Market Value as of the Grant Date.
(c) Exercisability. Subject to the provisions of Section 6.3, Options
shall become exercisable as specified in each Option Agreement, but no sooner
than six (6) months after the Grant Date. An Option shall only be exercisable
during the Option Period.
(d) Method of Exercise. Subject to the provisions of this Article V, a
Participant may exercise Stock Options, in whole or in part, at any time during
the Option Period by the Participant's giving to the Company written notice of
exercise on a form provided by the Committee (if available) specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.
Except when waived by the Committee, such notice shall be accompanied by payment
in full of the purchase price by cash or check or such other form of payment as
the Company may accept. If approved by the Committee (including approval at the
time of exercise), payment in full or in part may also be made (I) by delivering
Common Stock already owned by the Participant having a total Fair Market Value
on the date of such delivery equal to the Option Price; (ii) by the execution
and delivery of a note or other evidence of indebtedness (and any security
agreement thereunder) satisfactory to the Committee and permitted in accordance
with Section 5.3(e); (iii) by the delivery of cash or the extension of credit by
a broker-dealer to whom the Participant has submitted a notice of exercise or
otherwise indicated an intent to exercise an Option (in accordance with Part
220, Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); or (iv) by any combination of the foregoing or by any
other method permitted by the Committee.
(e) Nontransferability of Options. Except as provided in an
Agreement as determined by the Committee, no Option or interest therein shall
be transferable by a Participant other than by will or by the laws of descent
and distribution, and all Options shall be exercisable during the Participant's
lifetime only by the Participant.
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5.4 Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant ceases to be a Director due to
death or Disability, any unexpired and unexercised Stock Option held by such
Participant shall thereafter be fully exercisable until the expiration of the
Option Period (or such other period or no period as the Committee may specify).
Unless otherwise provided in an Agreement or determined by the
Committee, if a Participant incurs a Termination of Directorship for any reason
other than due to Participant's death or Disability, any Option held by such
Participant shall terminate at the end of the Option Period; provided that if a
Participant voluntarily terminates such Participant's directorship, such
Participant's Option shall terminate upon the later of six (6) months following
the Grant Date and ninety (90) days following such Participant's Termination of
Directorship. Unless otherwise provided in an Option Agreement, the death or
Disability of a Participant after a Termination of Directorship otherwise
provided herein shall not extend the time permitted to exercise an Option.
5.5 Cashing Out of Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of any Stock
Option to be exercised by paying the Participant an amount, in cash or Common
Stock, equal to the excess of the Fair Market Value of the Common Stock that is
subject to the Option over the Option Price times the number of shares of Common
Stock subject to the Option on the effective date of such cash-out.
ARTICLE VI
MISCELLANEOUS
6.1 Amendments and Termination. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under a Stock Option previously granted, without the Participant's consent,
except such an amendment (a) made to avoid an expense charge to the Company or
an Affiliate, or (b) made to permit the Company or an Affiliate a deduction
under the Code. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Committee may amend the Plan at any time subject to the same
limitations (and exceptions to limitations) as applied to the Board and further
subject to any approval or limitations the Board may impose.
The Committee may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without the Participant's consent or reduce an Option
Price, except such an amendment made to avoid an expense charge to the Company
or an Affiliate or qualify for a deduction.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules,
as well as other developments, and to grant Options which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interests accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interests accounting
is available, including the substitution of Common Stock having a Fair Market
Value equal to the cash otherwise payable hereunder for the right which caused
the transaction to be ineligible for pooling of interest accounting.
6.2 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Option to represent to and agree with the
Company in writing that such person is acquiring the shares without a view to
the distribution thereof in violation of the Securities Act. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
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66
(b) Withholding. If determined to be required to protect the Company,
no later than the date as of which an amount first becomes includible in the
gross income of the Participant for Federal income tax purposes with respect to
any Option, the Participant shall pay to the Company (or other entity identified
by the Committee), or make arrangements satisfactory to the Company or other
entity identified by the Committee regarding the payment of, any Federal, state,
local or foreign taxes of any kind required by law to be withheld with respect
to such amount. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment otherwise due to the Participant.
(c) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Illinois (other than its law respecting choice of law). The Plan shall
be construed to comply with all applicable law, and to avoid liability to the
Company, an Affiliate or a Participant, including, without limitation, liability
under Section 16(b) of the Exchange Act.
(d) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value of
any shares of Common Stock, cash or other thing of value under the Plan or an
Agreement to be transferred to the Participant, and no shares of Common Stock,
cash or other thing of value under the Plan or an Agreement shall be transferred
unless and until all disputes between the Company and the Participant have been
fully and finally resolved and the Participant has waived all claims to such
against the Company or an Affiliate.
(e) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
6.3 Special Provisions Regarding a Change in Control. Notwithstanding
any other provision of the Plan to the contrary, unless otherwise provided in an
Agreement, in the event of a Change in Control:
(a) The Committee may, in its sole discretion, elect to terminate and
cash out all Stock Options outstanding as of the date of such Change in Control
(whether vested or not) by paying each Participant an amount in cash equal to
(i) the excess of the Change in Control Price (as defined in Section 12.3) for
the Common Stock that is subject to each particular Option over the Option Price
per share times the number of shares of Common Stock subject to such Option, or
(ii) $0.10 times the number of shares of Common Stock subject to each particular
Option in the event the Change in Control Price is less than the Option Price
per share. In the event of a Change in Control resulting from a corporate
transaction (other than a corporate transaction resulting from a tender or
exchange offer for fifty percent (50%) or less of the voting securities of the
Company) and provided that the Committee has not elected to terminate and cash
out all Stock Options in accordance with the previous sentence, the entity which
has acquired control of the Company may exchange all Stock Options outstanding
as of the date of such Change in Control (whether vested or not) for options
under an equivalent plan of such entity which shall have an equivalent value and
vesting schedule. If such entity which has acquired control of the Company does
not exchange all Stock Options outstanding as of the date of such Change in
Control (whether vested or not) for options under an equivalent plan of such
entity which shall have an equivalent value and vesting schedule and the
Committee has not elected to terminate and cash out all Stock Options, such
Stock Options, to the extent not vested, shall become fully vested and
exercisable to the full extent of the original grant.
(b) For purposes of this Section, "Change in Control Price" means the
higher of (I) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on Nasdaq during the sixty (60)-day period prior to and including the date of
a Change in Control, or (ii) if the Change in Control is the result of a
corporate transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a corporate transaction. To the extent that the
consideration paid in any such
8
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transaction described above consists all or in part of securities or other
non-cash consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the Committee.
6.4 Delay. The Company shall have the right to suspend or delay any
time period described in the Plan or an Agreement if the Committee shall
determine that the action may constitute a violation of any law or result in
liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company.
6.5 Headings. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.
6.6 Severability. If any provision of the Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and the Plan shall be construed as
if such invalid or unenforceable provision were omitted.
6.7 Successors and Assigns. The Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
6.8 Entire Agreement. The Plan and the Agreement constitutes the
entire agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between the Plan and any Agreement, the
terms and conditions of the Plan shall control.
Executed on this _____ day of ____________, 1998.
NORTHWESTERN STEEL AND WIRE COMPANY
By:
----------------------------------
Name:
--------------------------------
Title:
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NORTHWESTERN STEEL AND WIRE COMPANY
121 WALLACE STREET
STERLING, ILLINOIS 61081-0618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED HOLDER OF SHARES OF COMMON STOCK (THE "COMMON STOCK") OF
NORTHWESTERN STEEL AND WIRE COMPANY (THE "COMPANY") HEREBY APPOINTS FREDERICK J.
ROCCHIO, JR. AND THOMAS VERCILLO, OR EITHER OF THEM WITH FULL POWER OF
SUBSTITUTION, AS PROXIES TO VOTE ALL OF THE SHARES OF COMMON STOCK OF THE
COMPANY HELD OF RECORD BY THE UNDERSIGNED AS OF JANUARY 7, 1999, AT THE ANNUAL
MEETING OF SHAREHOLDERS OF THE COMPANY TO BE HELD ON THURSDAY, FEBRUARY 18, 1999
AT 10:30 A.M. CENTRAL STANDARD TIME, AT BANK OF AMERICA, SHAREHOLDERS' ROOM -
21ST FLOOR, 231 SOUTH LASALLE STREET, CHICAGO, ILLINOIS AND AT ANY ADJOURNMENTS
THEREOF UPON THE FOLLOWING MATTERS.
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR ALL
NOMINEES LISTED BELOW [ ]
WILLIAM F. ANDREWS, DARIUS W. GASKINS, JR., THOMAS A. GILDEHUAS, DAVID L.
GORE, JAMES A. KOHLBERG, CHRISTOPHER LACOVARA AND FREDERICK J. ROCCHIO, JR.
[ ] FOR ALL NOMINEES EXCEPT ______________________________________________.
2. ADOPTION OF THE 1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. ADOPTION OF THE 1998 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS
THEREOF.
PLEASE SIGN ON REVERSE SIDE
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED "FOR" THE ABOVE ITEMS AND IN ACCORDANCE WITH THE DETERMINATION OF THE
BOARD OF DIRECTORS AS TO OTHER MATTERS.
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES ARE HELD
BY JOINT OWNERS, BOTH OWNERS SHOULD SIGN. WHEN SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ATTORNEY-IN-FACT OR OTHER FIDUCIARY, PLEASE
GIVE TITLE AS SUCH. WHEN SIGNING FOR A CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER. IF YOU SIGN FOR A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED PERSON. IF YOU
RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL CARDS RECEIVED.
DATED: _______________________, 1997 SIGNATURE_______________________________
SIGNATURE_______________________________
(IF HELD JOINTLY)
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.