<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Northwestern Steel and Wire Company
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- - --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
[Northwestern Steel and Wire Company LOGO]
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Northwestern Steel and Wire Company, to be held on Wednesday, December 17, 1997,
at 10:30 a.m. Central Standard Time at Bank of America, Shareholders'
Room -- 21st Floor, 231 South LaSalle Street, Chicago, Illinois.
The following Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the Meeting. During the Meeting we will also
report on the operations of the Company. Our 1997 Annual Report accompanies this
Proxy Statement.
It is important that your shares be represented at the Meeting regardless
of the size of your holdings. If you are unable to attend in person, we urge you
to participate by voting your shares by proxy. You may do so by filling out and
returning the enclosed proxy card.
If you arrive early, you are invited to have coffee and meet informally
with the Directors.
Sincerely,
Thomas A. Gildehaus
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
[Northwestern Steel and Wire Company LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1997
The Annual Meeting of Shareholders of Northwestern Steel and Wire Company
(the "Company") will be held on Wednesday, December 17, 1997, at 10:30 a.m.
Central Standard Time at Bank of America, Shareholders' Room -- 21st Floor, 231
South LaSalle Street, Chicago, Illinois, for the following purposes:
(1) To elect five Directors to hold office for two year terms.
(2) To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on November 7, 1997
as the record date for determining shareholders entitled to notice of, and to
vote, at the Annual Meeting and any adjournments thereof.
We encourage you to attend the Annual Meeting and vote your shares in
person. To be sure your shares are represented at the meeting, you are requested
to date, sign and return promptly the accompanying proxy in the enclosed
envelope provided. You may revoke your proxy at any time before it is actually
voted by notice in writing to the undersigned.
By order of the Board of Directors
Timothy J. Bondy
Secretary
Sterling, Illinois
November 17, 1997
<PAGE> 4
Northwestern Steel and Wire Company
121 WALLACE STREET
STERLING, ILLINOIS 61081-0618
PROXY STATEMENT
The Annual Meeting of Shareholders (the "Annual Meeting") of Northwestern
Steel and Wire Company (the "Company") will be held at 10:30 a.m., Central
Standard Time, Wednesday, December 17, 1997, at Bank of America, Shareholders'
Room -- 21st Floor, 231 South LaSalle Street, Chicago, Illinois. The
accompanying proxy is solicited by the Board of Directors of the Company for use
at the Annual Meeting and any adjournments thereof.
GENERAL INFORMATION
VOTING SECURITIES
The Board of Directors has fixed the close of business on November 7, 1997
as the record date for determining shareholders entitled to notice of and to
vote at the Annual Meeting. As of the record date, the Company had outstanding
24,483,736 shares of Common Stock. Each of the outstanding shares of Common
Stock is entitled to one vote.
PROXIES
Thomas A. Gildehaus and Timothy J. Bondy, named on the proxy card
accompanying this Proxy Statement, were selected by the Board of Directors of
the Company to serve as proxies. Messrs. Gildehaus and Bondy are each executive
officers of the Company. Each executed and returned proxy will be voted in
accordance with the directions indicated thereon, or if no direction is
indicated, in accordance with the recommendations of the Board of Directors
contained in this Proxy Statement. Each shareholder giving a proxy has the power
to revoke it at any time before the shares it represents are voted. Revocation
of a proxy is effective upon receipt by the Secretary of the Company of either
(i) an instrument revoking the proxy, or (ii) a duly executed proxy bearing a
later date. Additionally, a shareholder may change or revoke a previously
executed proxy by voting in person at the Annual Meeting.
REQUIRED VOTE
A plurality of the votes cast in person or by proxy is required to elect
directors.
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.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders for the fiscal year ended July
31, 1997 containing financial and other information pertaining to the Company,
is being furnished to shareholders simultaneously with this Proxy Statement.
<PAGE> 5
MAILING AND EXPENSES
This Proxy Statement and accompanying form of proxy were first released to
shareholders on or about November 17, 1997. Expenses incurred in the
solicitation of proxies will be borne by the Company.
ELECTION OF DIRECTORS
The Company's Board of Directors consists of ten directors. The Bylaws of
the Company provide for the election of directors to staggered terms of two
years. Accordingly, five directors will be elected at this Annual Meeting for a
term of two years.
NOMINEES
The following persons, 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.
<TABLE>
<CAPTION>
NAME AGE SERVED AS DIRECTOR SINCE
---- --- ------------------------
<S> <C> <C>
Marion H. Antonini.............................. 67 --
Warner C. Frazier(1)............................ 65 1995
James A. Kohlberg(2)(4)......................... 40 1992
Christopher Lacovara(2)(3)(4)................... 33 1992
George W. Peck IV............................... 65 1992
</TABLE>
- - ---------------
(1) Member of Audit Committee
(2) Member of Executive Committee.
(3) Member of Pension Committee.
(4) Member of Compensation Committee.
Marion H. Antonini has been Chairman of the Board at Welbilt Corporation, a
manufacturer of foodservice equipment, since July 1990 and Chief Executive
Officer of that company since September 1990. Mr. Antonini is also a director of
Berisford Ltd., Vulcan Materials Company, Scientific Atlanta, Inc. and Engelhard
Corporation.
Warner C. Frazier has been Chairman and Chief Executive Officer of
Simplicity Manufacturing, Inc., a manufacturer of outdoor power equipment
("Simplicity"), since 1988 and was President of Simplicity from 1988 to 1996.
Mr. Frazier is also a Director of ABT Building Products Corporation, a specialty
building products manufacturer ("ABT"), Superior Services, Inc., an integrated
solid waste services company, and Rexworks, Inc., a manufacturer of landfill
compactors.
James A. Kohlberg has been Managing Partner since 1994 of Kohlberg & Co.,
L.P. ("Kohlberg") and Co-Managing Partner from 1987 to 1994. Mr. Kohlberg is
also a Director of ABT.
Christopher Lacovara has been a Principal of Kohlberg since 1995 and an
associate from 1988 to 1994. Mr. Lacovara is also a Director of
Schrader-Bridgeport International, Inc. ("Schrader-Bridgeport"), a manufacturer
of tire valves and pressure control devices, and Scovill Fasteners, Inc.
("Scovill"), a manufacturer of fasteners.
George W. Peck IV has been a Principal of Kohlberg since 1987. Mr. Peck is
also a Director of ABC Rail Products Corporation, a manufacturer of replacement
parts and original equipment for the freight, railroad and transit industries,
The Lion Brewery, Inc., a brewer of bottled beverages, and ABT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
2
<PAGE> 6
OTHER DIRECTORS
The following persons will continue to serve as directors of the company
after the Annual Meeting until their terms of office expire at the Annual
meeting of Shareholders following fiscal 1998 or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
NAME AGE SERVED AS DIRECTOR SINCE
---- --- ------------------------
<S> <C> <C>
William F. Andrews(1)........................... 66 1994
Darius W. Gaskins, Jr.(4)....................... 58 1994
Thomas A. Gildehaus(2).......................... 57 1997
David L. Gore................................... 60 1997
Michael E. Lubbs(3)............................. 50 1997
</TABLE>
- - ---------------
(1) Member of Audit Committee.
(2) Member of Executive Committee.
(3) Member of Pension Committee.
(4) Member of Compensation Committee.
William F. Andrews is Chairman of Schrader-Bridgeport International Inc.
and Chairman of Scovill Fasteners, Inc. From 1993 to 1995, Mr. Andrews was
Chairman and Chief Executive Officer of Amdura Corporation, a manufacturer of
hardware and industrial equipment. From 1990 to 1992, he was President and Chief
Executive Officer of UNR Industries, Inc., a diversified manufacturer of steel
products ("UNR"). Mr. Andrews is also a Director of Black Box Corporation,
Corrections Corporation of America, Dayton Superior Corp., Johnson Controls,
Inc., Katy Industries, Navistar, Inc. and Southern New England Telephone
Company.
Darius W. Gaskins, Jr. has been a Partner of Carlisle, Fagan, Gaskins &
Wise, Inc., a management consulting firm, since 1993, and a Partner of 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.,
a micrographics supplier, Sapient Corporation, a software company, and UNR.
Thomas A. Gildehaus has been Chairman and Chief Executive Officer of the
Company since April 1997 and a Director of the Company since January 1997. From
1992 to April 1997, Mr. Gildehaus was President, Chief Executive Officer and a
Director of UNR. From 1982 to 1992, Mr. Gildehaus was an Executive Vice
President and Director of Deere & Company, an industrial and construction
equipment manufacturer ("Deere"). 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").
Michael E. Lubbs has been an electronics and instrumentation technician for
the Company since 1986.
Pursuant to the Company's agreement with the Union, the International
President of the Union may designate an individual for appointment to the Board
of Directors. Subject to the approval of, and then recommendation by, the Chief
Executive Officer, the Board shall consider such designee. In accordance with
this procedure, Mr. Gore was appointed to the Board of Directors effective June
5, 1997. His term of office continues until the Annual Meeting of Shareholders
following fiscal 1998.
Pursuant to an agreement between KNSW Acquisition Company, L.P. ("KNSW")
and the Northwestern Steel and Wire Company Employee Stock Ownership Plan (the
"ESOP"), KNSW has agreed to use its reasonable best efforts to cause at least
one designee of the ESOP to be nominated for election to the Board of Directors
for so long as the ESOP holds 5% or more of the outstanding Common Stock on a
fully-diluted basis. The current designee is Michael E. Lubbs whose term of
office continues until the Annual Meeting of Shareholders following fiscal 1998.
3
<PAGE> 7
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.
DIRECTOR MEETINGS AND COMMITTEES
The Board of Directors held six meetings during the fiscal year ended July
31, 1997, and each director, except 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 the Company's
operations and reports to the Board of Directors. The Audit Committee oversees
actions taken by the Company's independent auditors, recommends the engagement
of auditors and reviews the Company's financial policies. The Compensation
Committee approves the compensation of executives of the Company, makes
recommendations to the Board of Directors with respect to standards for setting
compensation levels and administers the Company's incentive plans. The Pension
Committee administers the Company's pension plans. During the fiscal year July
31, 1997, the Compensation Committee met once, the Audit Committee met three
times and the Executive Committee and Pension Committee conferred on a number of
occasions informally.
DIRECTOR COMPENSATION
Pursuant to the Company's Director Stock Option Plan, directors who are not
employees of the Company or affiliates of KNSW, receive 2,500 Options on an
annual basis during their tenure as directors and are paid a quarterly fee of
$3,000. During the fiscal year ended July 31, 1997, Messrs. Andrews, Gaskins,
Frazier and Gildehaus each received 2,500 options to purchase shares of Common
Stock at $4.88 per share.
MANAGEMENT
Set forth below is a table identifying the executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ------------------------------------------
<S> <C> <C>
Thomas A. Gildehaus.................................. 57 Chairman of the Board and Chief Executive
Officer
Richard D. Way....................................... 56 President and Chief Operating Officer
Timothy J. Bondy..................................... 48 Vice President, Chief Financial Officer,
Secretary and Treasurer
Birchel S. Brown..................................... 56 Vice President, Sterling Steel Operations
Kenneth J. Burnett................................... 53 Vice President
William H. Hillpot................................... 45 Vice President--Wire Operations and
Materials Management
Andrew R. Moore...................................... 44 Vice President--Human Resources
David C. Oberbillig.................................. 53 Vice President, Sales--Wire Products
Division
Michael S. Venie..................................... 49 Vice President--Sales and Marketing
</TABLE>
Thomas A. Gildehaus has been Chairman and Chief Executive Officer of the
Company since April 1997 and a Director of the Company since January 1997. From
1992 to April 1997, Mr. Gildehaus was President, Chief Executive Officer and a
Director of UNR. From 1982 to 1992, Mr. Gildehaus was an Executive Vice
President and Director of Deere.
Richard D. Way has been President and Chief Operating Officer of the
Company since September 1996. He had been Senior Vice President--Sterling
Operations of the Company since July 1994 and from January
4
<PAGE> 8
1994 through July 1994, he was Vice President of Operations--Steel Division.
From 1990 through 1993, Mr. Way was Senior Vice President--Manufacturing of
Shieldalloy Metallurgical Corporation.
Timothy J. Bondy has been Vice President, Chief Financial Officer,
Secretary and Treasurer since January 1996. From 1989 to 1995 Mr. Bondy was Vice
President--Finance and Chief Financial Officer of Dean Foods Company and was
Corporate Controller of Dean Foods Company in 1988.
Birchel S. Brown has been Vice President, Sterling Steel Operations since
April 1997. From 1994 to 1996, Mr. Brown was Senior Vice President, Operations
of Bar Technologies, Inc. He was Vice President and Division Manager for Florida
Steel Corp. from 1993 to 1994 and Manager of Technology and Support for Gladwin
Corp. from 1992 to 1993.
Kenneth J. Burnett, Vice President, had been Vice President of
Operations--Houston of the Company from 1995 through August 1997. From 1990
through 1993 he was the Company's Vice President of Operations--Steel Division.
William H. Hillpot has been Vice President--Wire Operations and Materials
Management since 1996. From 1994 to 1996, he was Vice President--Materials
Management and Business Development and from 1993 through 1994, he was the
Company's Vice President--Business Development. From 1991 to 1992, he was Vice
President--Materials and Information Management of Armco Steel Company, L.P.
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.
David C. Oberbillig has been Vice President, Sales--Wire Products Division
of the Company since 1987.
Michael S. Venie has been Vice President--Sales and Marketing since
September 1995. From 1991 through 1995 Mr. Venie was Vice President--Automotive
Marketing of Kaiser Aluminum & Chemical Corporation.
5
<PAGE> 9
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
1997, and the former Chief Executive Officer of the Company.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------- COMPENSATION
FISCAL BONUS --------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) # OPTION AWARDS COMPENSATION
--------------------------- ------ ---------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Thomas A. Gildehaus....................... 1997 116,750 -- 500,000 7,086(2)
Chairman of the Board
and Chief Executive Officer
(since April 14, 1997)
Robert N.Gurnitz.......................... 1997 283,336 -- -- 834,845(3)
Chairman of the Board 1996 380,747 -- 90,000 6,000
and Chief Executive Officer 1995 320,252 325,644 25,000 6,000
(until March 28, 1997)
Richard D. Way(5)......................... 1997 270,125 -- -- 6,475(4)
President and Chief 1996 207,497 -- 35,000 6,025
Operating Officer 1995 169,498 85,696 17,500 5,932
Timothy J. Bondy(6)....................... 1997 191,000 -- -- 4,500(4)
Vice President, Chief 1996 111,415 -- 70,000 23,342
Financial Officer, Secretary
and Treasurer
Michael S. Venie(7)....................... 1997 165,000 -- -- 4,650(4)
Vice President-->Sales and Marketing 1996 141,250 -- 60,000 4,113
William H. Hillpot........................ 1997 138,875 -- --
Vice President--Wire Operations 1996 119,750 -- 12,000 3,593(4)
and Materials Management 1995 107,747 68,557 6,000 3,232
</TABLE>
- - ---------------
(1) All of the fiscal 1995 bonus was accrued in fiscal 1995 and paid in fiscal
1996.
(2) Includes 401(k) contributions made by the Company and $3,000 for services as
an outside director prior to appointment as Chief Executive Officer.
(3) Includes 401(k) contributions made by the Company ($4,250); severance and
consulting payments ($703,436); accrued vacation ($31,058); medical, life
insurance and legal consulting benefits ($66,787); and the value of Company
provided vehicle ($29,314). Mr. Gurnitz received such payments, except
401(k) contributions, in connection with his resignation pursuant to the
terms of his employment agreement with the Company, as supplemented by an
agreement between the Company and Mr. Gurnitz on March 28, 1997, the
effective date of his resignation. In addition to the benefits described
above, the agreements accelerated by one month the vesting of 55,000 shares
held pursuant to options having an average price of $7.68, required Mr.
Gurnitz to forfeit options with respect to an additional 66,334 shares, and
will permit the exercise of all vested options for a period of twenty-four
months.
(4) Company 401(k) contributions.
(5) Mr. Way was named President and Chief Operating Officer in September 1996.
(6) Mr. Bondy was hired effective January 1, 1996.
(7) Mr. Venie was hired effective September 1, 1995.
6
<PAGE> 10
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
----------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS EXERCISE
OPTIONS GRANTED TO FMV AT PRICE EXPIRATION
NAME GRANTED (3) EMPLOYEES GRANT DATE (PER SHARE) DATE
---- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Thomas A. Gildehaus........ 250,000 50% $3.75 $3.75 3/28/2006
250,000 50% $3.75 $4.00 3/28/2006
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM (9 YEARS) (2)
-----------------------------------------------------------
5% 10%
-- ---
AGGREGATE AGGREGATE
POTENTIAL PRICE POTENTIAL POTENTIAL PRICE POTENTIAL
PER SHARE AT REALIZABLE PER SHARE AT RELIZABLE
NAME EXPIRATION VALUE EXPIRATION VALUE
---- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Thomas A. Gildehaus........ $5.82 $517,500 $8.84 $1,272,500
$5.82 $455,000 $8.84 $1,210,000
</TABLE>
- - ---------------
(1) Options become exercisable over three years at the rate of one-third per
year, commencing one year after the date of grant, subject to acceleration
in the event of a "change in control" of the Company (defined the same as in
the agreements described below under the heading "Change in Control
Agreements").
(2) Potential realizable value is presented net of the option exercise price but
before any federal or state income taxes associated with exercise. These
amounts reflect certain assumed rates of appreciation set forth in the
Securities and Exchange Commission's executive compensation disclosure
rules. Actual gains, if any, on stock option exercises depend on future
performance of the Common Stock and overall market conditions.
(3) Options were granted pursuant to an Employment Agreement between the Company
and Mr. Gildehaus. For more information, see "Employment Agreement."
OPTION EXERCISES AND FISCAL YEAR END VALUES FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS/SARS AT
SHARES VALUE OPTIONS/SARS AT FY-END ($)
ACQUIRED ON REALIZED FY-END (#) EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE (1)
---- ------------ -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Thomas A. Gildehaus.......... 0 0 0/500,000 0/0
Robert N. Gurnitz............ 0 0 471,666/471,666 0/0
Richard D. Way............... 0 0 60,832/36,668 0/0
Timothy J. Bondy............. 0 0 16,666/53,334 0/0
Michael S. Venie............. 0 0 22,666/37,334 0/0
William H. Hillpot........... 0 0 63,000/10,000 0/0
</TABLE>
- - ---------------
(1) The closing price of the Common Stock on July 31, 1997 was $1.94.
REPRICING OF OPTIONS
At a meeting on September 15, 1997, the Compensation Committee determined
to reprice all options issued and outstanding under the 1994 Long Term Incentive
Plan, except for 250,000 options awarded to Mr. Gildehaus which remain at the
original exercise price of $4.00 per share. A total of 600,725 shares at an
average price of $6.19 per share were to be exchanged for an equal number of
options at $3.59 per share, the fair market value on September 16, 1997. In
making its decision, the Compensation Committee considered the report of Johnson
Associates, a benefits consulting firm. Johnson Associates reviewed various
alternatives, including the valuation of options using the Black Scholes option
pricing model. The Compensation Committee has concluded that the existing stock
options, which are a key element in the Company's incentive compensation
program, no longer provided sufficient incentives to, nor adequately encouraged,
key personnel to remain in the employ of the Company. The repricing of options
on an even exchange basis is intended to achieve the incentive and retention
value of management stock options.
EMPLOYMENT AGREEMENT
On March 28, 1997, the Company, upon Compensation Committee and Board of
Director approval, entered into an employment agreement with Thomas A. Gildehaus
in connection with his becoming employed by the Company as Chief Executive
Officer. At that time, the Company granted options to Mr. Gildehaus as
7
<PAGE> 11
described above under the heading "Option/SAR Grants in Last Fiscal Year". The
employment agreement provides for a minimum annual salary of $390,000,
participation in the Company's annual short term incentive plan and in the
Company's non-qualified Supplemental Executive Retirement Plan, supplemental
life insurance, a disability income policy and other typical Company benefit
programs. The employment agreement also includes severance benefits if Mr.
Gildehaus is terminated for any reason other than "for cause" or Mr. Gildehaus
terminates his employment with the Company for "good reason" (each as defined in
the agreement), equal to the sum of base compensation and target bonus for the
short term incentive plan then in effect. The employment agreement also contains
a change in control provision. See "Change in Control Agreements" below for
additional information. The employment agreement includes non-competition, non-
solicitation and confidentiality obligations on the part of Mr. Gildehaus.
PENSION PLAN
The Company maintains a pension plan for all eligible employees. A
participant who retires on or after turning 65 and has completed at least five
years of service will qualify for an annual pension equal to 1.155% of the
participant's average earnings for each year of service not in excess of 30
years and 1.26% of the participant's final average earnings for each year of
service in excess of 30 years. Final average earnings are based on total
compensation (exclusive of certain cost-of-living adjustments) during the
participant's highest five consecutive years in the participant's last 15 years
of service. A deferred vested pension benefit normally commencing at age 65 is
provided for any employee who does not qualify for retirement under the plan but
has completed at least five years of service.
Years of service for purposes of the plan with respect to the officers of
the Company named in the Summary Compensation Table are as follows: Mr.
Gildehaus, 0 years; Mr. Way, 3 years; Mr. Bondy, 1 year; Mr. Venie, 2 years; and
Mr. Hillpot, 4 years.
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)
<TABLE>
<CAPTION>
AVERAGE ANNUAL
PENSION EARNINGS 5 YEARS 10 YEARS 20 YEARS 30 YEARS 40 YEARS 50 YEARS
- - ------------------------------------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
- - ---------------
(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.
Upon his resignation from the Company, Mr. Gurnitz became entitled to a
deferred vested pension benefit of $13,565 annually and a non-qualified pension
benefit of $66,000 annually. The non-qualified benefit is an unsecured liability
of the Company.
CHANGE IN CONTROL AGREEMENTS
The Company is party to agreements with Messrs. Way, Bondy, Venie and
Hillpot which provides that in the event of such executive's voluntary or
involuntary termination of employment (other than termination for "good cause"
as defined in the agreements) after a "change in control" of the Company, he
will be entitled to
8
<PAGE> 12
receive payment for (i) accrued salary and vacation pay, (ii) up to twelve
months of base salary, and (iii) bonus payout under any bonus plan or program
covering the executive as of the change in control, prorated for that portion of
the year prior to separation from service. In addition, for the period under
(ii) above, the Company will provide the executive with the most favorable of
benefit plans and programs preceding or after the change in control.
As to Mr. Gildehaus, if either the Company terminates Mr. Gildehaus'
employment with the Company for any reason, or Mr. Gildehaus resigns for "good
reason" within one (1) year following a "change in control", Mr. Gildehaus shall
be entitled, as a severance benefit, to twice the sum of the base compensation
and target bonus then in effect, payable upon such termination.
For purposes of the agreements, a "change in control" of the Company occurs
if (i) a person or entity becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 30% or more of the combined voting
power of the Company's then outstanding securities entitled to vote in the
election of directors of the Company; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors and any new directors who were approved by a vote of at least three
quarters of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination was previously so
approved, cease for any reason to constitute at least a majority thereof; or
(iii) all or substantially all of the assets of the Company are liquidated or
distributed.
In return for the benefits provided by his agreement, each executive agrees
to continue to perform the regular duties of his current office (and/or such
duties of such other positions to which he may be assigned).
RULE 16(B) COMPLIANCE
The Company's executive officers, directors and 10% shareholders are
required under the Securities Exchange Act of 1934, as amended, to file reports
of ownership with the Securities and Exchange Commission. Copies of these
reports must also be furnished to the Company. Based solely upon a review of
copies of such reports, or written representations that no reports were
required, the Company believes that all filing requirements applicable to its
executive officers, directors and 10% shareholders were complied with by such
persons.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
This Report outlines the Company's management compensation philosophy and
reviews the compensation decisions made in fiscal 1997 regarding Mr. Gildehaus
and the other named executives.
MANAGEMENT COMPENSATION PHILOSOPHY
To advance the interests of its shareholders, the Company has based its
management compensation decision on three principles.
First, base salaries should be sufficient to attract and retain qualified
management talent, without exceeding competitive practice at similar
companies in the steelmaking and related industries.
Second, annual incentive programs should provide opportunity for
significant increases in compensation, based on meeting or exceeding
pre-determined performance targets.
Third, a substantial portion of total compensation opportunity should
reflect increased shareholder value, as measured by increases in the
Company's stock price.
9
<PAGE> 13
CRITERIA USED FOR MAKING COMPENSATION DECISIONS IN FISCAL 1997
This section describes the criteria used by the Compensation Committee
regarding compensation decisions affecting Mr. Gildehaus and the named
executives.
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. Due to the reduced level of profitability experienced by the
Company, no base salary adjustments were made in fiscal 1997, except in cases of
promotion to new responsibilities. Mr. Gildehaus was employed by the Company
effective April 14, 1997. See "Employment Agreements" for further information as
to Mr. Gildehaus' compensation.
Annual Incentive Program
In Septemer 1996, the Compensation Committee approved the fiscal 1997
incentive program for the key executives of the Company (including the named
executives). Target awards ranged from 25% to 37% of base salary. Awards were
calculated by formula, based exclusively on the Company's adjusted operating
income performance as compared to the Company's business plan. In fiscal 1997,
the Company achieved less than 85% of its adjusted operating income plan. As a
result, no annual incentive award was earned for fiscal 1997.
Long-Term Incentive Program
In an effort to further increase the alignment of interests between key
employees and shareholders, the 1994 Long-Term Incentive Plan was approved at
the Annual Meeting of Shareholders on January 20, 1994. No awards were made
under the Plan in fiscal 1997, except for an award of 500,000 options to Mr.
Gildehaus in connection with his employment as Chief Executive Officer of the
Company. One-half of the options are exercisable at $3.75 per share and the
balance at $4.00 per share. The fair market value of the Common Stock on the
date of the grant was $3.75 per share. The options vest in one-third increments
on each of the three anniversary dates of the award. After the close of the
Company's fiscal year, the Compensation Committee determined to reprice certain
options. See "Repricing of Options".
Compensation Committee Members as of July 31, 1997
<TABLE>
<S> <C> <C>
James A. Kohlberg(1) Darius W. Gaskins, Jr. Christopher Lacovara
</TABLE>
- - ---------------
(1) Chairman of Compensation Committee
10
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested
on June 11, 1993 (the first day of public trading of the Common Stock) 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 400 INDEX AND S&P STEEL INDEX
ASSUMES $100 INVESTED ON JUNE 11, 1993
Northwestern S&P Steel S&P 400
Date Steel and Wire Index Index
-------------------------------------------------------
6/11/93 $100.00 $100.00 $100.00
7/31/93 103.13 87.48 97.60
7/31/94 115.30 121.63 105.31
7/31/95 125.00 101.58 135.35
7/31/96 64.06 80.76 156.09
7/31/97 24.22 110.12 234.65
-------------------------------------------------------
11
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding beneficial
ownership of Common Stock as of November 1, 1997, by each person or entity known
to the Company who owns of record or beneficially five percent or more of the
Common Stock, by each named officer, directors and director nominee all
executive officers, directors and director nominee as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING
NAME COMMON STOCK COMMON STOCK
---- ------------ -------------
<S> <C> <C>
KNSW Acquisition Company, L.P. (1).......................... 8,687,000 34.3%
United National Bank, as Trustee (2)........................ 3,671,612 14.5
William F. Andrews (3)...................................... 15,520 *
Marion H. Antonini.......................................... -- *
Timothy J. Bondy (3)........................................ 19,000 *
Warner C. Frazier (3)....................................... 7,500 *
Darius W. Gaskins, Jr. (3).................................. 25,000 *
Thomas A. Gildehaus (3)..................................... 137,500 *
Robert N. Gurnitz (3)....................................... 471,667 1.9
David L. Gore............................................... 400 *
William H. Hillpot (3)...................................... 55,750 *
James A. Kohlberg (5)....................................... 8,687,000 34.3
Christopher Lacovara (5).................................... 8,687,000 34.3
Michael E. Lubbs (4)........................................ 6,948 *
Albert G. Pastino........................................... -- *
George W. Peck IV........................................... -- *
Michael S. Venie (3)........................................ 15,000 *
Richard D. Way (3).......................................... 52,161 *
All executive officers and directors and director nominee as
a group (18 persons) (5).................................. 9,123,537 36.7
</TABLE>
- - ---------------
* Less than 1%.
(1) KNSW owns directly 8,687,000 shares of Common Stock. Kohlberg Associates,
L.P., a Delaware limited partnership ("Associates"), is the general partner
of KNSW. Kohlberg & Kohlberg, L.L.C., is the general partner of Associates.
KNSW has agreed to use its reasonable best efforts to cause at least one
designee of the ESOP to be nominated to the Board of Directors. Messrs.
Kohlberg and Lacovara may be deemed to share voting and dispositive power as
to all shares of Common Stock owned by KNSW. Messrs. Kohlberg and Lacovara
disclaim beneficial ownership with respect to such shares. The address for
KNSW is c/o Kohlberg & Co., 111 Radio Circle, Mt. Kisco, NY 10549.
(2) United National Bank is the trustee of the ESOP. The address for United
National Bank is 1501 Market St., Wheeling, WV 25003. The Company is in the
process of terminating the ESOP, effective March 31, 1997. Application to do
so was filed with the Internal Revenue Service on August 4, 1997 and is
pending.
(3) Includes shares issuable pursuant to options which may be exercised within
60 days after November 1, 1997.
(4) Includes ownership interest in the ESOP.
(5) Includes the 8,687,000 shares of Common Stock owned by KNSW. See Note 1.
12
<PAGE> 16
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.
Pursuant to the terms of the ESOP, the Company is obligated to pay certain
fees and expenses of the ESOP, which for the year ended July 31, 1997 aggregated
$125,000.
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 September 15, 1998 and must satisfy the conditions
established by the Securities and Exchange Commission for shareholder proposals
to be included in the Company's proxy statement for that meeting.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the Annual Meeting, other than those mentioned in the Company's Notice of Annual
Meeting of Shareholders enclosed herewith. If any other matters are properly
brought before the Annual Meeting, it is intended that the persons named in the
proxy will vote as the Board of Directors directs.
By Order of the Board of Directors
Timothy J. Bondy
Secretary
Sterling, Illinois
November 17, 1997
13
<PAGE> 17
SKU#4906-PS-97
<PAGE> 18
NORTHWESTERN STEEL AND WIRE COMPANY
121 Wallace Street
Sterling, Illinois 61081-0618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P R O X Y
The undersigned holder of shares of Common Stock (the "Common Stock")
of Northwestern Steel and Wire Company (the "Company") hereby appoints Thomas
A. Gildehaus and Timothy J. Bondy, 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 November 7, 1997, at the Annual
Meeting of Shareholders of the Company to be held on Wednesday, December 17,
1997 at 10:30 a.m. Central Time at Bank of America, Shareholders' Room - 21st
Floor, 231 South LaSalle Street, Chicago, Illinois and at any adjournments
thereof upon the following matters set forth on the reverse side.
-------------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE | SEE REVERSE |
| SIDE |
-------------------
<PAGE> 19
[ ] Please mark
votes as in
this example
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 ITEMS BELOW and in accordance with the
determination of the Board of Directors as to other matters.
1. ELECTION OF DIRECTORS
NOMINEES: Marion H. Antonini, Warner C. Frazier, James A. Kohlberg,
Christopher Lacovana and George W. Peck IV
FOR WITHHELD
[ ] [ ]
[ ]
---------------------------------------
For all nominees except as noted above
Signature Date
----------------------------- --------------------
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournments thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
Please date and sign exactly as your name appears at left. 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.
Signature Date
----------------------------- --------------------
