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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
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 and Wire Company
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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.
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[ ] 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 LOGO]
DECEMBER __, 1999
Dear Shareholder:
You are cordially invited to attend the annual meeting of the
shareholders of Northwestern Steel and Wire Company, to be held on Tuesday,
January 18, 2000, at 9:00 a.m. Central Standard Time, at Bank of America,
Shareholders' Room - 21st Floor, 231 South LaSalle Street, Chicago, Illinois.
At the meeting you will be asked to:
- approve an amendment to our articles of incorporation to
effectuate a one-for-ten reverse stock split of our
outstanding common shares;
- approve the issuance of our common shares in connection with
the exchange of cash and our common shares for the $115
million in outstanding principal of our 9 1/2% senior Notes
due 2001, which exchange we expect to make through an exchange
offer to the holders of the senior notes;
- adopt the 2000 Stock Incentive Plan;
- approve a prepackaged bankruptcy plan, in advance, should the
filing of such a plan become necessary to effectuate the
exchange offer; and
- elect seven directors to hold office until their resignation
or the next annual meeting of Shareholders.
The exchange offer is necessary in order to finance our plan to
restructure and modernize our operations so as to become more efficient and
thereby more competitive with foreign manufacturers and increasingly efficient
domestic manufacturers. As is more fully described in the accompanying proxy
statement, our restructuring consists of the following key components:
- Construction of a new, more efficient, low cost mill to
replace our existing 14" and 24" rolling mill capacity at our
Sterling, Illinois facility.
- Implementation of a new collective bargaining agreement with
our union.
- Modernization of our existing melting capabilities with the
construction of a new furnace to replace our existing two
furnaces.
- Implementation of a maintenance program to rationalize our
existing maintenance operations.
- Implementation of a total quality management program.
In view of the importance of the actions to be taken at the meeting, we
urge you to read the accompanying Proxy Statement carefully, and regardless of
the number of shares you own, we request that you complete, sign, date and
return the enclosed proxy card promptly in the accompanying prepaid envelope.
The items to be acted upon at the shareholder meeting are crucial to
the future of your company. We urge you to vote and to vote for each of the
proposals presented in the accompanying Proxy Statement so that the company can
continue with the implementation of its strategic plan.
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We urge you to vote "FOR" approval of the amendment to our articles of
incorporation; "FOR" approval of the issuance of our common shares contemplated
by the exchange offer; "FOR" adoption of the 2000 Stock Incentive Plan; "FOR"
approval of the prepackaged bankruptcy plan, in advance, should the filing of
such a plan become necessary to effectuate the exchange offer; and "FOR" the
nominated directors.
Sincerely,
/s/ Frederick J. Rocchio, Jr.
Frederick J. Rocchio, Jr.
President and Chief Executive Officer
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[NORTHWESTERN STEEL AND WIRE COMPANY LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 18, 2000
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TO THE SHAREHOLDERS OF
NORTHWESTERN STEEL AND
WIRE COMPANY
Notice is hereby given that the annual meeting of the shareholders of
Northwestern Steel and Wire Company will be held on Tuesday, January 18, 2000,
at 9:00 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 approve an amendment to our articles of incorporation to
effectuate a one-for-ten reverse stock split of our
outstanding common shares;
2. To approve the issuance of our common shares, par value $0.01
per share, in connection with the exchange of cash and our
common shares for the $115 million in outstanding principal of
our 9 1/2% senior notes due 2001, which exchange we expect to
complete through an exchange offer made to the holders of the
senior notes;
3. To adopt the 2000 Stock Incentive Plan;
4. To approve a prepackaged bankruptcy plan, in advance, should
the filing of such a plan become necessary to effectuate the
exchange offer;
5. To elect seven directors to hold office until their
resignation or the next annual meeting of shareholders; and
6. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The board of directors has fixed the close of business on December 6,
1999 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the meeting and at any adjournment or
postponement thereof. From January 8, 2000 until the date of the meeting, a list
of shareholders entitled to vote at the meeting will be available for inspection
by shareholders of record during business hours at our offices and also will be
available at the meeting. Please review the proxy statement delivered with this
Notice.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ THOMAS M. VERCILLO
Thomas M. Vercillo
Secretary
Sterling, Illinois
__________, 1999
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
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[NORTHWESTERN STEEL AND WIRE COMPANY LOGO]
121 WALLACE STREET
STERLING, ILLINOIS 61081-0618
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PROXY STATEMENT
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This Proxy Statement is being furnished to holders of common shares of
Northwestern Steel and Wire Company in connection with the solicitation of
proxies by our board of directors for use at the annual meeting of the
shareholders to be held at Bank of America, Shareholders' Room - 21st Floor, 231
South LaSalle Street, Chicago, Illinois on Tuesday, January 18, 2000, at 9:00
a.m. Central Standard Time and at any adjournment or postponement thereof.
GENERAL INFORMATION
TIME, DATE, PLACE AND PURPOSE
The meeting will be held on Tuesday, January 18, 2000, at 9:00 a.m.
Central Standard Time at Bank of America, Shareholders' Room - 21st Floor, 231
South LaSalle Street, Chicago, Illinois. At the meeting, you will be asked to
consider and vote upon proposals to approve the issuance of our common shares,
par value $0.01 per share, in connection with the exchange offer to be made to
the holders of the $115 million in outstanding principal of our 9 1/2% senior
notes due 2001; an amendment to our articles of incorporation to effectuate a
one-for-ten reverse stock split of our outstanding common shares; and the
election of the nominated directors.
RECORD DATE AND SHARES ENTITLED TO VOTE
The Board of Directors has fixed the close of business on December 6,
1999 as the record date for determining shareholders entitled to notice of and
to vote at the annual meeting. As of the record date we had outstanding
24,484,823 common shares. Holders of record of common shares on the record date
are entitled to one vote per share on any matter that may properly come before
the meeting. Based on the principal amount of senior notes outstanding as of the
record date, if the exchange were consummated on the record date in accordance
with the terms of the exchange offer we have proposed to the senior note holders
described herein, we would issue to holders of senior notes up to 57,131,310
common shares on a pre stock split basis.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
For each of the proposals contained in this proxy statement, the vote
required to receive shareholder approval, assuming a quorum consisting of a
majority of the common shares entitled to vote is present, is as follows:
- The approval of the amendment to the articles of incorporation
requires the affirmative vote of a majority of the outstanding
common shares entitled to vote on such amendment. Accordingly,
a failure to vote or an abstention with respect to the
amendment to the articles of incorporation will have the same
effect as a negative vote.
- The approval of the issuance of the common shares to be issued
in connection with the exchange offer requires the affirmative
vote of a majority of the common shares present in person or
represented by proxy at the meeting and entitled to vote
thereon.
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- The approval of a majority of the common shares present in
person or represented by proxy at the meeting and entitled to
vote thereon is required to adopt the 2000 Stock Incentive
Plan.
- The approval of two-thirds of the common shares present in
person or represented by proxy at the meeting and who actually
vote is required to approve the prepackaged bankruptcy plan.
- The approval of a majority of the common shares present in
person or represented by proxy at the meeting and who actually
vote is required to elect the nominated directors.
As of the record date, the executive officers and directors together
with their affiliates beneficially owned approximately 37.8% of our outstanding
common shares. All of the executive officers and directors have advised us that
they intend to vote their common shares to approve the proposals.
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.
EFFECTS OF FAILURE TO OBTAIN SHAREHOLDER APPROVAL
In the event that shareholder approval is not received for the proposal
to amend our articles of incorporation to accomplish a reverse stock split, the
proposal to issue our common shares in exchange for our outstanding senior notes
or the proposal to adopt the 2000 Stock Incentive Plan, then we will not be able
to consummate the exchange offer. If the exchange offer is not consummated, we
will be unable to obtain the additional financing which is necessary to
implement the strategic plan including the modernization and construction of the
new mill and being able to take advantage of the new collective bargaining
agreement with the United Steel Workers of America . If we are unable to
implement the strategic plan, we will not have funds available to pay the senior
notes at maturity in June 2001, unless there are significant improvements in the
credit markets or the import situation, and therefore will have to consider
other alternatives, including a bankruptcy that would not involve a
prenegotiated or "prepackaged" plan.
To the extent that shareholder approval is necessary to implement the
prepackaged bankruptcy plan and we do not obtain such shareholder approval, our
ability to implement the exchange, and hence our strategic plan, will be delayed
and possibly jeopardized.
In the event that the majority of our shareholders do not vote to
approve the reverse stock split, our common shares will be delisted from the
Nasdaq National Market unless market conditions significantly change so that our
share price returns to compliance with the Nasdaq marketplace rules.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
We will bear the cost of soliciting proxies from shareholders. Proxies
may be solicited by personal interview, mail and telephone or by certain of our
executive officers, directors and regular employees, provided they receive no
additional compensation. In addition, we may reimburse brokerage firms and other
persons representing beneficial owners of common shares for their expenses in
forwarding solicitation material to beneficial owners. We intend to hire
Corporate Investor Communication, Inc. to solicit proxies on our behalf for a
fee of approximately $5,000.
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A form of proxy for the meeting is enclosed with this proxy statement.
All common shares held of record as of the record date represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated on such proxies.
The board is not aware of any other matters which may be presented for
action at the meeting, but if other matters do come properly before the meeting,
common shares represented by proxies in the accompanying form will be voted by
Frederick J. Rocchio or Thomas M. Vercillo, each selected by the board and named
on the accompanying proxy card, in accordance with their best judgment.
Any proxy on which no direction is specified will be voted:
- FOR the proposed amendment to our articles of incorporation;
- FOR the issuance of common shares in connection with the
exchange offer;
- FOR the adoption of the 2000 Stock Incentive Plan;
- FOR the approval of the prepackaged bankruptcy plan;
- FOR all the nominated directors; and
- in the discretion of the proxy holder as to any other matter
which may properly come before the meeting.
You may revoke a proxy at any time before the shares represented by it
are voted. Revocation of a proxy is effective upon receipt by the Secretary of
Northwestern Steel and Wire of either (i) a written notice of revocation or (ii)
delivering a proxy signed on a later date. Additionally, you may change or
revoke a previously executed proxy by appearing at the meeting and voting in
person.
MAILING AND ANNUAL REPORT TO SHAREHOLDERS
This proxy statement is first being mailed or otherwise delivered to
shareholders on or about _________, 1999 and is accompanied by our Annual Report
to Shareholders for the fiscal year ended July 31, 1999 containing financial and
other information pertaining to Northwestern Steel and Wire Company.
FORWARD-LOOKING INFORMATION
Certain statements contained in this proxy statement, including
projected financial information and other forward-looking statements, are based
on estimates and assumptions. We have identified these "forward looking"
statements by words such as "believe," "expect," "anticipate," and similar
expressions. There can be no assurance that such statements will be reflective
of actual outcomes. Forward-looking statements are provided in this proxy
statement pursuant to the safe harbor established under the Private Securities
Litigation Reform Act of 1995 and should be evaluated in the context of the
estimates, assumptions, uncertainties, and risks described herein. Risk and
uncertainties which could cause actual results of performance to differ
materially from those expressed in these statements include the following:
volumes of production and product shipments; changes in product mix and pricing;
costs of scrap steel and other raw material inputs; changes in domestic
manufacturing capacity; the level of non-residential construction; final
approval of the restructuring agreement in principal by 95% of the holders of
the senior notes and approval by our stockholders; whether we can obtain a
federal guarantee of debt in an acceptable amount with acceptable terms so that
we can construct the new mill as part of our strategic plan; overall economic
growth in the United States; changes in legislative or regulatory requirements;
and the level of imported products in our markets. We assume no obligation to
update the information contained herein.
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RISK FACTORS
Dilution of Existing Shareholders. The exchange of common shares for
senior notes will cause substantial dilution to the voting power and interests
of current shareholders and possibly lead to a change in control of Northwestern
Steel and Wire Company. The common shares issuable upon consummation of the
exchange offer will constitute 70% of the common shares outstanding immediately
after the consummation of the exchange offer. The ownership interest of our
directors and executive officers and their affiliates will decrease from 37.8%
to 11.3% and the ownership interests of other current shareholders will decrease
from 62.2% to 18.7%.
Pre-Packaged Plan. We may implement the exchange either by completing
the exchange outside of bankruptcy or by proceeding in bankruptcy with a
prepackaged plan of reorganization. (See Proposal 4) If we implement the
exchange by a prepackaged plan, it is possible that the proceeding could
adversely effect our relationships with our customers, labor union, and
creditors, although we will endeavor to minimize such risks. It is also possible
that the bankruptcy proceeding could effect our ability to maintain the listing
of our common shares on Nasdaq. Other risks include that a bankruptcy court
could find that the solicitation of votes for our plan did not comply with
applicable legal requirements under securities or bankruptcy laws, in which case
a resolicitation of votes could be required, or that the requirements set forth
in Section 1129 of the Bankruptcy Code for confirmation of a reorganization plan
have not been met. Additionally, if the plan were to be materially modified
after a bankruptcy is filed, it is possible that a resolicitation of votes would
be necessary, and approval of the plan delayed. Finally, if a bankruptcy were
filed for the purpose of confirming a prepackaged plan and the plan was not
confirmed, or did not become effective, the bankruptcy proceeding would be
protracted and the risks of disruption to our business would be exacerbated.
Additionally, if the prepackaged plan were not confirmed by the court, and if
our exclusive period to file a plan expired, another party could propose a plan
involving a different reorganization or even a sale or liquidation of our
assets.
Uncertainties in Implementing Strategic Plan. There can be no assurance
that the strategic plan will be implemented in accordance with its terms, or
that if implemented the cost savings and efficiencies we anticipate will be
achieved. A number of our competitors have already completed construction of new
mills. If it takes too long to complete the new mill and the furnace project,
our customers may begin to rely on other suppliers. If this occurs, our
competitive position may be permanently and irretrievably undermined. Our Chief
Executive Officer, Frederick J. Rocchio, Jr., has previously played an
instrumental role in successful capital expansion and plant modernization
programs at two other steel companies. There can be no guarantee, however, that
he will be able to achieve the same results with our company.
Leverage. Assuming the exchange offer is successfully completed, we
will be highly leveraged with substantial debt service obligations, including
principal and interest obligations with respect to the new senior debt. In
addition, our ability to obtain additional debt financing will be limited by
restrictive covenants under the terms of our credit agreements and any other
debt instruments and those limits on financing may therefore limit our ability
to service its existing debt obligations through additional debt financing if
cash flow from operations is insufficient to service such obligations.
PROPOSAL 1
REVERSE STOCK SPLIT
GENERAL
The board of directors believes that it would be advisable and in our
best interest to amend our Second Amended and Restated Articles of Incorporation
to effect a one-for-ten reverse stock split of our common shares. The proposed
amendment would amend Article Five of our Second Amended and Restated Articles
of Incorporation as follows:
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Article FIVE of the Second Amended and Restated Articles of
Incorporation of the Corporation is hereby amended to include the
following text after the last paragraph thereof:
REVERSE SPLIT. Effective as of the close of business on the
date of filing this Amendment to the Second Amended and
Restated Articles of Incorporation (the "Effective Time"), the
filing of this Amendment shall effect a Reverse Split (the
"Reverse Split") pursuant to which each ten shares of Common
Stock, par value $0.01 per share, issued and outstanding and
held by a single holder, shall be combined into one validly
issued, fully paid and nonassessable share of Common Stock,
par value $0.01 per share. The number of authorized shares,
the number of shares of treasury stock and the par value of
the Common Stock shall not be affected by the Reverse Split.
Each stock certificate that prior to the Effective Time
represented shares of Common Stock shall, following the
Effective Time, represent the number of shares into which the
shares of Common Stock represented by such certificate shall
be combined. THE CORPORATION SHALL NOT ISSUE FRACTIONAL
SHARES OR SCRIP AS A RESULT OF THE REVERSE SPLIT, BUT SHALL
ARRANGE FOR THE DISPOSITION OF SHARES ON BEHALF OF THOSE
RECORD HOLDERS OF COMMON STOCK AT THE EFFECTIVE TIME WHO WOULD
OTHERWISE BE ENTITLED TO FRACTIONAL SHARES AS A RESULT OF THE
REVERSE SPLIT.
If the reverse stock split is approved by the shareholders, each ten
common shares outstanding on the effective date will be converted automatically
into one new common share, par value $0.01 per share. TO AVOID THE EXISTENCE OF
FRACTIONAL SHARES, SHAREHOLDERS WHO WOULD OTHERWISE BE ENTITLED TO RECEIVE
FRACTIONAL NEW COMMON SHARES WILL RECEIVE A CASH DISTRIBUTION IN LIEU THEREOF.
SEE "EXCHANGE OF STOCK CERTIFICATES" BELOW. The effective date of the reverse
stock split will be the date on which the amendment is filed with the Secretary
of State of Illinois, which is anticipated to be immediately following the
receipt of a guarantee under the Steel Guarantee Loan Act covering a sufficient
portion of the new senior debt. If the guarantee is not obtained or the board
believes that the reverse stock split is no longer in our and your best
interests, we will not file the amendment.
BACKGROUND OF AND REASONS FOR THE REVERSE STOCK SPLIT
Nasdaq Requirements. Our common shares are currently listed on the
Nasdaq National Market. Nasdaq's rules require that a security listed on the
Nasdaq National Market trade at a price of at least $1.00 per share. Since June
23, 1999, our common shares have consistently traded at a price of less than
$1.00 per share, which Nasdaq has informed us will result in our common shares
being delisted from trading on the Nasdaq National Market unless we can
demonstrate to Nasdaq that our common shares can regain and maintain compliance
with the rules of the Nasdaq National Market. Our board believes that if, in
combination with the execution of the strategic plan, we decrease the number of
outstanding common shares, without altering the proportionate economic interests
held by individual shareholders, the trading price of our common shares will
increase to a price which meets the requirements of the Nasdaq rules and is more
appropriate for an exchange-listed security.
While the board believes the reverse stock split is necessary to
maintain our compliance with Nasdaq listing requirements, we cannot assure you
that the market price of our common shares will go up in proportion to the
reduction in the number of outstanding shares resulting from the reverse stock
split or that we will be able to maintain any increase in market price for any
period of time.
Enhance Marketability of Our Common Shares. If we increase the market
price of our common shares, the marketability of our common shares may be
enhanced.
The current share price of our common shares may limit its
marketability for the following reasons:
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- many brokerage firms and institutional investors are reluctant
to recommend lower-priced stocks to their clients or to hold
them in their own portfolios;
- the securities industry has in place certain policies and
practices that tend to discourage individual brokers from
dealing in lower-priced stocks, for example, policies and
practices involving time-consuming procedures that make the
handling of lower-priced stocks economically unattractive; and
- the brokerage commission on a sale of lower-priced stock may
represent a higher percentage of the sale price than the
brokerage commission on a sale of higher-priced stock.
Although any increase in the market price of our common shares
resulting from the reverse stock split may be proportionately less than the
decrease in the number of shares outstanding, the reverse stock split may result
in a market price that would be high enough to overcome the reluctance, policies
and practices of brokerage houses and investors referred to above and to
diminish the adverse impact of correspondingly high trading commissions on the
market for the shares. While the board believes we can enhance the marketability
of our common shares by effecting the reverse stock split, we cannot assure you
that this result will occur or that liquidity will not be affected adversely by
the reduced number of shares outstanding after the reverse stock split.
EFFECT OF THE REVERSE STOCK SPLIT
If you approve the reverse stock split and we secure a guarantee for
the new senior debt under the Steel Guarantee Loan Act, we will file an
amendment to our charter with the Secretary of State of Illinois on a date,
which is anticipated to be immediately following the receipt of a guarantee
under the Steel Guarantee Loan Act covering a sufficient portion of the new
senior debt. The reverse stock split will become effective as of 5:00 p.m. on
that date. Without any further action on our part or your part, each common
share held by shareholders of record as of that date will be converted into the
right to receive one-tenth of a common share. The common shares that we will
issue in connection with the reverse stock split will be fully paid and
nonassessable.
WE WILL NOT ISSUE FRACTIONAL SHARES IN CONNECTION WITH THE REVERSE
STOCK SPLIT. IF YOU ARE ENTITLED TO RECEIVE A FRACTIONAL SHARE, YOU WILL RECEIVE
CASH INSTEAD. IF YOU HOLD LESS THAN TEN SHARES BEFORE THE REVERSE STOCK SPLIT,
YOU WILL NOT BE A SHAREHOLDER AFTER THE REVERSE STOCK SPLIT. WE WILL ISSUE TO
OUR TRANSFER AGENT, EQUISERVE, WHO WILL ALSO ACT AS OUR EXCHANGE AGENT,
CERTIFICATES EVIDENCING ALL OF THE FRACTIONAL SHARES THAT WE WOULD OTHERWISE BE
REQUIRED TO ISSUE IN CONNECTION WITH THE REVERSE STOCK SPLIT, ROUNDED, IF
NECESSARY, TO THE NEXT HIGHER WHOLE SHARE, AS AGENT FOR THE ACCOUNTS OF ALL
HOLDERS OF SHARES OTHERWISE ENTITLED TO RECEIVE A FRACTIONAL SHARE. THE EXCHANGE
AGENT WILL SELL THE CERTIFICATES AS SOON AS PRACTICABLE AT PRICES BASED ON THE
PREVAILING MARKET PRICES OF OUR COMMON SHARES ON NASDAQ AT THE TIME OF SALE. THE
TRANSFER AGENT WILL THEN PAY TO SHAREHOLDERS ENTITLED TO RECEIVE A FRACTIONAL
SHARE THEIR PRO RATA SHARE OF THE NET PROCEEDS DERIVED FROM THE SALE OF THE
CERTIFICATES REPRESENTING ALL OF THE FRACTIONAL SHARES.
The reverse stock split will not:
- reduce the authorized number of common shares;
- affect your percentage ownership interest or proportional
voting power, EXCEPT FOR MINOR DIFFERENCES IF YOU RECEIVE
CASH INSTEAD OF A FRACTIONAL SHARE; or
- substantially affect your voting rights or other privileges,
unless you hold less than ten common shares before the reverse
stock split; or
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- result in a reduction in the number of shareholders large
enough to jeopardize continued listing of our common shares on
Nasdaq.
Pursuant to the terms of our employee and director stock and option
plans, we will reduce proportionately the total number of shares that we have
reserved for grants and options granted or to be granted under these plans, and
we will increase proportionately the cash consideration payable per share upon
exercise of the options pursuant to these plans.
The following table shows the principal effects of the reverse stock
split if the split were accomplished as of the record date:
BEFORE REVERSE AFTER
NUMBER OF COMMON SHARES: STOCK SPLIT REVERSE
STOCK SPLIT
Authorized.................................................................. 75,000,000 75,000,000
Outstanding on record date.................................................. 24,484,823 2,448,482
Outstanding after completion of Exchange Offer.............................. 81,616,133 8,161,613
Reserved for issuance upon exercise of options granted or to be granted
under our employee and director stock and option plans (including
the new 2000 Stock Incentive Plan).................................... 9,068,453 906,845
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after we file the amendment to our charter, we
will send you a letter of transmittal for use in exchanging the certificates
representing your common shares for new certificates representing your new
common shares. In the letter, we will instruct you on, among other things, how
and when to deliver the certificates to the exchange agent. You should not send
the certificates representing your common shares to the exchange agent until you
receive the letter of transmittal. Once the exchange agent receives your
properly completed and executed letter of transmittal and the certificates
representing your common shares, the exchange agent will send you new
certificates representing your new common shares and, if you are entitled to a
fractional share, a check representing your pro rata share of the net proceeds
from the sale by the exchange agent of the certificates representing all of the
fractional common shares. The exchange agent will not issue any new certificates
to you until you have delivered to it all of your old certificates together with
a properly completed and executed letter of transmittal.
Until the exchange agent receives the certificates representing your
common shares, we will deem those certificates for all purposes to represent the
number of whole common shares to which you are entitled as a result of the
reverse stock split. If you do not send the certificates representing your
shares to the exchange agent with a properly completed and executed letter of
transmittal, we will exchange the certificates representing your common shares
for a new certificate representing the appropriate number of common shares the
first time you present the old certificates to us for transfer.
We will pay all expenses related to the exchange of certificates.
FEDERAL INCOME TAX CONSEQUENCES
Below we have summarized the material anticipated Federal income tax
consequences of the reverse stock split. We are providing this summary only for
your general information and we do not intend for this summary to serve as tax
advice to any person or entity. We based this summary on the Federal income tax
laws now in effect and as currently interpreted. We did not take into account
possible changes in those laws or interpretations, some of which may have
retroactive effect. We did not address all aspects of the possible Federal
income tax consequences of the reverse stock split. In particular, we did not
consider the Federal income tax consequences to shareholders in light
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of individual investment circumstances or to shareholders subject to special
treatment under the Federal income tax laws. Nor do we discuss any consequence
of the reverse stock split under any state, local or foreign tax laws. We will
not obtain any ruling from the Internal Revenue Service or any opinion of
counsel regarding the Federal income tax consequences to you as a result of the
reverse stock split. Accordingly, each of you is encouraged to consult your tax
adviser regarding the specific tax consequences of the reverse stock split to
you, including the application and effect of state, local and foreign income and
other tax laws.
We believe that the reverse stock split should be a "tax-free
recapitalization" to us and you. If the reverse stock split qualifies as a
recapitalizaiton described in section 368(a)(1)(E) of the Code:
- no gain or loss will be recognized by you if you exchange your
common shares for new common shares, PROVIDED, HOWEVER, THAT
IF YOU RECEIVE CASH PROCEEDS FROM THE SALE OF FRACTIONAL
SHARES, YOU WILL RECOGNIZE GAIN TO THE EXTENT THAT THE AMOUNT
OF CASH PROCEEDS YOU RECEIVE EXCEEDS YOUR TAX BASIS IN THE
COMMON STOCK YOU EXCHANGE FOR CASH. SUCH GAIN WILL BE TAXED
EITHER AS A DIVIDEND OR AS A CAPITAL GAIN;
- the tax basis of the new common shares you receive will be the
same as the tax basis of the shares that you exchange,
decreased by the amount of cash proceeds you receive and
increased by the amount of such proceeds that are taxable to
you; and
- your holding period for the new common shares will include
your holding period for the shares that you exchanged,
provided that those shares were held as a capital asset
immediately prior to the exchange.
EFFECT OF FAILURE TO OBTAIN SHAREHOLDER APPROVAL
In the event that shareholder approval is not obtained, we will be
unable to proceed with the exchange offer and therefore unable to obtain the new
senior debt and thereby finance the completion of the new mill. In addition, if
the shareholders do not approve the reverse stock split we will be delisted from
the Nasdaq National Market unless market conditions significantly change so that
our share price returns to compliance with the marketplace rules.
BOARD OF DIRECTORS RECOMMENDATION
The board has determined that the reverse stock split is in our best
interests and the best interests of our shareholders, has approved the proposed
amendment and recommends that our shareholders vote "FOR" the proposal.
PROPOSAL 2
ISSUANCE OF SHARES IN CONNECTION
WITH THE PROPOSED SENIOR NOTE EXCHANGE
GENERAL
Because of competitive conditions in our industry and the age of our
facilities, we believe that we need to materially enhance our production
facilities and restructure our operations and debt service requirements to
remain competitive. As discussed below, our management team has prepared a
strategic plan to address these challenges. One of the steps in the strategic
plan described below is already in place, since the United Steel Workers of
America have ratified the new collective bargaining agreement.
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In order to realize the benefits of the new collective bargaining agreement
(which has already been ratified by the United Steel Workers of America) and
proceed with the restructuring, we must refinance the 9 1/2% senior notes due
2001 so that we can secure the financing needed for our new structural mill. To
refinance the senior notes, we negotiated the terms of the exchange offer
described in this proxy statement with an informal committee of substantial
holders of the senior notes. As of OCTOBER 11, 1999, the members of the informal
committee owned approximately 73% of the senior notes. Committee members holding
approximately 73% of the senior notes held by members of the committee have
agreed to support the exchange offer and tender their notes.
If the exchange offer is approved by a sufficient number of the senior
note holders and all the other conditions to the exchange are satisfied, we will
be required to issue up to 57,131,310 common shares (on a pre stock split basis)
to the senior note holders. We need your authorization to issue these common
shares in order to refinance the senior notes. If the senior notes are not
refinanced, it is unlikely that we will be able to proceed with the
restructuring, and we may not have funds available to pay off the amount due on
the senior notes in June 2001.
STRATEGIC PLAN
To address the challenges we face, we have developed and begun to
implement a strategic plan designed to reposition our product line, modernize
our production facilities, lower our operating costs and result in a business
that is capable of sustaining our proposed capital structure. In November 1998,
we hired Frederick J. Rocchio, Jr. as President and Chief Executive Officer to
lead the continued development and implementation of the strategic plan. Prior
to becoming our Chief Executive Officer, Mr. Rocchio was instrumental in guiding
Birmingham Steel and Inland Steel through capital expansion and plan
modernization programs and in implementing a successful maintenance program at
Inland Steel.
The strategic plan consists of the following key components:
- repositioning our product line by focusing on light to medium
structural products to capitalize on higher margin products in
our core geographic market;
- improving our cost structure through a $130 million plant
modernization plan that includes: (i) constructing a new,
cost-efficient structural mill to replace existing capacity
and (ii) installing a new single electric arc furnace to
replace two existing electric arc furnaces;
- increasing our labor productivity through a new collective
bargaining agreement with the USWA; and
- implementing certain management initiatives, including (i) a
new safety plan, (ii) a structured maintenance plan, and (iii)
a total quality management ("TQM") system.
The key theme of the strategic plan is to be a low-cost producer in our
core and chosen markets by modernizing facilities and improving operating
efficiency. The strategic plan does not rely on capacity increases or
incremental sales to achieve its goals. Management estimates that the improved
quality and production efficiency expected to result from the strategic plan
will translate into significant net annual cost savings.
Product Line. The first key component of our strategic plan is the
repositioning of our product line, which began in 1997 when we ceased production
of heavy wide flange beams by closing our Houston facility. In the fall of 1998,
we decided to devote our resources to light to medium structural products,
merchant bars and wire rods. Consequently, we ceased production of our
agricultural, nail and lawn and garden wire product lines last year, and in
April 1999, we sold our concrete reinforcing mesh plant in Hickman, Kentucky.
All of these actions were intended to better position our products in our core
Midwestern geographic market and to improve our cash position, thereby helping
to fund our plant modernization plan.
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We intend to continue to emphasize production of light to medium
structural products for customers in our core geographic market in the Midwest.
These products are used primarily in low-rise, non-residential construction,
which we believe is less cyclical than the industries (such as high-rise office
construction) that use heavier structural products. We believe that we have a
strong competitive position in this market, due in part to our ability to offer
customers a full line of these products. Our location also gives us significant
freight cost advantages over most of our significant competitors for customers
located in the Midwest.
New Structural Mill Project. The primary objective of the new
structural mill project is to construct a new, more efficient, low cost mill
designed to produce the light to medium structural products that we intend to
emphasize. The new mill facility will be constructed in the open bay at the
Company's existing 24" mill and will replace our existing 14" and 24" mills. The
new mill will have an anticipated annual production level of approximately
810,000 tons and is designed to roll both 14" and 24" product with minimal
change-over time between the products. Construction of the new structural mill
is expected to take approximately 16 months, but will not begin until
construction financing is in place. We also expect the new structural mill to
show improvements in yield and throughput related to the more efficient modern
equipment. We expect the new structural mill to result in cost benefits through
substantial reductions in manpower. Management expects reduction in
semi-finished stock keeping units from 8 to 4 resulting in significant
reductions of both unfinished and finished inventories.
Furnace Project. The goals of the furnace project, which management
anticipates completing by January of 2000, are to install a single electric arc
furnace with the capacity to produce 1.7 million liquid steel tons and to
decommission two existing operational furnaces. Benefits of the furnace project
include significantly reduced energy consumption, reduction in manpower and
improved yield. The installation of the new furnace will reduce tap to tap time
in the melt shop from approximately 3 hours for each of the existing two
furnaces to 100 minutes for the new single furnace, thereby significantly
reducing energy costs. The new furnace also will have eccentric bottom tapping,
which should improve steel cleanliness and quality. Management also expect the
furnace project to result in a significant reduction of inventory for
semi-finished steel.
New Collective Bargaining Agreement. On February 19, 1999, our board of
directors approved a new negotiated labor agreement with the United Steel
Workers. This agreement was ratified on March 22, 1999, by the United Steel
Workers Local 63 membership, which covers approximately 1,200 of our employees.
The new agreement is subject to our securing the financing necessary
for the new mill project. See "Financing Plan" for a discussion on our effort to
obtain the financing for the new structural mill project. Once effective, the
new agreement will replace the existing labor agreement and will extend to
October 31, 2003 and for a period of three additional years thereafter be
subject to interest arbitration with no permitted work stoppage allowed. The
agreement provides significant manpower utilization methods that will enable us
to staff and schedule our operations more efficiently. The new agreement
anticipates gradually reducing the number of employees by 400 by the time the
new mill is operational. It also includes annual wage increases with additional
increases if we meet certain financial performance targets.
Cost. We currently estimate that implementing the plant modernization
plan will cost approximately $130 million. Depending on various factors, of
course, this amount could increase. For example, we could experience
construction, start-up or operational difficulties as we implement the plant
modernization plan. Further, there can be no assurance that we will be able to
operate the new mill at optimal capacity or that the modifications to the
electric furnace melt shop will be successfully completed, started-up and
integrated with our remaining melt shop operations. The cost of the plant
modernization plan includes the furnace project which is currently underway and
it is estimated will cost $10.5 million.
Management Initiatives and Focus. The fourth key component of our
strategic plan consists of our management initiatives, including our new safety
plan, a new structured maintenance system and a TQM system. The goal of the new
safety plan is to reduce injury rates and position us in the upper quartile of
American Iron and Steel Institute
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reporting companies by the end of fiscal 2000. The structured maintenance system
is designed to improve our current plant and equipment maintenance and will be
installed and facilitated by Fluor-Daniel, a leader in the maintenance field.
The structured maintenance plan has significant cost reduction potential,
including more efficient utilization of our maintenance work force, reductions
in overtime, increases in production throughput associated with reductions in
unplanned outages, and reduced spending for spare parts. The TQM system is
intended to make our operations more efficient through strategic planning,
benchmarking, eliminating waste, employee, customer and supplier surveys,
continued improvement in all facets of the business and enhancing our
partnership with the USWA.
We believe that implementation of the strategic plan will allow us to
defend our existing market position and give us an opportunity to return to
profitability. Upon completion of the strategic plan, we believe that we will
have a strategically focused product mix that will allow us to fully capitalize
on our freight cost advantage in our core geographic market in the Midwest. Our
focus on our Midwestern geographic market and the resultant freight cost
advantages also will help to insulate us from new, low cost capacity being added
in the Southeastern U.S. Moreover, management believes that, upon completion of
the New Mill we will be able to compete effectively with any potential capacity
increases in our core market in the Midwest.
We do not believe that our current cost structure allows us to compete
effectively in this environment. We also have significant future debt service
obligations, consisting primarily of the senior notes that mature in June 2001,
and significant unfunded employee benefit obligations. Although we believe that
we will have sufficient liquidity to meet our financial obligations as they
become due for the current fiscal year, we will not have funds available to pay
the senior notes at maturity unless there are significant improvements in the
credit markets or the import situation.
Financing Plan. Earlier this year, with the assistance of our financial
advisors, we developed a financial plan to secure the capital necessary to
implement the strategic plan. This financial plan consists of three components:
- a new revolving credit facility;
- the new senior debt; and
- the proposed exchange of the senior notes.
Satisfaction of all conditions to the closing of the new senior debt is a
condition to the completion of the exchange. It is anticipated that satisfaction
of all conditions to the closing of the exchange will be a condition to the
closing of the new senior debt. Execution of all three components of the
financial plan is crucial to the successful implementation of the strategic
plan.
We have entered into a $65 million senior secured revolving credit
facility with Fleet Capital Corporation and a syndicate of other lenders, which
facility includes a letter of credit sub-facility in an amount of $25 million.
We will be able to draw down this facility only to the extent of the value of
our "Borrowing Base." Borrowing Base is defined in the Agreement as the sum of
(i) 85% of certain accounts receivable, (ii) 65% of the lower of cost or market
value of eligible raw materials and finished goods inventory, and (iii) 25% of
eligible supplies and rolling stock.
We intend to apply for a guarantee under the Steel Loan Guarantee Act
that would allow us to raise approximately $170 million in new senior debt to
finance the construction of the new structural mill. While the terms of the
senior debt have not yet been finalized, we currently anticipate that the
financing will be in the form of a senior secured term loan with a final
maturity of December 31, 2005. If we are unable to obtain a guarantee in an
acceptable amount upon acceptable terms, we do not believe we will be able to
finance the new mill.
A condition to the closing of the new senior debt will be that we have
received all approvals necessary in order for 85% of the funds extended as part
of the new senior debt to be guaranteed by the federal government pursuant to
the Steel Loan Guarantee Act of 1999.
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The Steel Loan Guarantee Act. Motivated by concern that the U.S. steel
industry had been unfairly harmed by a flood of imports, in August of 1999
Congress passed the Steel Loan Guarantee Act. The president signed the Act
shortly thereafter and it is now in effect. The Steel Loan Guarantee Act
provides that a qualified steel company can apply to the Loan Guarantee Board
for a guarantee of up to 85% of the principal amount of a loan made to the steel
company by a private bank or investment company. The Loan Guarantee Board may
issue a guarantee if it determines, among other things, that
- the company experienced layoffs, production losses or
financial losses as a result of increased imports,
- credit is not otherwise available to the company under
reasonable terms or conditions sufficient to meet its
financing needs,
- the prospective earning power of the company along with the
value of security pledged provides reasonable assurance to the
Loan Guarantee Board that the loan will be repaid, and
- the loan to be guaranteed bears an interest rate deemed
reasonable by the Loan Guarantee Board.
The aggregate amount of loans guaranteed under the program established by the
Steel Loan Guarantee Act at any one time may not exceed $1 billion and the
aggregate amount of loans guaranteed and outstanding to any one qualified
applicant may not exceed $250 million.
We currently intend to apply for a government guarantee for 85% of the new
senior debt. While we believe that we are a prime candidate for a guarantee
under the Steel Loan Guarantee Act, we cannot be assured that we will be awarded
a guarantee.
EFFECTS OF FAILURE TO OBTAIN SHAREHOLDER APPROVAL
In the event that shareholder approval is not obtained, we will be unable
to secure the new senior debt without which we will be unable to complete the
strategic plan including the modernization and construction of the new mill. If
we are unable to implement the strategic plan, we will not have funds available
to pay the senior notes at maturity in June 2001, unless there are significant
improvements in the credit markets or the import situation, and therefore will
have to consider other alternatives, including a bankruptcy that would not
involve a prenegotiated or "prepackaged" plan.
EXCHANGE OFFER
We have proposed an exchange of cash and common shares for the $115
million in outstanding principal of our 9 1/2% Senior notes due June 2001. If
the exchange is consummated in accordance with the terms of the exchange offer
we have proposed, we will
- pay to senior note holders in the aggregate $52.5 million;
- issue to senior note holders in the aggregate common shares
equal to 70% of our outstanding common shares immediately
after the consummation of the exchange offer;
- cause four (4) of our seven (7) directors to be individuals
selected by the holders of the senior notes; and
- implement a new employee incentive plan which together with
existing plans will be allocated up to 10% of the outstanding
common shares after the exchange offer is completed.
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We may implement the exchange either by completing the exchange outside
of bankruptcy or by proceeding in bankruptcy with a prepackaged plan of
reorganization that provides for the senior notes to be exchanged for the same
consideration as in the exchange offer. If we obtain a guarantee under the Steel
Guarantee Loan Act, receive the approval of the holders of our common shares for
the reverse stock split, the issuance of the common shares in the exchange and
the adoption of the 2000 Stock Incentive Plan, procure the tender from holders
of 95% of the senior notes pursuant to the terms of the exchange offer, and all
other conditions to the exchanges are satisfied, then we will consummate the
exchange outside of bankruptcy. If we obtain a guarantee, the approval of the
holders of our common shares for the reverse stock split, the issuance of the
shares in the exchange and the adoption of the 2000 Stock Incentive Plan, and
procure tenders from holders of at least two-thirds of the principal amount and
more than one-half in number of the senior notes that vote on the exchange, we
may implement the exchange through a prepackaged bankruptcy filing. As of the
date of this proxy statement, holders of 50.3% of the senior notes have agreed
in principle with our proposal. In approving the matters described in this proxy
statement for which your vote is solicited, including the issuance of common
shares in connection with the exchange offer, we are also asking that you agree
that these matters, including the issuance of common shares, may, if necessary,
be effected as part of a prepackaged bankruptcy plan of reorganization.
DESCRIPTION OF THE OFFER
We have agreed to exchange each $1,000 principal amount of senior notes
for:
- $456.52 in cash; and
- 496.794 common shares (based on our present capital structure)
There is currently $115 million outstanding in principal amount of the
senior notes. Accrued interest is due and payable on the 15th of every December
and June. We expect to pay all accrued interest on the senior notes due through
the effective date of the exchange.
The terms of the exchange offer are the product of negotiations with an
informal committee of substantial holders of the senior notes. The members of
the informal committee own approximately 69% of the principal amount of the
senior notes, and committee members holding approximately 73% of the principal
amount of the senior notes held by members of the committee have agreed to
support the exchange offer and tender their notes pursuant to the offer.
If the exchange offer is consummated for 100% of the senior notes on
the terms in our proposed offer, our pre-and post-exchange common share
capitalization (based on the number of pre-stock split common shares outstanding
on the record date), will be as follows:
SENIOR NOTE HOLDERS OTHER SHAREHOLDERS TOTAL
------------------- ------------------ -----------------
Pre-exchange NA 24,484,823 shares (100%) 24,484,823 shares (100%)
Post-exchange 57,131,310 shares (70%) 24,484,823 shares (30%) 81,616,133 shares (100%)
Assuming that the shareholders approve the reverse stock split, the
reverse stock split will precede the issuance of common shares pursuant to the
exchange. Accordingly, if no additional shares are issued between the record
date and the date the exchange is consummated, then 5,713,131 shares will be
issued if 100% of the senior notes are tendered and there will be a total of
8,161,613 common shares outstanding.
In connection with the proposed exchange offer, we have agreed to limit
the number of common shares that can be issued pursuant to incentive
compensation plans to the employees, directors and officers to 10% of the common
shares outstanding after the exchange offer is completed (on a fully diluted
basis). As of the record date, there were 1,434,153 shares subject to options
outstanding. We have adopted a new plan (the 2000 Incentive Stock
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Plan for which we are seeking shareholder approval - see "Proposal 3") which
provides for an additional 9,068,453 common shares to be made available for
grant less, on any given date, that number of common shares that are subject to
options which have been granted pursuant to our existing plans and outstanding
on such date and that number of common shares acquired upon the exercise of an
option granted pursuant to our existing plans, which exercise was subsequent to
the date of adoption of the new plan.
In connection with the proposed exchange, we are also soliciting the
consent of the holders of senior notes to certain amendments to the indenture
for the senior notes. These amendments would eliminate substantially all of the
restrictive covenants and many of the events of default in the indenture. If
record holders of at least a majority in aggregate principal amount of the
senior notes consent to the proposed amendments, we will, together with the
trustee for the indenture, execute an amended and restated indenture that
reflects the proposed amendments which will become effective if we complete the
exchange outside of bankruptcy.
CONDITIONS TO OFFER
Conditions to completion of the exchange offer outside of bankruptcy
include, among other things:
- the valid tender of at least 95% of the principal amount of
the senior notes;
- we shall have been granted a guarantee under the Steel Loan
Guarantee Act on terms and conditions acceptable to us, in our
sole discretion, and all conditions (other than the closing of
the exchange offer) to the closing of the new senior debt to
finance the new mill project shall have been satisfied;
- the resignation of four of our directors and appointment to
our board of four persons designated by the holders of a
majority of principle amount of senior notes held by the
members of the unofficial committee of senior note holders;
- approval by our shareholders of the amendment to our articles
of incorporation to effectuate the reverse stock split, the
issuance of common stock for the exchange offer and the
adoption of the 2000 Stock Incentive Plan; and
- the absence of any legal proceedings that challenge or
otherwise adversely affect the exchange offer.
We cannot waive the conditions relating to the appointment of new
directors or shareholder approval. We must obtain the consent of supporting
committee members holding at least a majority of the principal amount of the
senior notes held by them to waive the 95% tender requirements. All other
conditions may be waived by us in our sole discretion.
CONSIDERATIONS OF THE BOARD OF DIRECTORS
The board of directors believes that the exchange is fair and in the
best interests of our shareholders because, as discussed under "General" and
"Strategic Plan" above, and as set forth below, our ability to continue as a
viable competitor in the steel industry requires implementation of our strategic
plan which will require us to obtain the new senior debt financing and to
implement the new collective bargaining agreement which cannot occur until we
have retired the senior notes through the exchange offer. Additionally, the
proposed terms of the exchange offer are the result of careful negotiations with
an informal committee of the holders of the senior notes.
In reaching its decision to approve an exchange offer, the board
consulted with our senior management and our financial and legal advisers and
considered many factors, including but not limited to, those listed above and
the following:
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- confidence in our ability to achieve projected savings and
efficiencies if the strategic plan is implemented;
- the belief that we can meet the debt service requirements
created by consummation of the strategic plan and its
accompanying financing plan;
- the current economic and competitive operating environment and
concerns that without implementing the exchange offer and
strategic plan we will not be able to continue to compete in
the steel industry; and
- the opportunity presented for our shareholders, based on
expectations that implementation of the strategic plan will
offer greater potential for profits and growth and future
increase in shareholder value than we currently have.
After due consideration over many meetings, and asking questions of our
management and legal and financial advisers, the board decided that the
strategic plan, and the exchange offer in the context of the strategic plan, was
in our best interests and the best interests of our shareholders. The foregoing
discussion of the information and factors considered by the board in determining
that the exchange offer is fair and in the best interests of the shareholders is
not intended to be exhaustive, but is believed to include the material factors
the board considered in connection with its evaluation of the exchange offer. In
view of the wide variety of factors considered and the complexity of such
matters, the board did not attempt to quantify, rank or otherwise assign
relative weights to the specific factors it considered in reaching its decision.
DESCRIPTION OF NORTHWESTERN STEEL AND WIRE COMPANY'S CAPITAL STOCK
Our authorized capital stock consists of 75,000,000 common shares, par
value $0.01 per share and 1,000,000 preferred shares, par value $1.00 per share.
Common Stock. As of the record date, there were 24,484,823 common
shares issued and outstanding. Shareholders are entitled to one vote per share
on all matters requiring shareholder action. Shareholders participate ratably in
liquidation, subject to the payment to the holders of any outstanding class of
preferred stock of the preferential amounts to which they are entitled.
Dividends on the common shares may be declared and paid only out of
surplus or net profits legally available for the payment of dividends. We have
not paid cash dividends during the past two fiscal years and do not presently
anticipate paying any cash dividends in the future. Our existing credit facility
precludes the payment of cash dividends.
Preferred Stock. We are authorized to issue 1,000,000 shares of
preferred stock, which may be issued from time to time in one or more series,
each such series to have such distinctive designation or title as may be fixed
by the board of directors prior to the issuance of any shares thereof. Each
series may differ from each other series already outstanding as may be declared
from time to time by the board of directors in the following respects: (i) the
rate of dividend; (ii) the amount per share, if any, which the preferred stock
shall be entitled to receive upon redemption, liquidation, distribution or sale
of assets, dissolution or winding up of Northwestern Steel and Wire Company;
(iii) terms and conditions of conversions, if any; and (iv) terms of sinking
fund, redemption or purchase account, if any. As of the record date, we had no
preferred stock outstanding.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information is
based on the historical financial statements of the Company as of July 31, 1999
and for the year ended July 31, 1999, adjusted to give effect to the new credit
facility which we entered into on October 5, 1999, and the proposed exchange
which are referred to as the "Pro Forma Adjustments". The exchange is contingent
upon several conditions, which are more fully described
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elsewhere in this proxy statement, including achieving an acceptable level of
tenders from the holders of the senior notes and on obtaining acceptable
financing for the new mill project.
The unaudited pro forma consolidated statement of operations for the
year ended July 31, 1999 gives effect to the Pro Forma Adjustments as if they
each had occurred at the beginning of that period. The unaudited pro forma
consolidated balance sheet as of July 31, 1999 gives effect to the Pro Forma
Adjustments as if they each had occurred on that date. The Pro Forma Adjustments
are described in the accompanying notes.
The unaudited pro forma consolidated financial information does not
purport to represent what our results of operations would actually have been had
the Pro Forma Adjustments in fact occurred on such date or to project our
results of operations for any future period. The unaudited pro forma financial
information should be read in conjunction with the consolidated financial
statements contained in the Company's Form 10-K for the year ended 1999 which
financial statements are incorporated by reference into this proxy statement.
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NORTHWESTERN STEEL AND WIRE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
BALANCE SHEET
AS OF JULY 31, 1999
(in thousands, except share data)
PRO FORMA ADJUSTMENTS
------------------------
INCREASE/(DECREASE)
REVOLVING
CREDIT
HISTORICAL FACILITY EXCHANGE PRO FORMA
ASSETS ---------- --------- -------- ---------
CURRENT ASSETS:
Cash and cash equivalents $39,415 $(19,600)A $ 33,576 C $ --
(52,500)C
(891)E
Receivables, less allowances of $420 29,585 29,585
Inventories 51,485 51,485
Income tax receivable 4,806 4,806
Deferred income taxes -- --
Other assets 3,967 3,967
-------- -------- -------- --------
Total current assets 129,258 (20,491) (18,924) 89,843
PLANT AND EQUIPMENT, at cost, less accumulated
depreciation of $173,175 122,012 122,012
RESTRICTED CASH 2,060 2,060
DEFERRED INCOME TAXES 47,585 (8,949)F 38,636
DEFERRED FINANCING COSTS 869 (869)D 891
891 E
OTHER ASSETS 16,625 16,625
-------- -------- -------- --------
Total assets $318,409 $(19,600) $(28,742) $270,067
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PRO FORMA ADJUSTMENTS
------------------------
INCREASE/(DECREASE)
REVOLVING
CREDIT
HISTORICAL FACILITY EXCHANGE PRO FORMA
ASSETS ---------- --------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 17,482 $ 17,482
Accrued expenses 27,064 27,064
Current portion of long term debt 20,209 $(19,600)A $ 33,576C 34,185
-------- -------- --------- --------
Total current liabilities 64,755 (19,600) 33,576 78,731
LONG TERM DEBT 115,628 (115,000)C 813
185 B
OTHER LONG TERM LIABILITIES 91,200 91,200
-------- -------- --------- --------
271,583 (19,600) (81,239) 170,744
-------- -------- --------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $1 per share:
Authorized - 1,000,000 shares; Issued - none
Common stock, par value $.01 per share:
Authorized - 75,000,000 shares; Issued - 24,905,424 shares
(82,036,734 shares on a pro forma basis) 123,973 16,500 C 140,473
Retained (deficit) (71,822) (185)B (35,825)
46,000 C
(869)D
(8,949)F
Treasury shares, at cost; 420,601 shares (5,325) (5,325)
-------- -------- --------- --------
Total shareholders' equity 46,826 52,497 99,323
-------- -------- --------- --------
Total liabilities and shareholders' equity $318,409 $(19,600) $ (28,742) $270,067
======== ======== ========= ========
A To reflect the repayment of our existing revolving credit borrowings in
connection with the Company entering into a new $65,000 credit facility
with Fleet Financial which was effective on October 5, 1999.
B To reflect the remaining unamortized discount associated with the
senior notes.
C To reflect the execution of the exchange; including the payment of
$52,500 in cash, increased borrowings under our new revolving credit
facility (33,576), the extinguishment of the senior notes (115,000),
the estimated fair value of the newly issued common stock representing
70% of the outstanding common stock (16,500), and the estimated gain on
troubled debt restructuring (46,000). The estimated fair value of the
newly issued common stock is subject to finalization of the exchange
and the related valuation of such stock.
D To reflect the write-off of deferred financing costs associated with
the Senior notes.
E To record the payment of deferred financing costs associated with the
new revolving credit facility.
F To record the tax impacts of the Pro Forma Adjustments. The tax impact
related to the gain on troubled debt restructuring was based on an
estimated tax gain due to the cancellation of debt of approximately
$24,000. After consummation of the exchange, the remaining deferred tax
asset will include net operating losses, the utilization of which will
be limited by application of Section 382 due to the change of control.
At that point the Company will reassess the realizability of its net
deferred tax asset.
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\
NORTHWESTERN STEEL AND WIRE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
(in thousands, except share data)
PRO FORMA ADJUSTMENTS
---------------------
INCREASE/(DECREASE)
HISTORICAL EXCHANGE F PRO FORMA
---------- ---------- ---------
Net sales $349,345 $349,345
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 337,013 337,013
Depreciation 14,476 14,476
Selling and administrative 11,350 11,350
Non-recurring items 46,291 46,291
-------- -------- --------
Total cost and operating expenses 409,130 409,130
-------- -------- --------
Operating loss (59,785) (59,785)
-------- -------- --------
Other income and expenses:
Interest expense 12,846 $(12,726)A 3,163
3,043 B
Interest and other income (1,327) 1,288 C (39)
-------- -------- --------
Total other income and expenses 11,519 $ (8,395) 3,124
-------- -------- --------
Loss income before income taxes (71,304) (62,909)
Benefit for income taxes (25,957) 3,274 D (22,683)
-------- -------- --------
Net loss $(45,347) $ 5,121 $(40,226)
======== ======== ========
Net loss per share $ (1.85) $ (0.49)E
======== ========
A To reflect the reduction of interest expense associated with the senior
notes.
B To reflect interest expense for borrowings under the new revolving
credit facility.
C To reflect the reduction in interest income related to excess cash used
in the exchange.
D To record the tax impacts of the Pro Forma Adjustments utilizing a 39%
effective rate.
E Pro forma net loss per share was computed based on 81,616,133 shares
assumed outstanding after consummation of the exchange. We intend to
effect a reverse stock split prior to the completion of the exchange
that would reduce the number of shares outstanding. This reverse stock
split has not been reflected in the historical or pro forma net loss
per share amounts.
F The unaudited pro forma consolidated statement of operations does not
include non-recurring items related to the exchange; including the
write-off of deferred financing costs associated with the senior notes;
the write-off of the remaining unamortized discount associated with the
senior notes, the estimated gain on troubled debt restructuring, and
the related income tax impacts of these exchange related adjustments.
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RECOMMENDATION OF THE BOARD
The board has determined that the issuance of shares in connection with
the exchange is in our best interests and the best interests of our
shareholders, has approved the issuance and recommends that our shareholders
vote "FOR" the proposal.
PROPOSAL 3
ADOPTION OF THE NORTHWESTERN STEEL AND WIRE COMPANY
2000 STOCK INCENTIVE PLAN
BACKGROUND
Effective November 18, 1999, we adopted the 2000 Stock Incentive Plan.
Our officers, employees, directors, consultants and advisors are eligible to
participate in this plan. The purpose of this is to attract and retain persons
eligible to participate in the plan, motivate participants to achieve our
long-term goals and further align the interest of participants with those of our
stockholders through compensation that is directly linked to the profitability
of our business and increases in stockholder value. There are 9,068,453 common
shares, subject to adjustment for stock splits and similar transactions,
available for issuance under the plan which number shall be reduced, on any
given date, by the number of common shares that are subject to options which
have been granted pursuant to our existing stock option plans and are
outstanding on such date and by the number of common shares acquired upon the
exercise of options granted pursuant to our existing plans, which exercise was
subsequent to the date of adoption of the new plan.
Assuming the shareholders adopt this proposal, if options for 9,068,453
shares of common stock available under the plan were issued, such shares would
constitute 10% of the issued and outstanding common stock after the consummation
of the exchange. 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 an incentive stock plan 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 our executive officers have recently retired
and the board of directors believes it to be in our best interests 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 Northwestern Steel and Wire Company; (ii) the ability to fashion attractive
incentive awards based upon our performance and the price of our common stock;
and (iii) better alignment of the interests of officers, employees, directors
and consultants with the interests of our shareholders. In adopting the plan,
the board of directors noted that many other companies have adopted equity plans
to compensate their officers, employees, directors 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 2000 Stock
Incentive Plan effective as of November 18, 1999, subject to stockholder
approval. The purpose of the plan is to promote the overall financial objectives
of Northwestern Steel and Wire Company and its shareholders by motivating the
persons selected to participate in the plan to achieve long-term growth in our
shareholder equity and by retaining the association of those individuals who
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are instrumental in achieving this growth. The plan is currently administered by
the compensation committee of the board of directors.
The plan provides for the award of up to 9,068,453 common shares,
subject to adjustment for stock splits and similar transactions, for issuance
under the plan which number shall be reduced, on any given date, for each common
share subject to option which is granted pursuant to one of our existing stock
option plans and outstanding on such date or exercised on or before such date.
No more than [250,000-400,000] shares of Common Stock reserved under the plan
may be granted to any participant during any fiscal year. The plans major
provisions include:
Stock Options may be either "incentive stock options" (within the
meaning of Section 422 of the Code) or nonstatutory options. The exercise price
per share purchasable under an option shall be determined at the time of grant
by the compensation committee. Participants will be given up to ten years in
which to exercise their stock option, or a shorter period for vested options
once a participant 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 our 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 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 compensation committee in the absence of a related stock option)
multiplied by (ii) the number of shares to which the stock appreciation right
relates. The right to exercise a stock appreciation right may be conditioned
upon the completion of a period of service or other conditions. stock
appreciation rights shall be exercisable at such time and to the extent the
related stock option is exercisable (or, as determined by the compensation
committee in the absence of a related stock option), or for a shorter period
once a participant terminates employment.
Other Stock Awards may be directly issued under the plan (without any
intervening options), subject to such terms, conditions, performance
requirements, restrictions, forfeiture provisions, contingencies and limitations
as the compensation committee shall determine. Stock awards may be issued which
are fully and immediately vested upon issuance or which vest in one or more
installments over the participant's period of employment or other service to the
Northwestern Steel and Wire Company or upon the attainment of specified
performance objectives, or we may issue stock awards which entitle the
participant to receive a specified number of vested shares of common stock upon
the attainment of one or more performance goals or service requirements
established by the compensation committee. Amendments and Modifications. The
Plan, as adopted, is not limited as to its duration. The board of directors may
amend, alter, or discontinue the plan, subject to certain limits.
Change in Control. In the event of a change in control (as defined in
the Plan):
- any stock options and stock appreciation rights outstanding on the
date the change in control occurs which is not exercisable and
vested shall be fully exercisable and vested;
- the restrictions on any outstanding stock award shall lapse, and
the stock relating to such award shall be free of all restrictions
and be fully vested and transferable;
- all outstanding repurchase rights with respect to any outstanding
awards shall terminate;
- if there is any agreement of merger or reorganization effecting a
change in control, outstanding awards may be subject to that
agreement in the following ways:
(i) the awards may be continued if we are a surviving
corporation;
(ii) the outstanding awards may be assumed by the surviving
corporation or its parent or subsidiary;
(iii) the outstanding awards may be substituted for equivalent
awards by the surviving corporation or its parent or
subsidiary; or
(iv) each share of stock subject to an outstanding award may be
exchanged for the change in control price (as defined in the
plan) less, to the extent applicable, the per share exercise
price.
- if the agreement of merger or reorganization effectuating the
change in control does not provide for the disposition of awards or
there is no agreement effectuating the change in control, then each
share of stock subject to an outstanding award will be settled for
the change in control price less, to the extent applicable, the per
share exercise price, or if the per share exercise price is greater
than the change in control price, the outstanding award shall
terminate and be canceled.
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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
ISOs, referred to herein as "NQSOs". There are generally no federal income tax
consequences either to the option holder or to us upon the grant of a stock
option. On exercise of an ISO, the option holder will not recognize any income
and we 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 tax 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 we 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, we 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
us. 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 us.
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Stock Appreciation Rights - Upon the grant of stock appreciation rights, the
participant will not recognize any taxable income and we will not be entitled to
a deduction. Upon the exercise of a stock appreciation right, the consideration
paid to the participant upon exercise of the stock appreciation right 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 the stock appreciation right for common shares, the fair market
value of the shares on the date of exercise is used. We, 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 common shares 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 common 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. We 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 our common shares 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 common
shares or other property becomes transferable or not subject to a substantial
risk of forfeiture, whichever occurs earlier. We 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 common shares or other property
rather than upon lapse of restrictions on transferability 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 common 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 common shares or other restricted property.
Section 162(m) of the Code - Section 162(m) to the tax code generally
disallows a public company's tax deduction for compensation to certain 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.
We intend that options, stock appreciation rights 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 other stock awards granted under the
plan to employees whom the compensation committee expects to be named officers
at the time a deduction arises in connection with such awards, qualify as
"performance-based compensation." Such awards will qualify as "performance based
compensation" if the plan is approved by the shareholders. 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 our board of directors in
recommending the plan for shareholder approval is to secure corporate tax
deductions under Section 162(m) while preserving the flexibility to approve,
when appropriate, compensation arrangements which the compensation committee
deems in our best interest and our shareholders, but which may not always
qualify for tax deductibility under Section 162(m) or other sections of the tax
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 tax code,
depending upon the amount of such payments accruing and the other income of the
participant from Northwester Steel and Wire Company, the participant may be
subject to an excise tax (in addition to ordinary income tax) and we may be
disallowed a deduction for the amount of the actual payment.
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BOARD OF DIRECTORS RECOMMENDATION
The board has determined that the adoption of 2000 Stock Incentive Plan
is in our best interests and the best interests of our shareholders and
recommends that our shareholders vote "FOR" the proposal.
PROPOSAL 4
PREPACKAGED BANKRUPTCY PLAN
If necessary -- that is, if we do not receive a sufficient number of
tenders from holders of our senior notes to effect the exchange outside of
bankruptcy but we do receive acceptances from holders of over 1/2 in number and
at least 2/3 in amount of our notes that are actually voted -- we may seek to
complete our exchange offer through a "pre-packaged" (pre-solicited)
reorganization plan under chapter 11 (the reorganization chapter) of the
Bankruptcy Code. In that event we may file a bankruptcy case, but we would
anticipate that the duration of any such filing would be very brief and would be
undertaken solely for the purpose of completing our exchange offer.
The reorganization plan will provide the same treatment to our
shareholders and to the holders of our notes as will be provided if the exchange
occurs outside of bankruptcy (and as described in this proxy statement), except
that in a bankruptcy plan 100% of the senior notes would be exchanged for the
cash and stock consideration described herein; that is, there would be no senior
notes left outstanding, even if less than 100% of the senior notes were voted in
favor of the plan. All payments under the plan, including the exchange
transaction costs, professional fees and bankruptcy expenses (which could
approximate $8 million in the aggregate), will be funded through cash on hand,
the new senior debt and our revolving credit facility. The plan will divide our
creditors into classes and provide for their treatment. All classes of
creditors, other than the holders of senior notes, will remain unimpaired by the
plan, in that their legal, equitable and contractual rights will not be
adversely affected. Thus, the only creditor votes being solicited are those of
our senior note holders. Likewise our contracts will remain in place and will be
assumed as part of the plan, and our existing customer and supplier
relationships, as well as our employee relationships, will not be modified.
Other relevant terms are described elsewhere in this proxy statement, including
the appointment of bondholder representatives to our board of directors; a
reverse stock split; the senior financing for which a government guarantee will
be sought; and the stock incentive plan. Finally, the plan will permit holders
of senior notes who have consented to the exchange (and to the reorganization
plan) to withdraw their consent if the plan has not become effective within 75
days after we have been notified by the federal government that our application
for a guarantee under the Steel Loan Guarantee Act has been approved. If it
becomes necessary to implement our exchange through a prepackaged bankruptcy, we
believe it likely that court approval of our plan would occur in the second
calendar quarter of 2000, or at the end of the first calendar quarter. A copy of
the proposed plan is attached hereto as Exhibit B.
We believe that the prepackaged plan, if necessary to effect the
exchange, will satisfy the requirements of the bankruptcy code, including the
requirement that holders of claims or equity interests whose rights are affected
by the plan receive at least as much under the plan as they would receive in a
straight liquidation. In such a hypothetical liquidation, we believe that the
holders of our senior notes would recover no more than about 25% of their claims
and that our equity holders would therefore receive nothing. For the reasons set
forth elsewhere herein, we also believe that our strategic plan, if implemented,
will enhance our competitive position and help ensure our future viability,
thereby making any further financial reorganization unlikely. For further
information or a copy of the exchange documents, including additional valuation
information, please contact Thomas M. Vercillo, our Vice President - Finance,
at (815) 625-2500.
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BOARD OF DIRECTORS RECOMMENDATION
The board has determined that the approval of the prepackaged
bankruptcy plan, if it is necessary in order to conclude the exchange and
implement the strategic plan, is in our best interests and the best interests of
our shareholders and recommends that our shareholders vote "FOR" the proposal.
PROPOSAL 5
ELECTION OF DIRECTORS
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
- ------------------------------ --- ------------------------
William F. Andrews (1)(2) 68 1994
Frederick J. Rocchio, Jr. (2) 52 1998
Darius W. Gaskins, Jr. (3)(4) 60 1994
Thomas A. Gildehaus (1) 59 1997
David L. Gore (1)(3) 61 1997
James A. Kohlberg (4) 41 1992
Christopher Lacovara (2)(3)(4) 35 1992
- ------------------
(1) Member of Audit Committee.
(2) Member of Executive Committee.
(3) Member of Pension Committee.
(4) Member of Compensation Committee.
William F. Andrews has been Chairman of Northwestern Steel and Wire
Company since November 1998 and is Chairman of Scovill Fasteners, Inc., a
designer, manufacturer and distributor of apparel fasteners and specialty
industrial fasteners. From 1995 to 1998 Mr. Andrews was also Chairman of
Schrader-Bridgeport International Inc., a manufacturer of tire valves and
pressure control devices. From 1993 to 1995, Mr. Andrews was Chairman, Chief
Executive Officer, and President of Amdura Corporation, a manufacturer of
hardware and industrial equipment. Mr. Andrews is also a Director of Black Box
Corporation, Dayton Superior Corp., Johnson Controls, Inc., Katy Industries,
Navistar, Inc. and Trex Corporation.
Frederick J. Rocchio, Jr. has been the President and Chief Executive
Officer since November 1998 and a Director since December 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
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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.
Darius W. Gaskins, Jr. has been a Partner of Norbridge (formerly
CFG&W), a management consulting firm, since 1993, and a Partner of High Street
Associates, Inc., an investment partnership, since 1991. From 1994 to 1995, Mr.
Gaskins was Chairman of Leaseway Transportation Corporation, a distribution
services provider. Mr. Gaskins is also a Director of Anacomp, Inc., and Sapient
Corporation.
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 wireless communication 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 United
Steelworkers of America (the "Union").
James A. Kohlberg has been Managing Partner of Kohlberg since 1994 and
Co-Managing Partner from 1987 to 1994.
Christopher Lacovara has been a Principal of Kohlberg since 1995 and an
associate of Kohlberg from 1988 to 1994 and is a director of Holley Performance
Products, Inc.
Pursuant to the Company's current 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.
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.
EFFECT OF EXCHANGE OFFER ON EXISTING BOARD
If the exchange offer is approved and consummated, the former holders
of the senior notes will have the right to appoint four members to the board of
directors. It is expected that Messrs. Andrews, Gaskins, Gildehaus and Kohlberg
shall resign from the board and that the remaining directors will appoint James
N. Chapman, James Dondero, Michael E. Lewitt and Frank E. Williams, Jr. on
behalf of the former senior note holders.
James N. Chapman has been involved in the investment banking industry
since 1984. Mr. Chapman is the Vice President of Investment Banking for The
Renco Group, Inc., a private equity manager in New York. For Renco, Mr. Chapman
was responsible for, among other things, arranging approximately $1.1 billion of
high yield financings for Renco portfolio companies between 1996 and 1998. Prior
to joining Renco, Mr. Chapman was a founding Principal of Fieldstone Private
Capital Group where he headed the Corporate Finance & High Yield Finance Groups
from ______ until ______. While at Fieldstone, Mr. Chapman originated and
structured approximately $1.9 billion of new issues in the high yield and equity
markets, as well as numerous private placements. Prior to founding Fieldstone,
Mr. Chapman worked for Bankers Trust Company as a Managing
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Director in the capital markets area, principally involved in private and public
high yield securities as well as increasing rate notes and bridge financings.
James Dondero has been President and Chief Investment Officer of
Highland Capital since March 1993. Formerly, Mr. Dondero served as the President
of Strand Advisors, Inc. from April 1993 through July 1997 and Chief Investment
Officer of Protective Life's GIC subsidiary from December 1989 to April 1993.
His portfolio management experience includes mortgage-backed securities,
leverage bank loans, emerging markets, derivatives, preferred stocks and common
stock.
Michael E. Lewitt has been Executive Vice President and General Counsel
of Harch Capital Management, Inc. since __________. Mr. Lewitt serves as an
analyst and portfolio manager for fixed income and equity funds and separate
accounts managed by Harch Capital. In addition, Mr. Lewitt has substantial
experience and knowledge of the legal, tax and financial issues involved in
complex corporate transactions and corporate securities, and extensive
experience in negotiating the structure of such transactions and terms of such
securities. Mr. Lewitt is a member of the New York State Bar. Mr. Lewitt serves
on the Board of Directors of Premier Holdings, Ltd., the holding company of
Premier Cruise Lines.
Frank E. Williams, Jr. has been the Chairman of the Board of Directors
and Chief Executive Officer of Williams and Beasley, a steel construction
company, since 1994 and Chairman of the Board of Directors of William
Enterprises of Georgia, Inc., a steel fabrication and construction company,
since 1967. Between 1960 and 1994, Mr. Williams was the founder, Chairman of the
Board of Directors, President and CEO of Williams Industries, Inc.
BOARD OF DIRECTORS RECOMMENDATION
The board has nominated Messrs. Andrews, Rocchio, Gaskins, Gildehaus
Gore, Kohlberg and Lacovara for election to the board, and recommends that our
shareholders vote "FOR" all of the nominees.
DIRECTORS
DIRECTOR MEETINGS AND COMMITTEES
The board of directors held eight meetings during the fiscal year ended
July 31, 1999, and each director, other than Mr. Kohlberg, 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 our
operations and reports to the board of directors. The audit committee oversees
actions taken by our independent auditors, recommends the engagement of auditors
and reviews our financial policies. The compensation committee approves the
compensation of our executives, makes recommendations to the board of directors
with respect to standards for setting compensation levels and administers our
incentive plans. The pension committee administers our pension plans. During the
fiscal ended year July 31, 1999, the compensation committee met two times, the
audit committee met two times and the executive committee and pension committee
conferred on a number of occasions informally.
DIRECTOR COMPENSATION
Pursuant to our Director Stock Option Plan, directors who are not
employees of Northwestern Steel and Wire Company or affiliates of KNSW
Acquisition Company, L.P. ("KNSW"), receive 2,500 Options on an annual basis
during their tenure as directors and are paid a quarterly fee of $5,000. During
the fiscal year ended July 31, 1999, Messrs. Andrews, Frazier, Gaskins,
Gildehaus and Gore each received 2,500 options to purchase shares of Common
Stock at $0.90625 per share. In addition, the compensation committee approved an
annual payment of $50,000 to Mr. Andrews for his contributions and efforts as
Chairman of the Board.
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MANAGEMENT
Set forth below is a table identifying the executive officers of the
Company.
Name Age Position
- -------------------------- --------- ---------------------------------
William F. Andrews 68 Chairman of the Board
Frederick J. Rocchio, Jr. 52 Chief Executive Officer and President
Daniel J. Brisson 41 Vice President -- Quality and Planning
Christopher R. Fiora 42 Vice President/General Manager -- Primary
Operations
Andrew R. Moore 46 Vice President -- Human Resources
Louis Pisani 47 Vice President/General Manager --
Structural Operations
Michael S. Venie 51 Senior Vice President -- Sales and Marketing
Thomas M. Vercillo 44 Vice President -- Finance, Chief Financial Officer,
Secretary and Treasurer
William F. Andrews has been Chairman of Northwestern Steel and Wire
Company since November 1998 and is Chairman of Scovill Fasteners, Inc., a
designer, manufacturer and distributor of apparel fasteners and specialty
industrial fasteners. From 1995 to 1998 Mr. Andrews was also Chairman of
Schrader-Bridgeport International Inc., a manufacturer of tire valves and
pressure control devices. From 1993 to 1995, Mr. Andrews was Chairman, Chief
Executive Officer, and President of Amdura Corporation, a manufacturer of
hardware and industrial equipment. Mr. Andrews is also a Director of Black Box
Corporation, Dayton Superior Corp., Johnson Controls, Inc., Katy Industries,
Navistar, Inc. and Trex Corporation.
Frederick J. Rocchio, Jr., has been the President and Chief Executive
Officer since November 1998 and a Director since December 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.
Daniel J. Brisson has been Vice President - Quality and Planning since
October 1999. Prior to this he was Vice President of Quality and Development
since March 1999. From 1996 to March 1999, Mr. Brisson was Caster Manager and
Division Quality Manager at Birmingham Steel Company. From 1980 to 1996, he held
various management positions at Inland Steel Company.
Christopher R. Fiora has been Vice President/General Manager - Primary
Operations since October 1999. Prior to this he was General Manager of Primary
Operations since July 1999. From 1996 to July 1999 he was Plant Manager for
Birmingham Steel, Inc. From 1990 to 1996 he was Superintendent Slab Caster and
Processing at WCI, Steel, Inc.
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.
Louis L. Pisani has been Vice President/General Manager - Structural
Operations since October 1999. Prior to this he was Vice President of
Engineering and Maintenance since April 1999. From 1994 to 1998, Mr. Pisani
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held the positions of Manager, Construction Coordination and Manager, Material
Handling Services at Ispat Inland and Birmingham Steel Company.
Michael S. Venie has been Senior Vice President - Sales and Marketing
since January 1999. Prior to this he was 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 M. Vercillo has been Vice President - Finance since May 1999. He
has also been Chief Financial Officer, Secretary and Treasurer since August
1998. Prior to his current position he was Corporate Controller. 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
1999. 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 1999 had he stayed through the
end of the fiscal year (such six individuals, the "Named Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
FISCAL # OPTION ALL OTHER
NAME AND TITLE YEAR SALARY BONUS(1) AWARDS COMPENSATION
- -------------- ---- ------ -------- ------ ------------
Frederick J. Rocchio .................... 1999 $262,503 $ 63,125 400,000 $102,766(2)
President and Chief Executive Officer
(since November 18, 1998)
Thomas A. Gildehaus(3) .................. 1999 $131,253 -- -- $114,418(4)
Chairman of the Board and 1998 $390,000 $400,900 500,000 $ 7,086
Chief Executive Officer 1997 $116,750 -- 500,000
(until November 9, 1999)
Richard D. Way(5) ....................... 1999 $145,559 -- -- $ 64,855(6)
Executive Vice President-- 1998 $275,000 $200,450 80,000 --
Administration 1997 $270,125 -- -- $ 6,475
(until January 1, 1999)
Michael S. Venie ........................ 1999 $182,504 $ 8,800 70,000 --
Senior Vice President-- 1998 $169,375 $104,234 60,000 $ 1,693
Sales and Marketing 1997 $165,000 -- -- $ 4,650
Birchel S. Brown(7) ..................... 1999 $171,998 -- 75,000 --
Vice President, 1998 $146,121 $120,270 23,000 $ 17,412
Sterling Steel Operations 1997 $ 38,920 -- -- $ 50,000
Thomas M. Vercillo ...................... 1999 $123,075 $ 3,900 52,000 --
Vice President, Chief Financial Officer 1998 $109,615 $ 77,540 18,500 --
Secretary and Treasurer 1997 $106,000 -- -- --
Andrew R. Moore ......................... 1999 $122,504 $ 2,200 50,000 --
Vice President-- Human 1998 $108,749 $ 80,180 23,500 --
Resources 1997 $ 95,516 $ 10,000 -- --
- ------------------
(1) All of the fiscal 1999 bonuses were accrued in fiscal 1999 and paid in
fiscal 2000.
(2) Includes $2,766 relocation expenses and $100,000 one time signing bonus.
(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) Includes $8,046 for supplemental life and $106,372 for payout of
Supplemental Executive Retirement Plan.
(5) Mr. Way was named President and Chief Operating Officer in September 1996
and retired effective January 1, 1999.
(6) Supplemental Executive Retirement Plan payout.
(7) Mr. Brown resigned effective August 9, 1999.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(2)
---------------------------------------------------- ----------------------------------
5% 10%
------------ ---------- -------------- ----------- ---------------- ----------------
% OF TOTAL
NUMBER OF OPTIONS AGGREGATE AGGREGATE
OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION POTENTIAL POTENTIAL
NAME GRANTED(1) EMPLOYEES (PER SHARE) DATE REALIZABLE VALUE REALIZABLE VALUE
- -------------------------- ------------ ---------- -------------- ----------- ---------------- ----------------
Frederick J. Rocchio, Jr.. 400,000 42.0% $1.50 11/18/2003 $165,769 $366,306
Thomas A. Gildehaus(3).... 2,500 0.3% $0.90625 2/8/2009 $1,425 $3,611
Richard D. Way............ 0 0.0% - - $ - $ -
Michael S. Venie.......... 20,000 2.1% $1.94 9/24/2003 $10,720 $23,688
50,000 5.2% $1.078125 5/11/2009 $33,901 $85,913
Birchel S. Brown(4)....... 25,000 2.69% $1.94 11/9/1999 $2,425 $4,850
50,000 5.2% $1.078125 11/9/1999 $2,695 $5,391
Thomas M. Vercillo........ 12,000 1.3% $1.94 9/24/2003 $6,432 $14,213
40,000 4.2% 1.078125 5/11/2009 $27,121 $68,730
Andrew R. Moore........... 20,000 2.1% $1.94 9/24/2003 $10,720 $23,688
40,000 4.2% $1.078125 5/11/2009 $27,121 $68,730
- -----------------
(1) With the exception of shares granted to Mr. Gildehaus, 25% of the options
become vested and exercisable upon the grant date, September 24, 1998 and
May 11, 1999, respectively and 25% vest on each of the next three
anniversaries of that date, commencing one year after the date of grant,
subject to acceleration in the event of a "change in control" of the
Company (defined the same as in the agreements described below under the
heading "Change in Control Agreements"). All 2,500 shares granted to Mr.
Gildehaus became exercisable on August 18, 1999.
(2) Potential realizable value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts reflect certain assumed rates of appreciation set forth in
the Securities and Exchange Commission's execution compensation disclosure
rules. Actual gains, if any, on stock option exercises depend on future
performance of the Common Stock and overall market conditions.
(3) The grant of options to Mr. Gildehaus, who retired effective November 9,
1999 as CEO and President of the Company, were made pursuant to the 1998
Non-Employee Directors Stock Option Plan for his continuing contributions
as a director of the Company. These options have not been included in the
total number of options granted to employees for purposes of calculating
the percentage granted to each named officer.
(4) Mr. Brown resigned effective August 9, 1999 and pursuant to the option
plans such options expire 90 days from date of resignation.
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OPTION EXERCISES AND FISCAL YEAR END VALUES FOR THE YEAR ENDED JULY 31, 1998
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES VALUE OPTIONS/SARS AT MONEY OPTIONS/SARS AT FY-
ACQUIRED ON REALIZED FY-END (#) EXERCISABLE END ($) EXERCISABLE
NAME EXERCISE (#) ($) /UNEXERCISABLE /UNEXERCISABLE(1)
- -------------------------- ------------ ----------- ------------------------ ----------------------------
Frederick J. Rocchio, Jr.. 0 0 100,000/300,000 0/0
Thomas A. Gildehaus ...... 0 0 2,500/0 0/0
Richard D. Way ........... 0 0 37,500/0 0/0
Michael S. Venie ......... 0 0 47,500/82,500 0/0
Birchel S. Brown ......... 0 0 30,250/67,750 0/0
Thomas M. Vercillo ....... 0 0 62,250/48,250 0/0
Andrew R. Moore .......... 0 0 26,750/56,750 0/0
- -------------------
(1) The closing price of the common shares on July 31, 1999 was $0.813.
EMPLOYMENT AGREEMENTS
On October 22, 1998, we, upon the approval of our compensation
committee and the board, entered into an employment agreement with Frederick J.
Rocchio, Jr. in connection with his becoming employed by us as President and
Chief Executive Officer. At that time, we granted options to Mr. Rocchio as
described above under the heading "Options/SAR Grants in Last Fiscal Year". The
employment agreement provides for a minimum base salary of $350,000 per year,
participation in our annual short term incentive plan, with a guaranteed bonus
of $50,000 during the first fiscal year, and in our non-qualified Supplemental
Executive Retirement Plan, life insurance, disability income policy and other
typical benefit programs. The employment agreement also includes a $100,000
sign-on bonus and severance benefits in the event of termination for any reason
other than "for cause" equal to one year of base compensation if termination
occurs during the first year of employment and two years of base compensation
thereafter.
CHANGE IN CONTROL AGREEMENTS
We are party to agreements with Messrs. Rocchio, Moore, Vercillo,
Venie, Brisson and Pisani, and until their resignations were party to agreements
with Messrs. Way and Brown, which provide that in the event that we terminated
such executive's employment for a reason other than "cause" as defined in the
agreement or the executive quits his employment with us for "good reason" as
defined in the agreement, after a "change of control" of Northwestern Steel and
Wire 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, we 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 of control" of Northwestern
Steel and Wire Company occurs if (i) a person or entity becomes the beneficial
owner, directly or indirectly, of our securities representing 30% or
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more of the combined voting power of our then outstanding securities entitled to
vote in the election of our board of directors; (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 our assets are liquidated or
distributed.
We do not believe that the consummation of the exchange agreement or
the replacement of four of the existing members of the board will trigger a
change of control as it is defined in these agreements. In return for the
benefits provided by the agreements, 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).
PENSION PLAN
We maintain 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.
As of July 31, 1999 years of service for purposes of the plan with
respect to our officers named in the "Summary Compensation Table" are as
follows: Mr. Rocchio, 1 year; Mr. Venie, 4 years; Mr. Brown, 2 years; and Mr.
Vercillo, 14 years and Mr. Moore 20 years. Upon Mr. Way's resignation, he was
vested in the pension plan with 5 years of service. Mr. Gildehaus did not become
vested in the pension plan prior to his resignation and was therefore not
entitled to any benefits thereunder.
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.
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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR COVERED EXECUTIVES
Effective August 1, 1997, we adopted a Supplemental Executive
Retirement Plan for Covered Executives (the "Plan"). Participation in the Plan
is limited to key employees of the Company, designated by the compensation
committee of our board, 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) an amount 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 our 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.
As of July 31, 1999, the designated Plan participants consisted of
Frederick J. Rocchio, Jr. 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. A lump sum payment of $106,372, $64,855 and
$28,737 for Plan benefits was made to Thomas A. Gildehaus, Richard D. Way and
other covered executives, respectively, upon their retirement during the prior
fiscal year.
RULE 16(B) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our 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 us. Based solely upon a review of copies of such reports,
or written representations that no reports were required, we believe that all
filing requirements applicable to its executive officers, directors and 10%
shareholders were complied with by such persons.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
This Report outlines the Company's management compensation philosophy
and reviews the compensation decisions made in fiscal 1999 regarding Mr. Rocchio
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.
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- 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 1999
This section describes the criteria used by the Compensation Committee
regarding compensation decisions affecting Mr. Rocchio 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. Mr. Rocchio's compensation, including the award of 400,000
options, was 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 exclusively 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.
Long-Term Incentive Program
In an effort to further increase the alignment of interests between key
employees and shareholders, the 1998 Northwestern Steel and Wire Company
Employee Incentive Compensation Plan was approved at the Annual Meeting of
Shareholders on January 20, 1999. The following awards were made under the Plan
in fiscal 1999 to the Named Officers: an award of 70,000 options to Mr. Venie,
an award of 75,000 options to Mr. Brown, an award of 52,000 options to Mr.
Vercillo and an award of 50,000 options to Mr. Moore, each of which are
exercisable at the fair market value of the common shares on the date of the
grant ranging from $1.078 to $1.94 per share. 25% of the options vest on the
date of grant and the remaining options vest in 25% increments on each of the
first three anniversaries date of grant.
Compensation Committee Members as of July 31, 1999
James A. Kohlberg(1) Darius W. Gaskins, Jr. Christopher Lacovara
- ------------------
(1) Chairman of Compensation Committee
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PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100
invested on July 29, 1994 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
- ------------------------------------------------------------------------------------------------------
7/29/94 7/31/95 7/31/96 7/31/97 7/31/98 7/30/99
- ------------------------------------------------------------------------------------------------------
NORTHWESTERN STEEL & WIRE 100.00 108.11 55.41 20.95 31.76 8.78
- ------------------------------------------------------------------------------------------------------
S&P STEEL INDEX 100.00 83.52 66.40 90.54 68.36 70.74
- ------------------------------------------------------------------------------------------------------
S&P 400 INDEX 100.00 128.52 148.22 222.82 264.13 330.27
- ------------------------------------------------------------------------------------------------------
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding beneficial
ownership of common shares as of November 15, 1999, by each person or entity
known to us who owns of record or beneficially five percent or more of our
common shares, certain specifically named officers and directors and all
executive officers and directors 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 34.8 %
Dimensional Fund Advisors, Inc. (3) ........ 1,419,500 5.7 %
William F. Andrews ......................... 18,020 *
Birchel S. Brown (4) ....................... 0 *
Darius W. Gaskins, Jr ...................... 20,500 *
Thomas A. Gildehaus ........................ 15,000 *
David L. Gore .............................. 5,400 *
James A. Kohlberg (5) ...................... 8,687,000 34.8 %
Christopher Lacovara (5) ................... 8,687,000 34.8 %
Andrew R. Moore ............................ 48,024 0
Frederick J. Rocchio, Jr ................... 251,184 1.0 %
Michael S. Venie ........................... 67,500 *
Thomas M. Vercillo ......................... 73,638 *
Richard D. Way (6) ......................... 37,500 0
All executive officers and directors and
director nominee as a group
(15 persons)(5)........................... 9,253,766 37.8 %
- -----------------------
* Signifies less than 1%.
(1) Includes shares issuable pursuant to options which may be exercised within
60 days after November 15, 1999.
(2) KNSW owns directly 8,687,000 common shares. 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 common shares 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 filed February 11, 1999 with the Securities
Exchange Commission ("the Commission") by Dimensional Fund Advisors, Inc.
According to such Schedule 13G, DFA has sole voting power and sole
dispositive power over 1,419,500 shares. The address of Dimensional Fund
Advisors, Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(4) Mr. Brown resigned from the Company effective August 9, 1999 and is no
longer an officer of the Company.
(5) Includes the 8,687,000 common shares owned by KNSW. See Note 2.
(6) Mr. Way resigned from the Company effective January 1, 1999 and is no
longer an officer of the Company. The 37,500 shares subject to option will
expire on January 1, 2000.
INDEPENDENT ACCOUNTANTS
Our consolidated financial statements incorporated in this proxy
statement by reference to our Annual Report on Form 10-K for the year ended July
31, 1999, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their report, which is also incorporated herein by
reference. We anticipate that the representatives of PricewaterhouseCoopers LLP
will attend the meeting, may make a statement if they desire to do so and also
will be available to respond to appropriate questions.
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CERTAIN TRANSACTIONS
In August 1992, the Company underwent a reorganization which included
the sale of 8,687,000 shares of Common Stock to KNSW (the "1992 Investment"),
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.
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, 2000 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.
INCORPORATION BY REFERENCE
We are incorporating by reference into this proxy statement the
following sections of our Annual Report on Form 10-K for the year ended July 31,
1999:
Item 7 -- Management's Discussion and Analysis of Financial Condition
Item 8 -- Financial Statements and Supplemental Data
Our Annual Report on Form 10-K for the year ended July 31, 1999 has
been mailed to you concurrently with this proxy statement.
We are also incorporating by reference additional documents that we
file with the securities and exchange commission between the date of this proxy
statement and the date of the Annual Meeting of our shareholders.
By Order of the Board of Directors
Thomas M. Vercillo
Secretary
Sterling, Illinois
December ___, 1999
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EXHIBIT A
NORTHWESTERN STEEL AND WIRE COMPANY
2000 STOCK INCENTIVE PLAN
44
NORTHWESTERN STEEL AND WIRE COMPANY
2000 STOCK INCENTIVE PLAN
1. ESTABLISHMENT AND PURPOSE.
The Northwestern Steel and Wire Company 2000 Stock Incentive Plan (the "Plan")
is established by Northwestern Steel and Wire Company (the "Company") to attract
and retain persons eligible to participate in the Plan; motivate Participants to
achieve long-term Company goals; and further align Participants' interests with
those of the Company's other stockholders. The Plan is adopted as of November
18, 1999, subject to approval by the Company's stockholders within 12 months
after such adoption date.
Certain terms used herein are defined as set forth in SECTION 10.
2. ADMINISTRATION; ELIGIBILITY.
The Plan shall be administered by a Committee; provided, however, that, if at
any time no Committee shall be in office, the Plan shall be administered by the
Board. The Plan may be administered by different Committees with respect to
different groups of Eligible Individuals. As used herein, the term
"Administrator" means the Board or any of its Committees as shall be
administering the Plan.
The Administrator shall have plenary authority to grant Awards pursuant to the
terms of the Plan to Eligible Individuals. Participation shall be limited to
such persons as are selected by the Administrator. Awards may be granted as
alternatives to, in exchange or substitution for, or replacement of, awards
outstanding under the Plan or any other plan or arrangement of the Company or a
Subsidiary (including a plan or arrangement of a business or entity, all or a
portion of which is acquired by the Company or a Subsidiary). The provisions of
Awards need not be the same with respect to each Participant.
Among other things, the Administrator shall have the authority, subject to the
terms of the Plan:
(a) to select the Eligible Individuals to whom Awards may from time to
time be granted;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Stock Awards or any combination thereof are to
be granted hereunder;
(c) to determine the number of shares of Stock to be covered by each
Award granted hereunder;
(d) to approve forms of agreement for use under the Plan;
45
(e) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder (including, but
not limited to, the option price, any vesting restriction or
limitation, any vesting acceleration or forfeiture waiver and any
right of repurchase, right of first refusal or other transfer
restriction regarding any Award and the shares of Stock relating
thereto, based on such factors or criteria as the Administrator
shall determine);
(f) subject to SECTION 8(A), to modify, amend or adjust the terms and
conditions of any Award, at any time or from time to time,
including, but not limited to, with respect to (i) performance goals
and targets applicable to performance-based Awards pursuant to the
terms of the Plan and (ii) extension of the post-termination
exercisability period of Stock Options;
(g) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred;
(h) to determine the Fair Market Value; and
(i) to determine the type and amount of consideration to be received by
the Company for any Stock Award issued under SECTION 6.
The Administrator 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 relating thereto)
and to otherwise supervise the administration of the Plan.
Except to the extent prohibited by applicable law, the Administrator may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any portion of its responsibilities
and powers to any other person or persons selected by it. Any such allocation or
delegation may be revoked by the Administrator at any time. The Administrator
may authorize any one or more of their members or any officer of the Company to
execute and deliver documents on behalf of the Administrator.
Any determination made by the Administrator or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Administrator or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Administrator or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Participants.
No member of the Administrator, and no officer of the Company, shall be liable
for any action taken or omitted to be taken by such individual or by any other
member of the Administrator or
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officer of the Company in connection with the performance of duties under this
Plan, except for such individual's own willful misconduct or as expressly
provided by law.
3. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided in this SECTION 3, the aggregate number of
shares of Stock which may be delivered under the Plan shall not exceed 9,068,453
shares of stock, which number shall be reduced, on any given date, by the number
of common shares that are subject to options which have been granted pursuant to
our Existing Stock Option Plans and are outstanding on such date and by the
number of common shares acquired upon the exercise of options granted pursuant
to our Existing Stock Option Plans, which exercise was subsequent to date this
Plan was adopted.
To the extent any shares of Stock covered by an Award are not delivered to a
Participant or beneficiary thereof because the Award expires, is forfeited,
canceled or otherwise terminated, or the shares of Stock are not delivered
because the Award is settled in cash or used to satisfy the applicable tax
withholding obligation, such shares shall not be deemed to have been delivered
for purposes of determining the maximum number of shares of Stock available for
delivery under the Plan. If the exercise price of any Stock Option is satisfied
by tendering shares of Stock to the Company (by either actual delivery or by
attestation), only the number of shares of Stock issued, net of the shares of
Stock tendered, shall be deemed delivered for purposes of determining the
maximum number of shares of Stock available for delivery under the Plan. In the
event that shares of Stock issued under the Plan are reacquired by the Company
pursuant to any forfeiture provision, right of repurchase or right of first
refusal (or other similar right), such shares shall not be deemed to have been
delivered for purposes of determining the maximum number of shares of Stock
available for delivery under the Plan.
Subject to adjustment as provided in this SECTION 3, the maximum number of
shares that may be covered by Stock Options, Stock Appreciation Rights and Stock
Awards, in the aggregate, granted to any one Participant during any calendar
year shall be 400,000 shares.
In the event 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 share offering or other
event involving the Company and having an effect similar to any of the
foregoing, the Administrator may make such substitution or adjustments in the
(A) number and kind of shares that may be delivered under the Plan, (B)
additional maximums imposed in the immediately preceding paragraph, (C) number
and kind of shares subject to outstanding Awards, (D) exercise price of
outstanding Stock Options and Stock Appreciation Rights and (E) other
characteristics or terms of the Awards as it may determine appropriate in its
sole discretion to equitably reflect such corporate transaction, share offering
or other event; provided, however, that the number of shares subject to any
Award shall always be a whole number.
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4. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other Awards granted under
the Plan and may be of two types: Incentive Stock Options and Non-Qualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Administrator may from time to time approve.
The Administrator shall have the authority to grant any Participant Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). 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.
Stock Options shall be evidenced by option agreements, each in a form approved
by the Administrator. An option agreement shall indicate on its face whether it
is intended to be an agreement for an Incentive Stock Option or a Non-Qualified
Stock Option. The grant of a Stock Option shall occur as of the date the
Administrator determines.
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 Optionee affected, to disqualify any Incentive Stock Option under Section
422 of the Code.
Stock Options granted under this SECTION 4 shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Administrator shall deem desirable:
(a) Exercise Price. The exercise price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator. If
the Stock Option is intended to qualify as an Incentive Stock
Option, the exercise price per share shall be not less than the Fair
Market Value per share on the date the Stock Option is granted, or
if granted to an individual who is a Ten Percent Holder, not less
than 110% of such Fair Market Value per share.
(b) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Incentive Stock Option shall be exercisable
more than 10 years (or five years in the case of an individual who
is a Ten Percent Holder) after the date the Incentive Stock Option
is granted. No Option which is intended to be an Incentive Stock
Option shall be granted more than ten (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.
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(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times, and subject to such
terms and conditions, as shall be determined by the Administrator.
If the Administrator provides that any Stock Option is exercisable
only in installments, the Administrator may at any time waive such
installment exercise provisions, in whole or in part, based on such
factors as the Administrator may determine. In addition, the
Administrator may at any time, in whole or in part, accelerate the
exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this SECTION 4,
Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to the
Company specifying the number of shares of Stock subject to the
Stock Option to be purchased.
The option price of any Stock Option shall be paid in full in cash
(by certified or bank check or such other instrument as the Company
may accept) or, unless otherwise provided in the applicable option
agreement, by one or more of the following: (i) in the form of
unrestricted Stock already owned by the Optionee (or, in the case of
the exercise of a Non-Qualified Stock Option, Restricted Stock
subject to a Stock Award hereunder) based in any such instance on
the Fair Market Value of the Stock on the date the Stock Option is
exercised; (ii) by certifying ownership of shares of Stock owned by
the Optionee to the satisfaction of the Administrator for later
delivery to the Company as specified by the Company; (iii) by
irrevocably authorizing a third party to sell shares of Stock (or a
sufficient portion of the shares) acquired upon exercise of the
Stock Option and remit to the Company a sufficient portion of the
sale proceeds to pay the entire exercise price and any tax
withholding resulting from such exercise; or (iv) by any combination
of cash and/or any one or more of the methods specified in clauses
(i), (ii) and (iii). Notwithstanding the foregoing, a form of
payment shall not be permitted to the extent it would cause the
Company to recognize a compensation expense (or additional
compensation expense) with respect to the Stock Option for financial
reporting purposes.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock,
the number of shares of Stock to be received upon such exercise
equal to the number of shares of Restricted Stock used for payment
of the option exercise price shall be subject to the same forfeiture
restrictions to which such Restricted Stock was subject, unless
otherwise determined by the Administrator.
No shares of Stock shall be issued upon exercise of a Stock Option
until full payment therefor has been made. Upon exercise of a Stock
Option (or a portion thereof), the Company shall have a reasonable
time to issue the Stock for which the Stock Option has been
exercised, and the Optionee shall not be treated as a stockholder
for any purposes whatsoever prior to such issuance. No adjustment
shall
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be made for cash dividends or other rights for which the record date
is prior to the date such Stock is recorded as issued and
transferred in the Company's official stockholder records, except as
otherwise provided herein or in the applicable option agreement.
(e) Transferability of Stock Options. Except as otherwise provided in
the applicable option agreement, a Non-Qualified Stock Option (i)
shall be transferable by the Optionee to a Family Member of the
Optionee, provided that (A) any such transfer shall be by gift with
no consideration and (B) no subsequent transfer of such Stock Option
shall be permitted other than by will or the laws of descent and
distribution, and (ii) shall not otherwise be transferable except by
will or the laws of descent and distribution. An Incentive Stock
Option shall not be transferable except by will or the laws of
descent and distribution. A Stock Option shall be exercisable,
during the Optionee's lifetime, only by the Optionee or by the
guardian or legal representative of the Optionee, it being
understood that the terms "holder" and "Optionee" include the
guardian and legal representative of the Optionee named in the
applicable option agreement and any person to whom the Stock Option
is transferred (X) pursuant to the first sentence of this SECTION
4(E) or pursuant to the applicable option agreement or (Y) by will
or the laws of descent and distribution. Notwithstanding the
foregoing, references herein to the termination of an Optionee's
employment or provision of services shall mean the termination of
employment or provision of services of the person to whom the Stock
Option was originally granted.
(f) Termination by Death. Unless otherwise provided in the applicable
option agreement, if an Optionee's employment or provision of
services terminates by reason of death, any Stock Option held by
such Optionee may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Administrator may
determine, for a period of one year from the date of such death or
until the expiration of the stated term of such Stock Option,
whichever period is shorter. In the event of termination of
employment or provision of services due to death, 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.
(g) Termination by Reason of Disability. Unless otherwise provided in
the applicable option agreement, if an Optionee's employment or
provision of services terminates by reason of Disability, any Stock
Option held by such Optionee may thereafter be exercised by the
Optionee, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Administrator may
determine, for a period of three years from the date of such
termination of employment or provision of services or until the
expiration of the stated term of such Stock Option, whichever period
is shorter; provided, however, that if the Optionee dies within such
period, an unexercised Stock Option held by such Optionee shall,
notwithstanding the
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expiration of such period, continue to be exercisable to the extent
to which it was exercisable at the time of death for a period of 12
months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is shorter. In
the event of termination of employment or provision of services 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.
(h) Termination by Reason of Retirement. Unless otherwise provided in
the applicable option agreement, if an Optionee's employment or
provision of services terminates by reason of Retirement, any Stock
Option held by such Optionee may thereafter be exercised by the
Optionee, to the extent it was exercisable at the time of such
Retirement, or on such accelerated basis as the Administrator may
determine, for a period of three years from the date of such
termination of employment or provision of services or until the
expiration of the stated term of such Stock Option, whichever period
is shorter; provided, however, that if the Optionee dies within such
period, any unexercised Stock Option held by such Optionee shall,
notwithstanding the expiration of such period, continue to be
exercisable to the extent to which it was exercisable at the time of
death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment or
provision of services by reason of Retirement, 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.
(i) Other Termination. Unless otherwise provided in the applicable
option agreement, if an Optionee's employment or provision of
services terminates for any reason other than death, Disability or
Retirement, any Stock Option held by such Optionee shall thereupon
terminate; provided, however, that, if such termination of
employment or provision of services is involuntary on the part of
the Optionee and without Cause, such Stock Option, to the extent
then exercisable, or on such accelerated basis as the Administrator
may determine, may be exercised for the lesser of 90 days from the
date of such termination of employment or provision of services or
the remainder of such Stock Option's term, and provided, further,
that if the Optionee dies within such period, any unexercised Stock
Option held by such Optionee shall, notwithstanding the expiration
of such period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from
the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is shorter. In the event of
termination of employment or provision of services for any reason
other than death, Disability or Retirement, if an Incentive Stock
Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the
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Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(j) Participant Loans. The Administrator may in its discretion authorize
the Company to:
(i) lend to an Optionee an amount equal to such portion of the
exercise price of a Stock Option as the Administrator may
determine; or
(ii) guarantee a loan obtained by an Optionee from a third-party
for the purpose of tendering such exercise price.
The terms and conditions of any loan or guarantee, including the
term, interest rate, whether the loan is with recourse against the
Optionee and any security interest thereunder, shall be determined
by the Administrator, except that no extension of credit or
guarantee shall obligate the Company for an amount to exceed the
lesser of (i) the aggregate Fair Market Value on the date of
exercise, less the par value, of the shares of Stock to be purchased
upon the exercise of the Stock Option, and (ii) the amount permitted
under applicable laws or the regulations and rules of the Federal
Reserve Board and any other governmental agency having jurisdiction.
5. STOCK APPRECIATION RIGHTS.
Stock Appreciation Rights may be granted in conjunction with all or part of any
Stock Option granted under the Plan. 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 shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an Optionee in accordance with
this SECTION 5 by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Administrator. Upon such
exercise and surrender, the Optionee shall be entitled to receive an amount
determined in the manner prescribed in this SECTION 5. Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
Stock Appreciation Rights shall be subject to such terms and conditions as shall
be determined by the Administrator, including the following:
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(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to
which they relate are exercisable in accordance with the
provisions of SECTION 4 and this SECTION 5.
(ii) Upon the exercise of a Stock Appreciation Right, an Optionee
shall be entitled to receive an amount in cash, shares of
Stock or both equal in value to the excess of the Fair Market
Value of one share of Stock over the exercise price per share
specified in the related Stock Option, multiplied by the
number of shares in respect of which the Stock Appreciation
Right shall have been exercised, with the Administrator
having the right to determine the form of payment.
(iii) A Stock Appreciation Right shall be transferable only to, and
shall be exercisable only by, such persons permitted with
respect to the underlying Stock Option in accordance with
SECTION 4(E).
6. STOCK AWARDS OTHER THAN OPTIONS.
Stock Awards may be directly issued under the Plan (without any intervening
options), subject to such terms, conditions, performance requirements,
restrictions, forfeiture provisions, contingencies and limitations as the
Administrator shall determine. Stock Awards may be issued which are fully and
immediately vested upon issuance or which vest in one or more installments over
the Participant's period of employment or other service to the Company or upon
the attainment of specified performance objectives, or the Company may issue
Stock Awards which entitle the Participant to receive a specified number of
vested shares of Stock upon the attainment of one or more performance goals or
service requirements established by the Administrator.
Shares representing a Stock Award shall be evidenced in such manner as the
Administrator may deem appropriate, including book-entry registration or
issuance of one or more certificates (which may bear appropriate legends
referring to the terms, conditions and restrictions applicable to such Award).
The Administrator may require that any such certificates be held in custody by
the Company until any restrictions thereon shall have lapsed and that the
Participant deliver a stock power, endorsed in blank, relating to the Stock
covered by such Award.
A Stock Award may be issued in exchange for any consideration which the
Administrator may deem appropriate in each individual instance, including,
without limitation:
(i) cash or cash equivalents;
(ii) past services rendered to the Company or any Affiliate; or
(iii) future services to be rendered to the Company or any
Affiliate (provided that, in such case, the par value of the
stock subject to such Stock Award
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shall be paid in cash or cash equivalents, unless the
Administrator provides otherwise).
A Stock Award that is subject to restrictions on transfer and/or forfeiture
provisions may be referred to as an award of "Restricted Stock" or "Restricted
Stock Units."
7. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding
as of the date such Change in Control is determined to have
occurred and not then exercisable and vested shall become
fully exercisable and vested to the full extent of the
original grant;
(ii) The restrictions applicable to any outstanding Stock Award
shall lapse, and the Stock relating to such Award shall
become free of all restrictions and become fully vested and
transferable to the full extent of the original grant;
(iii) All outstanding repurchase rights of the Company with respect
to any outstanding Awards shall terminate; and
(iv) Outstanding Awards shall be subject to any agreement of
merger or reorganization that effects such Change in Control,
which agreement shall provide for:
(a) The continuation of the outstanding Awards by the
Company, if the Company is a surviving corporation;
(b) The assumption of the outstanding awards by the
surviving corporation or its parent or subsidiary;
(c) The substitution by the surviving corporation or its
parent or subsidiary of equivalent awards for the
outstanding Awards; or
(d) Settlement of each share of Stock subject to an
outstanding Award for the Change in Control Price (less,
to the extent applicable, the per share exercise price).
(v) In the absence of any agreement of merger or reorganization
effecting such Change in Control, each share of Stock subject
to an outstanding Award
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54
shall be settled for the Change in Control Price (less, to
the extent applicable, the per share exercise price), or if
the per share exercise price equals or exceeds the Change in
Control Price, the outstanding Award shall terminate and be
canceled.
(b) Definition of Change in Control. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if:
(i) 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;
(ii) 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 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;
(iii) the stockholders of the Company approve a plan of liquidation
of the Company; or
(iv) 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.
(c) Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (i) the highest reported sales
price, regular way, of a share of Stock in any transaction reported
on the New York Stock Exchange Composite Tape or other national
securities exchange on which such shares are listed or on Nasdaq, as
applicable, during the 60-day period prior to and including the date
of a Change in Control, and (ii) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the
highest price per share of Stock
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paid in such tender or exchange offer or Corporate Transaction. To
the extent that the consideration paid in any such 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 Board.
8. MISCELLANEOUS.
(a) Amendment. The Board may amend, alter, or discontinue the Plan, but
no amendment, alteration or discontinuation shall be made which
would adversely affect the rights of a Participant under an Award
theretofore granted without the Participant's consent, except such
an amendment (i) made to avoid an expense charge to the Company or
an Affiliate, or (ii) made to permit the Company or an Affiliate a
deduction under the Code. No such amendment shall be made without
the approval of the Company's stockholders to the extent such
approval is required by law, agreement or the rules of any stock
exchange or market on which the Stock is listed.
The Administrator may amend the terms of any Stock Option or other
Award theretofore granted, prospectively or retroactively, but no
such amendment shall adversely affect the rights of the holder
thereof without the holder's consent.
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
Administrator 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.
(b) Unfunded Status of Plan. It is intended that this Plan be an
"unfunded" plan for incentive and deferred compensation. The
Administrator may authorize the creation of trusts or other
arrangements to meet the obligations created under this Plan to
deliver Common Stock or make payments, provided that, unless the
Administrator otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of this
Plan.
(c) General Provisions.
(i) The Administrator 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
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which the Administrator deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stock
transfer orders and other restrictions as the Administrator
may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange or market
on which the Stock is then listed and any applicable Federal
or state securities law, and the Administrator may cause a
legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(ii) Nothing contained in the Plan shall prevent the Company or
any Affiliate from adopting other or additional compensation
arrangements for its employees.
(iii) The adoption of the Plan shall not confer upon any employee,
director, consultant or advisor any right to continued
employment, directorship or service, nor shall it interfere
in any way with the right of the Company or any Subsidiary or
Affiliate to terminate the employment or service of any
employee, consultant or advisor at any time.
(iv) 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 under the Plan,
the Participant shall pay to the Company, or make
arrangements satisfactory to the Company 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 Administrator,
withholding obligations may be settled with Stock, including
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, its Subsidiaries 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. The Administrator may establish such
procedures as it deems appropriate for the settlement of
withholding obligations with Stock.
(v) The Administrator shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to
whom any amounts payable in the event of the Participant's
death are to be paid.
(vi) 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
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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.
(vii) The grant of an Award shall in no way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of
its business or assets.
(viii) If any payment or right accruing to a Participant under this
Plan (without the application of this SECTION (8)(C)(VIII)),
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 this
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; provided, however, that the foregoing shall not
apply to the extent provided otherwise in an Award or in the
event the Participant is party to an agreement with the
Company or an Affiliate that explicitly provides for an
alternate treatment of payments or rights that would
constitute "parachute payments." The determination of whether
any reduction in the rights or payments under this Plan is to
apply shall be made by the Administrator 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
Administrator in making such determination and providing the
necessary information for this purpose. The foregoing
provisions of this SECTION 8(C)(VIII) 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 this Plan and after reduction for
only Federal income taxes.
(ix) To the extent that the Administrator determines that the
restrictions imposed by the Plan preclude the achievement of
the material purposes of the Awards in jurisdictions outside
the United States, the Administrator in its discretion may
modify those restrictions as it determines to be necessary or
14
58
appropriate to conform to applicable requirements or
practices of jurisdictions outside of the United States.
(x) The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or
interpretation of this Plan.
(xi) 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.
(xii) 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.
(xiii) This Plan and each agreement granting an Award constitute the
entire agreement with respect to the subject matter hereof
and thereof, provided that in the event of any inconsistency
between this Plan and such agreement, the terms and
conditions of the Plan shall control.
(xiv) In the event there is an effective registration statement
under the Securities Act pursuant to which shares of 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 of Stock received,
directly or indirectly, as an Award or pursuant to the
exercise or settlement of an Award.
(xv) None of the Company, an Affiliate or the Administrator shall
have any duty or obligation to disclose affirmatively to a
record or beneficial holder of 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 Stock or an
Award from such holder in accordance with the terms hereof.
(xvi) This Plan, and all Awards, agreements and actions hereunder,
shall be governed by, and construed in accordance with, the
laws of the state of Delaware (other than its law respecting
choice of law).
9. DEFERRAL OF AWARDS.
The Administrator (in its sole discretion) may permit a Participant to:
15
59
(a) have cash that otherwise would be paid to such Participant as a
result of the exercise of a Stock Appreciation Right or the
settlement of a Stock Award credited to a deferred compensation
account established for such Participant by the Administrator as an
entry on the Company's books;
(b) have Stock that otherwise would be delivered to such Participant as
a result of the exercise of a Stock Option or a Stock Appreciation
Right converted into an equal number of Stock units; or
(c) have Stock that otherwise would be delivered to such Participant as
a result of the exercise of a Stock Option or Stock Appreciation
Right or the settlement of a Stock Award converted into amounts
credited to a deferred compensation account established for such
Participant by the Administrator as an entry on the Company's books.
Such amounts shall be determined by reference to the Fair Market
Value of the Stock as of the date on which they otherwise would have
been delivered to such Participant.
A deferred compensation account established under this SECTION 9 may be credited
with interest or other forms of investment return, as determined by the
Administrator. A Participant for whom such an account is established shall have
no rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of awards is
permitted or required, the Administrator (in its sole discretion) may establish
rules, procedures and forms pertaining to such awards, including (without
limitation) the settlement of deferred compensation accounts established under
this SECTION 9.
10. DEFINITIONS.
For purposes of this Plan, the following terms are defined as set forth below:
(a) "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Administrator as such.
(b) "Award" means a Stock Appreciation Right, Stock Option or Stock
Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (i) the conviction of the Participant for committing a
felony under Federal law or the law of the state in which such
action occurred, (ii) dishonesty in the course of fulfilling the
Participant's duties as an employee or director of, or consultant or
advisor to, the Company or (iii) willful and deliberate failure on
the part of the Participant to perform such duties in any material
respect.
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Notwithstanding the foregoing, if the Participant and the Company or
the Affiliate have entered into an employment or services agreement
which defines the term "Cause" (or a similar term), such definition
shall govern for purposes of determining whether such Participant
has been terminated for Cause for purposes of this Plan. The
determination of Cause shall be made by the Administrator, in its
sole discretion.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(f) "Commission" means the Securities and Exchange Commission or any
successor agency.
(g) "Committee" means a committee of Directors appointed by the Board to
administer this Plan.
(h) "Company" means Northwestern Steel and Wire Company, a Illinois
corporation.
(i) "Director" means a member of the Company's Board of Directors.
(j) "Disability" means mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan
of the Company or an Affiliate, or if the Participant is not covered
by such a plan or the Participant is not an employee of the Company
or an Affiliate, a mental or physical illness that renders a
Participant totally and permanently incapable of performing the
Participant's duties for the Company or an Affiliate; provided,
however, that a Disability shall not qualify under this Plan if it
is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted,
suffered or incurred while participating in a criminal offense.
Notwithstanding the foregoing, if the Participant and the Company or
an Affiliate have entered into an employment or services agreement
which defines the term "Disability" (or a similar term), such
definition shall govern for purposes of determining whether such
Participant suffers a Disability for purposes of this Plan. The
determination of Disability shall be made by the Administrator, in
its sole discretion. The determination of Disability for purposes of
this Plan shall not be construed to be an admission of disability
for any other purpose.
(k) "Eligible Individual" means any officer, employee or director of the
Company or a Subsidiary or Affiliate, or any consultant or advisor
providing services to the Company or a Subsidiary or Affiliate.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
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61
(m) "Existing Stock Option Plan" means (i) the 1992 Management Stock
Option Plan, (ii) the 1994 Long Term Incentive Plan, (iii) the 1994
Directors' Stock Option Plan, (iv) the 1998 Employee Incentive
Compensation Plan, (v) the 1998 Non-Employer Directors' Stock Option
Plan and (vi) the Employee Stock Purchase and Option Plan.
(n) "Fair Market Value" means, as of any given date, the fair market
value of the Stock as determined by the Administrator or under
procedures established by the Administrator. Unless otherwise
determined by the Administrator, the Fair Market Value per share
shall be the closing sales price per share of the Stock on Nasdaq
(or the principal stock exchange or market on which the Stock is
then traded) on the date as of which such value is being determined
or the last previous day on which a sale was reported.
(o) "Family Member" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father- in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law of a Participant (including adoptive
relationships); any person sharing the Participant's household
(other than a tenant or employee); any trust in which the
Participant and any of these persons have substantially all of the
beneficial interest; any foundation in which the Participant and any
of these persons control the management of the assets; any
corporation, partnership, limited liability company or other entity
in which the Participant and any of these other persons are the
direct and beneficial owners of substantially all of the equity
interests (provided the Participant and these other persons agree in
writing to remain the direct and beneficial owners of all such
equity interests); and any personal representative of the
Participant upon the Participant's death for purposes of
administration of the Participant's estate or upon the Participant's
incompetency for purposes of the protection and management of the
assets of the Participant.
(p) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(q) "Nasdaq" means The Nasdaq Stock Market, including the Nasdaq
National Market and the Nasdaq SmallCap Market.
(r) "Non-Employee Director" means a Director who is not an officer or
employee of the Company.
(s) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(t) "Optionee" means a person who holds a Stock Option.
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(u) "Participant" means a person granted an Award.
(v) "Representative" means (i) 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 his or her primary
residence at the date of the Participant's death; (ii) the person or
entity acting as the guardian or temporary guardian of a
Participant; (iii) the person or entity which is the beneficiary of
the Participant upon or following the Participant's death; or (iv)
any person to whom an Option has been transferred with the
permission of the Administrator or by operation of law; 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 Administrator.
(w) "Retirement" means retirement from active employment under a pension
plan of the Company or any subsidiary or Affiliate, or under an
employment contract with any of them, or termination of employment
or provision of services at or after age 55 under circumstances
which the Administrator, in its sole discretion, deems equivalent to
retirement.
(x) "Stock" means the Common Stock, par value $0.01 per share, of the
Company.
(y) "Stock Appreciation Right" means a right granted under SECTION 5.
(z) "Stock Award" means an Award, other than a Stock Option or Stock
Appreciation Right, made in Stock or denominated in shares of Stock.
(aa) "Stock Option" means an option granted under SECTION 4.
(bb) "Subsidiary" means any company during any period in which it is a
"subsidiary corporation" (as such term is defined in Section 424(f)
of the Code) with respect to the Company.
(bb) "Ten Percent Holder" means an individual who owns, or is deemed to
own, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any parent or
subsidiary corporation of the Company, determined pursuant to the
rules applicable to Section 422(b)(6) of the Code.
In addition, certain other terms used herein have the definitions given to them
in the first places in which they are used.
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63
EXHIBIT B
JANET E. HENDERSON
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
(312) 853-7000
Attorneys for Debtors and Debtors-in-Possession
NORTHWESTERN STEEL AND WIRE CO., a Delaware Corporation and
NORTHWESTERN STEEL AND WIRE CO., an Illinois Corporation
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re ) Chapter 11
)
NORTHWESTERN STEEL AND WIRE CO., ) Case No. _____________
an Illinois Corporation and )
NORTHWESTERN STEEL AND WIRE CO., ) JOINT PREPACKAGED PLAN OF
a Delaware Corporation, ) NORTHWESTERN STEEL AND
) WIRE CO., an Illinois Corporation
Debtors. ) and NORTHWESTERN STEEL
) AND WIRE CO., a Delaware
) Corporation
)
)
- ------------------------------------------)
Northwestern Steel and Wire Co., an Illinois corporation
("Northwestern Illinois" or the "Company") and Northwestern Steel and Wire Co.,
a Delaware corporation ("Northwestern Delaware"), debtors herein hereby propose
this Joint Prepackaged Plan ("Plan") under chapter 11 of the Bankruptcy Code in
order to conclude the exchange offer previously solicited to the holders of
Northwestern Illinois' 9 1/2% Senior Notes in the aggregate principal amount of
$115,000,000. Consummation of the exchange offer is a key component in
Northwestern Illinois' implementation of a strategic plan that includes, among
other things, a substantial mill modernization project and a new collective
bargaining agreement that will strengthen Northwestern Illinois' competitive
position in the market.
64
ARTICLE I
DEFINITIONS
For purposes of this Plan, all capitalized terms and otherwise
defined terms shall have the meanings assigned to them in this Article I.
Whenever the context requires, such terms shall include the plural number as
well as the singular and the female and/or masculine gender as well as the
neuter. Any term used herein that is not defined herein shall have the meaning
ascribed to such term, if any, in the Bankruptcy Code and the Bankruptcy Rules.
The following definitions apply to each Debtor in its individual capacity and
both Debtors collectively, unless the context otherwise requires.
1.1 "ADMINISTRATIVE CLAIM" means every Claim for a cost or expense
of administration, asserted or arising under Sections 503(b) and 507(a)(1) of
the Bankruptcy Code and shall include, without limitation, (a) any Claim for
compensation or reimbursement of expenses pursuant to Sections 327, 328, 330,
331 or 503(b) of the Bankruptcy Code in connection with an application made to
the Bankruptcy Court, (b) cure claims arising from the assumption of executory
contracts or leases, (c) any fees or charges assessed under Section 1930 of
Title 28 of the United States Code, (d) any claim granted administrative
priority by the Bankruptcy Court, including claims under any
Debtor-in-Possession Credit Agreement, and (e) Claims which arise in the
ordinary course of business of the Debtor.
1.2 "ALLOWED" means as to any Claim, to the extent to which such
Claim (a) has been timely filed with the Bankruptcy Court, or has been scheduled
by the Debtor as liquidated in amount and not disputed or contingent and, in
either case, as to which no objection to the allowance thereof has been filed by
the Objection Deadline, or as to which any objection has been determined by a
Final Order allowing such Claim; (b) is allowed (i) by a Final Order or (ii)
under this Plan, or (c) is an Administrative Claim requiring payment in the
ordinary course of the Debtor's business which is not disputed by the Debtor, or
as to which there is an order of the Bankruptcy Court requiring such payment.
1.3 "ALLOWED EQUITY INTEREST" means an Equity Interest to which no
objection to allowance thereof has been filed on or before the Objection
Deadline or, if an objection has been filed, the Equity Interest has been
allowed by a Final Order.
1.4 "BANKRUPTCY CODE" means Title 11 of the United States Code,
including any amendments thereto.
1.5 "BANKRUPTCY COURT" means the United States District Court for
the District of Delaware (including the United States Bankruptcy Court for the
District of Delaware as a unit thereof and to which the Reorganization Case has
been referred) or any successor court which has jurisdiction over the
Reorganization Case.
1.6 "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy
Procedure, as amended, promulgated under 28 U.S.C. Section 2075.
65
1.7 "BUSINESS DAY" means any day other than a Saturday, Sunday or
"legal holiday" as defined in Bankruptcy Rule 9006(a).
1.8 "CLAIM" means a claim, as such term is defined in Section
101(5) of the Bankruptcy Code, against the Debtors.
1.9 "CLAIMANT" means the holder of a Claim.
1.10 "CLASS" means each class of Claims and Equity Interests
established under Article III of the Plan pursuant to Section 1122 of the
Bankruptcy Code.
1.11 "COLLECTIVE BARGAINING AGREEMENT" means the collective
bargaining agreement between Northwestern Illinois and the United Steel Workers
of America approved by Northwestern Illinois on February 19, 1999, and ratified
by the United Steel Workers of America on March 22, 1999.
1.12 "COMMITTEE" means any official committee appointed and
functioning in the Reorganization Case, as it or they may be constituted from
time to time during the Reorganization Case in accordance with the Bankruptcy
Code and the Bankruptcy Rules.
1.13 "COMMON STOCK" means the additional common stock to be issued
by Northwestern Illinois as of the Effective Date.
1.14 "CONFIRMATION" means the entry of the Confirmation Order by
the Bankruptcy Court.
1.15 "CONFIRMATION DATE" means the date on which the Confirmation
Order is entered on the Bankruptcy Court docket.
1.16 "CONFIRMATION HEARING" means the hearing held by the
Bankruptcy Court on confirmation of the Plan, as such hearing may be adjourned
or continued from time to time.
1.17 "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to Section 1129 of the Bankruptcy Code.
1.18 "DEBTOR" means either Northwestern Illinois or Northwestern
Delaware, as the context requires, in its capacity as Debtor in Possession under
the Bankruptcy Code.
1.19 "DEBTORS" means Northwestern Illinois and Northwestern
Delaware in their capacities as Debtors in Possession under the Bankruptcy Code.
1.20 "DISBURSING AGENT" means Harris Trust Company of New York.
1.21 "DISPUTED CLAIM" means every Claim that is not an Allowed
Claim.
1.22 "DISPUTED EQUITY INTEREST" means every Equity Interest that is
not an
66
Allowed Equity Interest.
1.23 "EFFECTIVE DATE" shall mean the first Business Day which is at
least eleven (11) calendar days after the entry of the Confirmation order, on
which all conditions to the effectiveness of the Plan have either occurred or
been waived.
1.24 "EQUITY INTEREST" means the interest of each owner of
Outstanding Common Stock.
1.25 "ESTATES" means the Debtors' estates created pursuant to
Section 541 of the Bankruptcy Code upon commencement of the Reorganization Case.
1.26 "EXCHANGE" means the offer to holders of Senior Notes to
exchange their Senior Notes for cash and Common Stock as more fully and
particularly described in the Offering Memorandum.
1.27 "FINAL ORDER" means an order or judgment of the Bankruptcy
Court that has not been vacated, reversed, stayed, modified or amended and (a)
as to which any appeal, review or certiorari proceeding that has been or may be
prosecuted has been finally decided; or (b) as to which time for such appeal,
review or certiorari proceeding has expired, with no appeal, request for review
or petition for certiorari pending.
1.28 "INDENTURE" means that indenture dated as of June 10, 1993
between Northwestern Illinois and Continental Bank, N.A., as Trustee, pursuant
to which the Senior Notes were issued.
1.29 "INDENTURE TRUSTEE" means U.S. Bank Trust National Association
(as successor to Continental Bank N.A.), the trustee under the Indenture.
1.30 "NEW CREDIT FACILITY" means the new working capital credit
facility that may be entered into by Northwestern Illinois on or prior to the
Effective Date, as described in the Offering Memorandum, or the Revolving Credit
Facility, if reinstated pursuant to Section 1124(2) of the Bankruptcy Code.
1.31 "NORTHWESTERN DELAWARE" means Northwestern Steel and Wire
Company, incorporated in Delaware and located in Sterling, Illinois.
1.32 "NORTHWESTERN ILLINOIS" means Northwestern Steel and Wire
Company, incorporated in Illinois and located in Sterling, Illinois.
1.33 "OBJECTION DEADLINE" means the date by which any objection by
the Debtor or other party with standing to a Claim or Equity Interest must be
filed with the Bankruptcy Court, which shall be the later of 10 days prior to
the Confirmation Hearing or 30 days after the filing of the Claim or Equity
Interest.
67
1.34 "OFFERING MEMORANDUM" means the Offering Memorandum and
Solicitation Document pursuant to which Northwestern Illinois has solicited the
consent of the holders of the Senior Notes to the Exchange, the Plan and certain
amendments to the Indenture.
1.35 "OUTSTANDING COMMON STOCK" means the issued and outstanding
shares of common stock of Northwestern Illinois as of the close of business on
December 6, 1999.
1.36 "PERSON" includes individual, partnership, corporation,
association, joint stock company, joint venture, estate, trust, unincorporated
organization, any governmental unit or political subdivision thereof, or other
entity, and all of their respective heirs, personal representatives, successors
and assigns.
1.37 "PETITION DATE" means the date on which a petition for relief
under chapter 11 of the Bankruptcy Code was filed by the Debtors commencing the
Reorganization Case.
1.38 "PLAN" means this Joint Prepackaged Plan in the form filed by
the Debtors and any amendments or modifications thereof or supplements thereto
filed by the Debtors and permitted under Article VIII of the Plan, the
Bankruptcy Code and the Bankruptcy Rules.
1.39 "PRIORITY CLAIM" means any Claim entitled to priority under
Section 507(a)(3) and (a)(4) of the Bankruptcy Code.
1.40 "PRIORITY TAX CLAIM" means any Claim entitled to priority
under Section 507(a)(8) of the Bankruptcy Code.
1.41 "PROXY STATEMENT" means that proxy statement dated as of
December __, 1999 pursuant to which holders of Outstanding Common Stock were
notified of the annual Shareholders meeting and from whom proxies were solicited
respecting (i) the issuance of Common Stock; (ii) an amendment to Northwestern
Illinois' articles of incorporation to effectuate a 1-for-10 reverse stock
split; (iii) the 2000 Stock Incentive Plan (as defined in the Proxy Statement);
(iv) this Plan, and (v) the election of seven (7) directors.
1.42 "REORGANIZATION CASE" means the Debtors' cases under chapter
11 of the Bankruptcy Code.
1.43 "REORGANIZED DEBTOR" means the Debtors, on and after the
Effective Date, either individually or collectively, as the context requires.
1.44 "REVOLVING CREDIT FACILITY" means the Loan and Security
Agreement dated as of September 30, 1999, between Northwestern Illinois and
Fleet Capital Corporation.
1.45 "SECURED CLAIM" means any Claim that is secured by a lien that
is valid, perfected and enforceable and not avoidable, provided, however, that
if the value of the property securing a Claim is not sufficient to satisfy such
Claim, then in accordance with Section 506 of the Bankruptcy Code and subject to
Section 1111(b) of the Bankruptcy Code, such Claim shall be
68
deemed to be a Secured Claim in an amount equal to the value of the collateral
securing such Claim and an Unsecured Claim under this Plan to the extent of any
insufficiency in the value of the collateral.
1.46 "SENIOR DEBT" means that certain senior debt financing to be
entered into by Northwestern Illinois on or before the Effective Date which
shall be secured by [all] assets of Northwestern Illinois and as to which up to
85% of the principal amount shall be guaranteed by the United States Government
pursuant to the Emergency Steel Loan Guarantee Act of 1999.
1.47 "SENIOR NOTES" means those senior unsecured notes issued under
the Indenture in the aggregate principal amount of $115,000,000, bearing
interest at an annual rate of 9 1/2% and coming due on June 15, 2001.
1.48 "UNOFFICIAL COMMITTEE" means that certain pre-Petition Date
unofficial committee comprised of the following holders of Senior Notes: Harch
Capital Management, Inc.; Highland Capital Management; Granchester Securities;
SunAmerica, Inc.; Credit Suisse Asset Management; The Dreyfus Corporation;
Liberty Funds; Gruntel & Co.; Lonestar Partners; MFS Investment Management; OTA
Limited Partners; Stanfield Capital Partners and Summit Investment Partners.
1.49 "UNSECURED CLAIM" means any Claim which is not a Secured
Claim, a Priority Claim, an Administrative Claim or an unclassified Claim of the
kind described in Section 507(a)(8) of the Bankruptcy Code.
ARTICLE II
TREATMENT OF UNCLASSIFIED CLAIMS
In accordance with Section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified. These
Claims shall receive the following treatment:
2.1 Administrative Claims
a. Administrative Claims of Northwestern Illinois
The holder of each Allowed Administrative Claim
against Northwestern Illinois shall: (a) be paid the full amount of such Allowed
Administrative Claim, in cash, on the later of the Effective Date and the first
Business Day following the date on which such Claim becomes an Allowed
Administrative Claim; (b) be paid upon such terms as may be agreed upon between
such holder and the Debtor or upon Order of the Bankruptcy Court; or (c) be paid
on the date payment is due in accordance with the terms applicable thereto if
such Claim has been incurred in the ordinary course of the Debtor's business.
b. Administrative Claims of Northwestern Delaware
69
The holder of each Allowed Administrative Claim
against Northwestern Delaware shall: (a) be paid the full amount of such Allowed
Administrative Claim, in cash, on the later of the Effective Date and the first
Business Day following the date on which such Claim becomes an Allowed
Administrative Claim; (b) be paid upon such terms as may be agreed upon between
such holder and the Debtor or upon order of the Bankruptcy Court; or (c) be paid
on the date payment is due in accordance with the terms applicable thereto, if
such Claim has been incurred in the ordinary course of the Debtor's business.
2.2 Priority Tax Claims
a. Priority Tax Claims of Northwestern Illinois
Each Person with an Allowed Priority Tax Claim
against Northwestern Illinois shall receive cash in the amount of such Allowed
Priority Tax Claim payable at the election of the Debtor either: (a) on the
later of the Effective Date and the first Business Day following the date on
which such Claim is Allowed; or (b) over a period not exceeding six (6) years
from the date such Claim was assessed, in equal quarterly installments of
principal plus interest thereon at the rate defined in 28 U.S.C. Section 1961 or
such other rate as shall be fixed by the Bankruptcy Court.
b. Priority Tax Claims of Northwestern Delaware
Each Person with an Allowed Priority Tax Claim
against Northwestern Delaware shall receive cash in the amount of such Allowed
Priority Tax Claim payable at the election of the Debtor either: (a) on the
later of the Effective Date and the first Business Day following the date on
which such Claim is Allowed; or (b) over a period not exceeding six (6) years
from the date such Claim was assessed, in equal quarterly installments of
principal plus interest thereon at the rate defined in 28 U.S.C. Section 1961 or
such other rate as shall be fixed by the Bankruptcy Court.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 The categories of Claims and Equity Interests listed below
classify Claims and Equity Interests for all purposes, including voting,
confirmation and distribution under this Plan and under Sections 1122 and
1123(a)(1) of the Bankruptcy Code. Administrative Claims and Priority Tax Claims
have not been classified, and are treated in Article II above. Unless otherwise
ordered by the Bankruptcy Court or provided in the Plan, a Claim that is
properly included in more than one Class is in a Class to the extent that it
qualifies within the description of such Class, and is in a different Class to
the extent that it qualifies within the description of such different Class, but
the same portion of a Claim may not be in more than one Class.
3.2 Claims Against and Equity Interests in Northwestern Illinois
70
a. Class 1A shall consist of all Priority Claims against
Northwestern Illinois.
b. Class 2A shall consist of all Revolving Credit
Facility Claims.
c. Class 3A shall consist of all Secured Claims against
Northwestern Illinois other than the Revolving Credit
Facility Claims.
d. Class 4A shall consist of all Claims in respect of
the Senior Notes.
e. Class 5A shall consist of all Unsecured Claims
against Northwestern Illinois except Claims
classified in Class 4A.
f. Class 6A shall consist of all Equity Interests in
Northwestern Illinois.
3.3 Claims Against and Equity Interests in Northwestern Delaware
a. Class 1B shall consist of all Priority Claims against
Northwestern Delaware.
b. Class 3B shall consist of all Secured Claims against
Northwestern Delaware.
c. Class 5B shall consist of all Unsecured Claims
against Northwestern Delaware.
d. Class 6B shall consist of all Equity Interests in
Northwestern Delaware, which are held by Northwestern Illinois.
There are no Claims against Northwestern Delaware
corresponding to Classes 2A and 4A.
ARTICLE IV
TREATMENT OF CLASSIFIED CLAIMS AND EQUITY INTERESTS
4.1 Class 1A is unimpaired. Each Person with an Allowed Class 1A
Priority Claim, if any, will be paid in full in cash as soon as practicable
after the later of (a) the Effective Date (b) the first Business Day after such
Claim becomes an Allowed Claim, and (c) such other date as is mutually agreed to
by the holder of the Claim and the Debtor.
4.2 Class 1B is unimpaired. Each Person with an Allowed Class 1B
Priority Claim, if any, will be paid in full in cash as soon as practicable
after the later of (a) the Effective Date (b) the first Business Day after such
Claim becomes an Allowed Claim, and (c) such other date as is mutually agreed to
by the holder of the Claim and the Debtor.
71
4.3 Class 2A is unimpaired. Allowed Class 2A Claims will either be
paid in full in cash on the later of the Effective Date and the date such Claims
become Allowed Claims, or they will be fully reinstated and all defaults cured,
in accordance with the requirements of Section 1124(2) of the Bankruptcy Code.
4.4 Class 3A is unimpaired. Allowed Class 3A Claims will either be
paid in full in cash on the later of the Effective Date and the date such Claims
become Allowed Claims, or they will be fully reinstated and all defaults cured,
in accordance with the requirements of Section 1124(2) of the Bankruptcy Code.
4.5 Class 3B is unimpaired. Allowed Class 3B Claims will either be
paid in full in cash on the later of the Effective Date and the date such Claims
become Allowed Claims, or they will be fully reinstated and all defaults cured,
in accordance with the requirements of Section 1124(2) of the Bankruptcy Code.
4.6 Class 4A is impaired, and will receive the following
treatment.
a. Class 4A Distributions: Based upon the current
capital structure (and prior to any reverse stock split), on or as soon as
practicable after the Effective Date each holder of an Allowed Class 4A Claim
will receive from the Disbursing Agent, for each $1,000 in principal amount of
Senior Notes, (i) $456.52 in cash, (ii) 496.794 shares of Common Stock and (iii)
any accrued interest as of the Effective Date, calculated at the applicable
non-default contract rate; provided, however, that on or before the Effective
Date, Northwestern Illinois shall seek, through the Proxy Statement or
otherwise, to complete a 1-for-10 reverse stock split that would reduce the
number of shares of Common Stock to be distributed on account of each $1,000 in
principal amount of Senior Notes to 49.6794. The reverse stock split will not
affect the aggregate percentage of Common Stock offered to the Senior
Noteholders and the Class 4A distributions will therefore still aggregate to 70%
of the outstanding Common Stock of Northwestern Illinois on a fully diluted
basis.
b. If there is any dispute regarding ownership of any
Senior Note as of the Effective Date, the distributions of cash and Common Stock
otherwise allocable to the corresponding Claim will be retained by the
Disbursing Agent. As each such Disputed Claim is resolved by a Final Order, the
Person(s) determined to be entitled to distributions thereon shall receive the
cash and Common Stock allocable to such Claim.
c. Notwithstanding the date of actual distribution, all
Common Stock to be issued and distributed pursuant to this Section 4.6 shall be
deemed to have been issued and distributed on the Effective Date. As of the
Effective Date, the investments constituting the Senior Notes will evidence
solely the right to receive the distribution of the consideration set forth in
this Section 4.6. No holder of a Senior Note shall receive any distribution
under this Section 4.6 unless and until it shall have either first tendered such
Senior Note prior to the Petition Date in accordance with the Exchange Offer as
described in the Offering Memorandum, or, following the Effective Date,
surrendered or caused to be surrendered to the Disbursing Agent the Senior
Note(s) held by it, or if the Senior Note(s) has been lost, destroyed, stolen or
mutilated, such
72
holder of a Senior Note has executed and delivered an affidavit of loss which is
reasonably satisfactory to the Disbursing Agent, and if the Disbursing Agent
reasonably requests, such holder of a Senior Note has furnished a bond in form,
substance and amount satisfactory to the Disbursing Agent. As soon as
practicable after such surrender of original certificate(s) or such delivery of
an affidavit of loss and such furnishing of a bond as provided herein, the
Disbursing Agent, upon receiving the certificates of Common Stock from the
Reorganized Debtor, shall make the appropriate distribution of such Common Stock
as provided in this Section 4.6. Promptly upon the surrender by a holder of a
Senior Note of the instrument constituting such Senior Note, the Disbursing
Agent shall surrender it to the Reorganized Debtor, which shall destroy or mark
such instrument canceled or cause such instrument to be destroyed or marked as
canceled.
d. In accordance with Section 1143 of the Bankruptcy
Code, any Person with a Senior Note that fails to surrender its Senior Notes as
provided above in Section 4.6(c) within 1 year after the Confirmation Date shall
not participate in any distributions under this Plan. Upon expiration of such 1
year period, all Common Stock allocated for distribution to such Person shall be
canceled by or on behalf of the Reorganized Debtor, and all cash attributable to
such Senior Notes and Common Stock held by the Disbursing Agent for such Person
thereupon shall be paid over to the Reorganized Debtor.
e. That portion of an Allowed Claim of the holder of
Senior Notes which would require issuance of less than a whole number of shares
of Common Stock will receive, in full satisfaction of that portion of the
Allowed Claim, a certificate for the number of whole shares of Common Stock
which has been rounded up or down to the nearest whole share (and no fractional
shares of Common Stock shall be issued).
f. In making distributions under this Plan, the Reorganized
Debtor shall, to the extent applicable, comply with all tax withholding and
reporting requirements imposed on it by any governmental unit and all
distributions to holders of Allowed Claims in Class 4A shall be subject to such
withholding and reporting requirements. Each holder of an Allowed Claim in Class
4A who tenders pursuant to the terms of the Exchange must comply with the
requirements therefore as set forth on the Offering Memorandum. Unless these
requirements are satisfied the Disbursing Agent will withhold an amount of the
cash distribution payable to such holder that will enable the Disbursing Agent
to remit the appropriate backup withholding due to the Internal Revenue Service
with respect to the Exchange.
4.7 Class 5A is unimpaired. Each Person with an Allowed Class 5A
Claim will be paid in full in cash on the later of the Effective Date and the
date such Claim becomes an Allowed Claim, or shall otherwise be paid in
accordance with the terms of any agreement between the Claimant and the Debtor.
4.8 Class 5B is unimpaired. Each Person with an Allowed Class 5B
Claim will be paid in full in cash on the later of the Effective Date and the
date such Claim becomes an Allowed Claim, or shall otherwise be paid in
accordance with the terms of any agreement between the Claimant and the Debtor.
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4.9 Class 6A is unimpaired. However, to the extent that class 6A
is deemed impaired, the consent of Class 6A to this treatment is also being
sought herewith. Each Holder of an Allowed Equity Interest under Class 6A shall
retain the legal, equitable and contractual rights to which such Allowed Equity
Interest entitles the holder thereof subject, however, to all provisions of the
Plan and the Proxy Statement with respect to, among other things, the issuance
of the Common Stock, the 1-for-10 reverse stock split, and the 2000 Stock
Incentive Plan, all as described in the Proxy Statement.
4.10 Class 6B is unimpaired. Each Holder of an Allowed Equity
Interest under Class 6B shall retain the legal, equitable and contractual rights
to which such Allowed Equity Interest entitles the holder thereof.
ARTICLE V
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
5.1 On the Effective Date, all executory contracts and unexpired
leases of each of the Debtors will be deemed assumed in accordance with the
provisions and requirements of Sections 365(a) and 1123(b)(2) of the Bankruptcy
Code, except for such contracts and leases, that (a) have been rejected by order
of the Bankruptcy Court, (b) are specifically treated otherwise pursuant to this
Plan or (c) are the subject of a motion to reject such contract or lease that is
pending before the Bankruptcy Court on the Effective Date. Except as otherwise
ordered by the Bankruptcy Court, the Confirmation Order shall constitute an
order of the Bankruptcy Court approving such assumptions and rejections as of
the Effective Date.
5.2 Each Person who is a party to an executory contract or
unexpired lease rejected pursuant to Section 5.1 of the Plan, not later than 30
days after the earlier of the Confirmation Date or the date an order approving
such rejection is entered by the Bankruptcy Court, shall file a proof of claim
for any Claim arising from the rejection of such executory contract or unexpired
lease. Failure to file a proof of claim within the time limit set forth in the
preceding sentence shall constitute a bar to the allowance of any claims arising
from the rejection of such executory contract or unexpired lease. Allowed
Unsecured Claims arising out of the rejection of executory contracts or
unexpired leases shall be Class 5A Claims if Northwestern Illinois was the party
to the contract or unexpired lease rejected pursuant to Section 5.1 and shall be
Class 4B Claims if Northwestern Delaware was the party to the contract or
unexpired lease pursuant to Section 5.1.
ARTICLE VI
CONDITIONS TO EFFECTIVE DATE
6.1 It is a condition to the Effective Date of this Plan that: (i)
the Confirmation Order shall have become a Final Order; (ii) the Senior Debt
financing shall have become effective; and (iii) the New Credit Facility shall
have become effective.
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ARTICLE VII
IMPLEMENTATION AND EFFECT OF PLAN
7.1 Funding of Plan
The primary sources of funds to consummate and carry out this
Plan shall be the proceeds of the Senior Debt financing, the New Credit Facility
and any cash in possession of the Reorganized Debtor as of the Effective Date.
7.2 Manner of Payment
The Reorganized Debtor shall make all payments required by the
Plan, except that all payments to holders of Allowed Claims in Class 4A shall be
made by the Disbursing Agent. Payment of cash under this Plan may be made either
by check drawn on a domestic bank, by wire transfer or by automated clearing
house transfer from a domestic bank, at the option of the Reorganized Debtor.
7.3 Vesting
Except as otherwise provided herein, on the Effective Date all
cash and other assets of the Estates shall be transferred to and vest in the
Reorganized Debtor, free of any liens, Claims and Interests, except as otherwise
provided for herein, to be managed and used to consummate and carry out this
Plan.
7.4 Post Confirmation Officers and Directors
From and after the Effective Date, the officers of the
Reorganized Debtors (i) shall be those Persons serving in those positions and
having those responsibilities designated in the Confirmation Order, and (ii)
will be reimbursed for all reasonable costs and expenses, and will receive
compensation, as set forth in the Confirmation Order, with all such payments to
be made by the Reorganized Debtors. From and after the Effective Date, the
directors of the Reorganized Debtors shall be the individuals identified at the
Confirmation Hearing.
7.5 Amendment of Charter
As of the Effective date, the articles of incorporation of the
Debtors shall be amended to prohibit the issuance of non-voting equity
securities, as required by Section 1123(a)(6) of the Bankruptcy Code.
Additionally, the articles of incorporation of Northwestern Illinois shall be
amended to authorize a 1-for-10 reverse stock split.
7.6 Cancellation of Indenture
As of the Effective Date, the Indenture shall be canceled and
be of no further force and effect.
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7.7 Issuance of Common Stock
As of the Effective Date and consistent with the terms of the
Proxy Statement, Common Stock shall be issued in order to effect the
distributions required under this Plan.
ARTICLE VIII
MODIFICATION OF THE PLAN
8.1 Prior to Confirmation, the Debtors may modify this Plan in
accordance with Section 1127(a), (c) and (d) of the Bankruptcy Code.
8.2 This Plan may be modified by the Debtors following
Confirmation, but before the Effective Date, in accordance with Section 1127(b),
(c) and (d) of the Bankruptcy Code.
8.3 Prior to the Effective Date, and without further order or
approval of the Bankruptcy Court, the Debtors may make appropriate technical
adjustments and modifications to this Plan and the Offering Memorandum without
Bankruptcy Court approval.
ARTICLE IX
GENERAL PROVISIONS
9.1 Governing Law. Except to the extent the Bankruptcy Code or
Bankruptcy Rules are applicable, the rights and obligations arising under this
Plan shall be governed by, and construed and enforced in accordance with, the
laws of the State of Illinois, without giving effect to the principles of
conflicts of law thereof.
9.2 Continuing Jurisdiction. The Bankruptcy Court shall retain
jurisdiction after the Effective Date for the following purposes:
a. To hear and determine any and all objections to the
allowance of any Claim or any Equity Interest or any controversy over the
classification thereof;
b. To hear and determine any and all applications for
compensation or reimbursement of expenses pursuant to Section 330 or Section
1129 of the Bankruptcy Code or otherwise provided for in this Plan, or for
expenses or compensation pursuant to Section 503(b)(3) through (5) of the
Bankruptcy Code;
c. To hear and determine any and all matters relating to
the rejection or the assumption and assignment of executory contracts or
unexpired leases, and the allowance of any Claims resulting therefrom;
d. To hear and determine any and all matters relating to
cure or damages as
76
provided in this Plan;
e. To enable the Reorganized Debtors to commence and
prosecute any and all contested matters or adversary proceedings which it owns
or is entitled to pursue under the terms of this Plan, including, without
limitation, actions which belong to the estate under the Bankruptcy Code such as
avoiding power actions under Section 544, 545, 547, 548, 549 and 550 of the
Bankruptcy Code, except as have been waived, released or satisfied pursuant to
this Plan;
f. To liquidate, estimate or disallow any disputed,
contingent or unliquidated Claims;
g. To correct any defect, cure any omission, or
reconcile any inconsistency in this Plan or in the Confirmation Order as may be
necessary to carry out their purpose and the intent of this Plan;
h. To determine any and all disputes which may arise
regarding the interpretation of any provisions of this Plan or the Confirmation
Order;
i. To facilitate consummation of this Plan by entering,
consistent with the provisions of this Plan, any further necessary or
appropriate orders regarding enforcement of this Plan or its provisions;
j. To enter an appropriate final decree in the
Reorganization Case; and
k. To implement and enforce the Confirmation Order and
this Plan according to their terms.
9.3 Disputed Claims and Cash Distributions.
a. Unless an earlier time is set by order of the
Bankruptcy Court or in this Plan, all objections to Claims and Equity Interests
shall be filed on or before the Objection Deadline.
b. Upon Final Order of the Bankruptcy Court with respect
to a Disputed Claim, a Disputed Priority Claim or a Disputed Administrative
Claim:
(i) if any part of the Disputed Claim has been
allowed, the Claimant shall receive from the Reorganized Debtor that payment to
which it would have been entitled if the part of the Claim so allowed had been
allowed as of the Effective Date. Such payment shall be made as soon as possible
after the order allowing that Claim has become a Final Order.
(ii) The balance of any amount applicable to a
previously Disputed Claim that has been disallowed in whole or in part shall be
available to the Reorganized Debtor without restriction or limitation.
9.4 Section 1145 Exemption. The New Common Stock will be issued
pursuant to the
77
exemption from securities registration set forth in Section 1145 of the
Bankruptcy Code.
9.5 Confirmation Order. This Plan shall have no force or effect
unless the Bankruptcy Court enters the Confirmation Order.
9.6 Revocation. If the Plan is revoked or withdrawn, or if the
Effective Date does not occur in accordance with this Plan, then this Plan shall
be deemed null and void, and, in such event, nothing contained herein shall be
deemed to constitute a waiver or release of any claims by or against the Debtors
or any other Person or to prejudice in any manner the rights of the Debtors or
any Person.
9.7 Reservation of Rights. Neither the filing of this Plan, nor
any statement or provision contained herein, or the taking of any action by the
Debtor with respect to this Plan, shall be or shall be deemed to be an admission
or waiver of any rights prior to the Effective Date.
9.8 Unclaimed Property. Any property held for distribution in
accordance with the Plan which is unclaimed on the first anniversary of the date
the distribution was to be made will become property of the Reorganized Debtor
and will no longer be subject to distribution.
9.9 Headings. Headings used in this Plan are inserted for
convenience only and neither constitute a portion of this Plan nor in any way
affect the provisions of this Plan.
9.10 Successors and Assigns. The rights, benefits and obligations
of any Person named or referred to in this Plan will be binding upon and will
inure to the benefit of the heirs, personal representatives, successors and
assigns of each such Person.
9.11 Construction. The rules of construction set forth in Section
102 of the Bankruptcy Code shall apply to the construction of this Plan.
9.12 Release. Unless a holder of Claim in Class 4A shall have
declined to grant the following release by so noting on its ballot, upon the
consummation of the Plan, each holder of a Claim in Class 4A will be deemed to
have released the Debtors' officers, directors and employees, any Committee(s),
the Unofficial Committee, each of the members of such Committee(s), and the
respective attorneys, agents and advisors of the Debtors and the Committee(s),
from any and all liability to any Person for any act or omission in connection
with or arising out of any actions taken or omitted by any of them in connection
with the negotiation and solicitation of the Exchange Offer, the proposed
modifications to the Indenture, the solicitation of acceptances or rejections to
the Plan, and the confirmation of the Plan, except for gross negligence, willful
misconduct or fraud, provided that such Persons will be entitled to rely on the
advice of counsel with respect to their duties and responsibilities regarding
the Reorganization Case and the Plan. The Debtors, likewise release all holders
of Claims in Class 4A who have agreed to the foregoing release, as well as their
officers, directors and employees, and their respective attorneys, agents and
advisors from and any all liability for any act or omissions in connection with
or arising out of any actions taken or omitted by any of them in connection with
the negotiation and solicitation of the Exchange Offer, the proposed
modification to the Indenture, the solicitation of acceptances
78
and rejections to the Plan, and the confirmation of the Plan, except for gross
negligence, willful misconduct or fraud, provided that such Persons will be
entitled to rely on the advice of counsel with respect to their duties and
responsibilities regarding the Reorganization Case and the Plan.
9.13 Time. In computing any period of time described or allowed by
this Plan or the documents implementing this Plan, the day of the act, event or
default from which the designated period of time begins to run shall not be
included. The last day of the period so computed shall be included unless it is
not a Business Day, in which event the period will run until the end of the next
day which is a Business Day. When a period of time prescribed or allowed is less
than 8 days, intermediate days that are not Business Days shall be excluded in
the computation.
9.14 Termination of Creditors Committees. The appointment of any
Committee appointed and serving in this Reorganization Case will automatically
terminate without further action or order of the Bankruptcy Code on the
Effective Date.
9.15 Interest. Except as to Priority Tax Claims, and unless
entitled to other treatment under Bankruptcy Code ss. 506(b) or, in the case of
Class 4A, pursuant to the Indenture, Claims arising before the Petition Date
shall accrue and be paid post-Petition Date interest at such contractual or
statutory rate to which the holders of such Claims are entitled.
9.16 Section 1146 Exemption. The issue, transfer or exchange of any
security, the making or delivery of any instrument of transfer, or the
re-vesting, transfer, assignment or sale of any real or personal property of the
Debtors or their Estates, pursuant to, in implementation of, or as contemplated
by the Plan, shall not be taxed under any state or local law imposing a stamp
tax, transfer tax or similar tax or fee.
9.17 Withholding and Reporting Requirements. In connection with the
Plan and all distributions thereunder, the Reorganized Debtor and the
Disbursement Agent will comply with all existing withholding and reporting
requirements imposed by a federal, state, local or foreign taxing authority.
9.18 Authorized Actions. Upon entry of the Confirmation Order by
the Clerk of the Bankruptcy Court, the following shall be authorized and
approved in all respects: (i) the issuance of the Common Stock, (ii) the
1-for-10 reverse stock split, (iii) the 2000 Stock Incentive Plan; (iv) the
election of officers and directors pursuant to Article VII hereof, and (v) any
other matters provided under the Plan involving the corporate structure of the
Debtors or the Reorganized Debtors. On the Effective Date, appropriate officers
and directors of the Debtors are authorized and directed to execute and deliver
such agreements, documents and other instruments necessary or appropriate to
carry out the actions described in the Plan in the name or and on behalf of the
Debtors or the Reorganized Debtors. All such actions shall be deemed to have
occurred and shall be in effect from and after the Effective Date pursuant to
applicable state law without any requirement of further action by the
stockholders or directors of the Debtors, the Debtors or the Reorganized
Debtors.
9.19 Terms of Injunctions or Stays. Unless otherwise provided, all
injunctions or stays
79
provided for under Sections 105 or 362 of the Bankruptcy Code or otherwise in
effect on the Confirmation Date shall remain in full force and effect until the
Effective Date.
9.20 Retiree Benefits. From and after the Effective Date, the
Reorganized Debtor shall remain liable for the payment of all retiree benefits,
as defined in Section 1114 of the Bankruptcy Code, as to which Northwestern
Illinois or Northwestern Delaware, as the case may be, was obligated prior to
the Petition Date, for the duration of the period that Northwestern Illinois or
Northwestern Delaware obligated itself to provide such benefits.
9.21 Notices. All notices, requests and demands, to be effective
shall be in writing (including, without limitation, by facsimile transmission)
and, unless otherwise expressly provided herein, shall be deemed to have been
duly given or made when actually delivered or in the case of by facsimile
transmission, when received and telephonically confirmed, addressed as follows:
To: Northwestern Illinois
or Northwestern Delaware
Thomas Vercillo
Northwestern Steel & Wire Co.
121 Wallace Street
P.O. Box 618
Sterling, IL 61081-0618
With copies to:
Janet E. Henderson
Sidley & Austin
One Bank One Plaza
Chicago, IL 60603
To Unofficial Committee:
Wendell H. Adair, Jr.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
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ARTICLE X
TITLE TO PROPERTY AND DISCHARGE
10.1 On the Effective Date, and except as otherwise specifically
provided in this Plan regarding dispositions and distributions of certain
property, all of the Debtors' Assets shall vest in the Reorganized Debtors free
and clear of all claims, equity security interests and liens of creditors,
equity security holders or any other person, except the rights with respect
thereto created pursuant to or provided for in the Plan or in the Confirmation
Order.
10.2 On and after the Effective Date, all property disbursed to the
Disbursing Agent shall be free and clear of all Claims, Equity Interests and
liens of Claimants, or any other Persons, except for rights with respect thereto
created pursuant to the Plan or the Confirmation Order.
10.3 Except as otherwise provided in this Plan or the Confirmation
Order, the distributions made pursuant to this Plan will be in full and final
satisfaction, settlement, release and discharge as against the Debtors and their
Estates, of any debt that arose prior to the Effective Date, including any debt
of a kind specified in Section 502(h), (g) or (i) of the Bankruptcy Code and all
claims of any nature, including without limitation, any interest accrued thereon
from and after the petition date, whether or not (a) a proof of claim or
interest based on such debt, obligation or interest is filed or deemed file
under Section 501 or Section 1111(a) of the Bankruptcy Code; (b) such Claim or
Equity Interest is allowed under Section 502 of the Bankruptcy Code, or (c) the
holder of such allowed Claim or Equity Interest has accepted the Plan.
10.4 On the Effective Date, all holders of Claims against the
Debtors or their Estates shall be precluded from asserting against the Debtors
or any of their assets or property, any claims based upon any act or omission,
transaction, or other activity of any kind or nature that occurred prior to the
Effective Date, and the Confirmation Order shall permanently enjoin said
holders, their heirs, personal representatives, successors and assigns from
enforcing or seeking to enforce any such claim against the Debtors or the
Reorganized Debtors. Evidence of Claims or Interests shall, upon the Effective
Date, represent only the right to participate in the treatment provided on
account of such Claims and Interests under this Plan and otherwise shall have no
further force or effect.
81
Dated:___________, 1999 NORTHWESTERN STEEL AND WIRE COMPANY,
an Illinois Corporation
By:
------------------------------
Its:
------------------------------
-and-
NORTHWESTERN STEEL AND WIRE CO.,
a Delaware Corporation
By:
------------------------------
Its:
------------------------------
Of Counsel:
Janet E. Henderson
SIDLEY & AUSTIN
One First National Plaza
Chicago, Illinois 60603
(312) 853-7000
By:
------------------------
Attorneys for Debtors
82
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 M. 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 [DECEMBER 6, 1999], AT THE
ANNUAL MEETING OF SHAREHOLDERS OF THE COMPANY TO BE HELD ON TUESDAY, JANUARY 18,
2000 AT 9:00 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. ISSUANCE OF SHARES. The approval of the shareholders of the Company
authorizing the issuance of the Company's common shares, par value $0.01
per share, to the holders of the Company's outstanding 9 1/2% senior notes
due 2001 in connection with an exchange of the senior notes for cash and
common shares.
FOR |_| AGAINST |_| ABSTAIN |_|
2. REVERSE STOCK SPLIT. The approval of the shareholders of the Company
authorizing an amendment to the Company's articles of incorporation to
effectuate a one for ten reverse stock split of the Company's outstanding
common shares.
FOR |_| AGAINST |_| ABSTAIN |_|
3. 2000 STOCK INCENTIVE PLAN. The adoption by the shareholders of the
Company's 2000 Stock Incentive Plan.
FOR |_| AGAINST |_| ABSTAIN |_|
4. PREPACKAGED BANKRUPTCY PLAN. The approval of the shareholders of the
Company for a prepackaged reorganization plan, as summarized in this Proxy
Statement, if necessary to effect Proposals 1, 2 and 3 above.
FOR |_| AGAINST |_| ABSTAIN |_|
5. ELECTION OF DIRECTORS
FOR ALL NOMINEES LISTED BELOW |_|
WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW |_|
WILLIAM F. ANDREWS, FREDERICK J. ROCCHIO, JR., THOMAS A. GILDEHUAS, DAVID
L. GORE, JAMES A. KOHLBERG AND CHRISTOPHER LACOVARA
|_| FOR ALL NOMINEES EXCEPT _____________________________________________.
6. 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: _____________, 2000 SIGNATURE __________________________________
SIGNATURE __________________________________
(IF HELD JOINTLY)
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
20