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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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
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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:
- --------------------------------------------------------------------------------
(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.:
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(3) Filing party:
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(4) Date filed:
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[NORTHWESTERN STEEL AND WIRE COMPANY LOGO]
FEBRUARY 17, 2000
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, March 21, 2000,
at 9:00 a.m. Central Standard Time, at The Chicago Downtown Marriott Hotel, 540
North Michigan Avenue, 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 six 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 inches and 24 inches 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.
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
<PAGE> 3
[NORTHWESTERN STEEL AND WIRE COMPANY LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 21, 2000
---------------------
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, March 21, 2000, at
9:00 a.m., Central Standard Time, at The Chicago Downtown Marriott Hotel, 540
North Michigan Avenue, 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 six 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 January 26, 2000
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 March 11, 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
February 17, 2000
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.
<PAGE> 4
[NORTHWESTERN STEEL AND WIRE COMPANY LOGO]
121 WALLACE STREET
STERLING, ILLINOIS 61081-0618
PROXY STATEMENT
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 The Chicago Downtown Marriott Hotel, 540 North
Michigan Avenue, Chicago, Illinois on Tuesday, March 21, 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, March 21, 2000, at 9:00 a.m. Central
Standard Time at The Chicago Downtown Marriott Hotel, 540 North Michigan Avenue,
Chicago, Illinois. At the meeting, you will be asked to consider and vote upon
proposals to approve an amendment to our articles of incorporation to effectuate
a one-for-ten reverse stock split of our outstanding common shares, par value
$0.01 per share; approve the issuance of our common shares 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; adopt the 2000 Stock Incentive
Plan; approve a prepackaged bankruptcy plan, in advance, should filing of such
plan become necessary to effectuate the exchange offer; and elect the nominated
directors.
RECORD DATE AND SHARES ENTITLED TO VOTE
The Board of Directors has fixed the close of business on January 26, 2000
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 offer 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.
- 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.
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- 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 37.7% 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 as a result will be unable 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 consummate the exchange offer, 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, we will be unable to meet the listing requirements of
the Nasdaq National Market unless market conditions significantly change so that
the minimum bid price of our common shares equals or exceeds the minimum listing
requirement of $4.00 per share. For a discussion on the recent delisting of our
common shares, see "RISK FACTORS -- Liquidity of Common Shares."
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.
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 record
holder by submitting a proxy with a vote on Proposal Four will be indicating
that such vote has been duly authorized by the beneficial owner of the common
shares.
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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 his 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 REPORTS
This proxy statement is first being mailed or otherwise delivered to
shareholders on or about February 17, 2000, and is accompanied by our Annual
Report on Form 10-K for the fiscal year ended July 31, 1999 and our Quarterly
Report on Form 10-Q for the quarter ended October 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; whether we can obtain approval of the exchange
offer by 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.
Except as required by the Federal Securities Laws, we assume no obligation to
update the information contained herein.
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
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decrease from 37.7% to 11.3% and the ownership interests of other current
shareholders will decrease from 62.3% to 18.7%.
Liquidity of Common Shares. On December 17, 1999, our common shares were
delisted from trading on the Nasdaq National Market due to our current inability
to meet the minimum bid price requirement of $1 per share for continued listing.
Our common stock is now traded on the over-the-counter market and quoted on the
National Association of Securities Dealers, Inc. electronic bulletin board, and
will continue to do so unless we are able to meet the minimum bid price
requirements to regain our listing on the Nasdaq National Market. The
over-the-counter market and the NASD do not provide the same type of trading
information as Nasdaq, and the over-the-counter market does not provide the same
liquidity for the trading of securities as Nasdaq. Therefore, it will be more
difficult for you to (1) quickly and accurately obtain price quotations for our
common stock from these sources and (2) sell our common stock in the
over-the-counter market.
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 -- "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. Other risks include the possibility 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. The effectiveness of the prepackaged plan is also
subject to certain conditions, most significantly that on or before the
effective date of the plan: (1) an order confirming the prepackaged plan shall
have been entered and become final, (2) we shall have received the new senior
debt necessary to fund completion of the new mill and (3) we shall have obtained
a revolving credit facility to fund our working capital needs (which we expect
will be a continuation of our existing credit facility or be provided by our
current revolving credit lender). No assurances can be given that these
conditions will be satisfied or waived or that any necessary consent will be
obtained. Additionally, if we have failed to complete the exchange within 75
days after notification that our application for a guarantee under the Steel
Loan Guarantee Act has been approved, the holders of our senior notes may
withdraw their acceptances of the prepackaged plan. Failure to confirm the
prepackaged plan would prevent the closing of the exchange, and most likely
would result in revocation of any approval of a guarantee under the Steel Loan
Guarantee Act.
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. The new collective
bargaining agreement is a critical component of our strategic plan. We
anticipate that the new collective bargaining agreement, once implemented and
effective, will allow us to staff and schedule our operations more efficiently
and will therefore result in significant savings. Many of the changes, however,
have not yet been fully implemented or tested. There can, therefore, be no
guarantee that all of these anticipated savings will materialize.
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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 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:
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
notification that our application for a guarantee under the Steel Loan Guarantee
Act covering 85% of the new senior debt has been approved. If the guarantee is
not approved 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
Exchange Offer. We do not currently have a sufficient number of authorized
shares to issue the common shares which will be required by the exchange offer.
The reverse stock split will reduce the number of outstanding shares but not the
number of authorized shares, thereby leaving us with sufficient authorized
shares to complete the exchange offer.
Nasdaq Requirements. Our common shares were delisted from the Nasdaq
National Market on December 17, 1999, for failure to meet the $1.00 per share
minimum bid price requirement established by the Nasdaq marketplace rules for
continued listing. Our common shares are currently traded on the over-the-
counter market and quoted on the National Association of Securities Dealers,
Inc. electronic bulletin board.
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In order to regain our eligibility to list our common shares on the Nasdaq
National Market, we must meet the initial listing requirements, which include
that the minimum bid price of our common shares equals or exceeds $4.00 per
share. 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
initial listing requirements of the Nasdaq marketplace rules and is more
appropriate for an exchange-listed security. We currently meet the remaining
listing requirements and believe that we will continue to do so, however there
can be no guarantee that we will meet all the listing requirements in the
future.
While the board believes the reverse stock split is necessary to regain our
eligibility to list our common shares with the Nasdaq National Market, 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 their marketability
for the following reasons:
- 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;
- 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; and
- it is more difficult to quickly and accurately obtain price quotations
and sell securities traded on the over-the-counter electronic bulletin
board.
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 are approved for a guarantee
for the new senior debt under the Steel Loan Guarantee 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 the approval of
a guarantee under the Steel Loan Guarantee Act covering 85% 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
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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 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;
- substantially affect your voting rights or other privileges, unless you
hold less than ten common shares before the reverse stock split; or
- reduce the number of shareholders so as to jeopardize our ability to list
our common shares on the Nasdaq National Market.
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:
<TABLE>
<CAPTION>
BEFORE REVERSE AFTER REVERSE
NUMBER OF COMMON SHARES: STOCK SPLIT STOCK SPLIT
------------------------ -------------- -------------
<S> <C> <C>
Authorized.................................................. 75,000,000 75,000,000
Outstanding on record date.................................. 24,484,823 2,448,482
Outstanding after completion of Exchange Offer.............. N/A 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
-- See "Proposal 3")...................................... 9,068,453 906,845
</TABLE>
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.
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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 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
recapitalization 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
which will either (i) be taxed as a dividend to the extent of the cash
you receive or (ii) be taxed as a sale of fractional shares, in which
event you will recognize capital gain or loss;
- the tax basis of the new common shares you receive will be the same as
the tax basis of the shares that you exchange, increased by your tax
basis in any fractional shares sold if the sale of such shares is taxed
as a dividend; 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 unable to renew
the listing of our common stock on the Nasdaq National Market unless market
conditions significantly change so that the minimum bid price of our common
shares equals or exceeds the minimum listing requirement of $4.00 per share.
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.
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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.
In order to realize the benefits of the new collective bargaining agreement
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 representing approximately 53% of all senior note
holders. As of the date of this proxy statement, approximately 75.4% of the
outstanding principal amount of senior notes held by all note holders had been
validly tendered. We are continuing to solicit support for the exchange. We have
attached certain documents presented or supplied to the committee members or all
the senior noteholders which may assist you in deciding how to vote. These
documents are the Presentation to Noteholders presented to the members of the
informal committee on September 30, 1999, attached as Exhibit A; the Liquidation
Analysis provided to all the holders of the senior notes on December 14, 1999,
attached as Exhibit B; and the Projected Financial Information provided to all
the holders of the senior notes on December 14, 1999, attached as Exhibit C.
If the exchange offer is approved by a sufficient number of the senior note
holders and all the other conditions to the exchange offer 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 plant
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, which has been ratified by the United Steel
Workers of America but is contingent upon receiving financing for the new
mill project; and
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- implementing certain management initiatives, including (i) a new safety
plan, (ii) a structured maintenance plan, and (iii) a total quality
management ("TQM") system.
The goal of the strategic plan is to position Northwestern Steel and Wire
as 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.
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 capacity 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 14-16 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 and reductions 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 February 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" below 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
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reducing the number of employees by 400 by the time the new mill is fully
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 near completion 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 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, continuous 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 more efficient and competitive operations, as well as a more 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
United States. 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 offer. It is anticipated that
satisfaction of all conditions to the closing of the exchange offer 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."
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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.
On February 3, 2000, we submitted an application 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 no later than 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.
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.
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 for the issuance of
our common shares in the exchange offer and provided shareholder approval, to
the extent otherwise necessary, is not obtained to accomplish the exchange
through a prepackaged bankruptcy plan, 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.
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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 for 100% of the senior notes 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) out of a possible seven (7) seats on our board of
directors to be filled by 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.
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
Loan Guarantee 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
satisfy all other conditions to the exchange offer, then we will consummate the
exchange offer 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,
procure acceptances of a prepackaged plan 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 and if necessary, receive the approval of the shareholders
for the prepackaged bankruptcy plan, we may implement the exchange through a
prepackaged bankruptcy filing. 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.
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:
<TABLE>
<CAPTION>
SENIOR NOTE HOLDERS OTHER SHAREHOLDERS TOTAL
------------------- ------------------ -----
<S> <C> <C> <C>
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%)
</TABLE>
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Assuming that the shareholders approve the reverse stock split, the reverse
stock split will precede the issuance of common shares pursuant to the exchange
offer. Accordingly, if no additional shares are issued between the record date
and the date the exchange offer 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 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 by the board.
In connection with the proposed exchange offer, 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. We
have received the consent of record holders of a majority in aggregate principal
amount of the senior notes to the proposed amendments and 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 three of our directors and appointment to our board of
four persons designated by the holders of a majority of principal 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 and the issuance of
common stock in the exchange offer; 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 offer 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.
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In reaching its decision to approve the 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:
- 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;
- 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;
- the unique opportunity presented by the Steel Loan Guarantee Act to
obtain financing for our strategic plan;
- the dilution of the ownership interest of our existing common
shareholders from 100% to 30%; and
- the ability of the informal committee of senior noteholders to select a
majority of the board.
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. All but the
last two factors listed above (dilution and board control) supported the board's
decision. Both the percentage dilution to common shareholders and the ability of
the informal committee to select a majority of the board were the result of
extensive negotiations. Our initial proposal to the informal committee would
have resulted in less than 50% dilution and would have allowed the informal
committee to select two out of seven members of the board. It became apparent
during negotiations that we would have to issue more common stock and allow the
informal committee to select a majority of the board in order to gain the
support of its members. Accordingly, the board decided that the factors that
supported its decision to approve the exchange offer were sufficient to justify
the resulting dilution and loss of board control.
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.
EFFECT OF THE EXCHANGE OFFER ON COMMON SHAREHOLDERS
After consummation of the exchange offer the ownership interest of existing
holders of the common shares will be diluted from 100% to 30%. That ownership
interest will be subject to further dilution under the new management option
plan. In addition, three of the six directors that shareholders elect at this
meeting will resign and be replaced by four persons designated by the informal
committee. At the next annual meeting, directors will be elected by the vote of
a majority of the common shares present in person or represented by proxy and
who actually vote.
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.
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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 Northwestern Steel and Wire
Company as of October 31, 1999, for the year ended July 31, 1999 and for the
three months ended October 31, 1999, adjusted to give effect to the disposition
of the Hickman, Kentucky concrete reinforcing mesh facility, the proposed
exchange and other matters, collectively referred to as the "Pro Forma
Adjustments". The exchange is contingent upon several conditions, which are more
fully described 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.
We have applied 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 no later than
December 31, 2005, bearing an interest rate of approximately 13%. If we are
unable to obtain a guarantee in an acceptable amount upon acceptable terms, we
do not believe that we will be able to finance the new mill. The proposed new
senior debt and the related interest expense have not been included in the
following unaudited pro forma consolidated financial information. The estimated
additional interest expense that would be incurred on the $170 million of new
senior debt is $22.1 million and $5.5 million for the year ended July 31, 1999
and the three months ended October 31, 1999, respectively.
The unaudited pro forma consolidated statements of operations for the year
ended July 31, 1999 and the three months ended October 31, 1999 give 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 October 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 our Form 10-K for the year ended 1999 and in our Form 10-Q for the
three months ended October 31, 1999, which financial statements are incorporated
by reference into this proxy statement.
16
<PAGE> 20
NORTHWESTERN STEEL AND WIRE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
BALANCE SHEET
AS OF OCTOBER 31, 1999
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
INCREASES/(DECREASES)
---------------------
HISTORICAL EXCHANGE PRO FORMA
---------- --------------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 10,356 $ 42,144A $ --
(52,500)A
Receivables, less allowances of $420.............. 34,252 34,252
Inventories....................................... 55,275 55,275
Income tax receivable............................. 4,806 4,806
Other assets...................................... 2,964 2,964
-------- --------- --------
TOTAL CURRENT ASSETS...................... 107,653 (10,356) 97,297
PLANT AND EQUIPMENT, at cost, less accumulated
depreciation of $176,442.......................... 125,641 125,641
DEFERRED INCOME TAXES............................... 47,585 (9,327)B 38,258
DEFERRED FINANCING COSTS............................ 1,505 1,505
OTHER ASSETS........................................ 20,437 20,437
-------- --------- --------
TOTAL ASSETS.............................. $302,821 $ (19,683) $283,138
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 26,121 $ 26,121
Accrued expenses.................................. 29,935 29,935
Current portion of long term debt................. 609 $ 42,144A 42,753
-------- --------- --------
TOTAL CURRENT LIABILITIES................. 56,665 42,144 98,809
LONG TERM DEBT...................................... 115,626 (115,000)A 712
86C
OTHER LONG TERM LIABILITIES......................... 91,816 91,816
-------- --------- --------
TOTAL LIABILITIES......................... 264,107 (72,770) 191,337
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share:
Authorized -- 1,000,000 shares; Issued - none
Common stock, par value $0.01 per share:
Authorized -- 75,000,000 shares; Issued -
24,905,424 shares (82,036,734 shares on a pro
forma basis)................................. 123,973 16,500A 140,473
Retained (deficit)................................ (79,934) (86)C (43,347)
46,000A
(9,327)B
Treasury shares, at cost; 420,601 shares.......... (5,325) (5,325)
-------- --------- --------
TOTAL SHAREHOLDERS' EQUITY................ 38,714 53,087 91,801
-------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $302,821 $ (19,683) $283,138
======== ========= ========
</TABLE>
17
<PAGE> 21
NORTHWESTERN STEEL AND WIRE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
INCREASE/(DECREASE)
----------------------
JULY 31, 1999 HICKMAN JULY 31, 1999
HISTORICAL DISPOSITION EXCHANGE PRO FORMA
------------- ----------- -------- ------------- I
<S> <C> <C> <C> <C> <C>
Net sales................................... $349,345 $(6,731) $342,614
Cost and operating expenses:
Cost of goods sold (excluding
depreciation).......................... 337,013 (6,219) $ 2,514D 333,808
Depreciation.............................. 14,476 (801) 13,675
Selling and administrative................ 11,350 (236) 11,114
Non-recurring items....................... 46,291L (2,514)D 43,777
-------- ------- -------- --------
TOTAL COST AND OPERATING
EXPENSES........................ 409,130 (7,256) 401,874
-------- ------- -------- --------
Operating loss............................ (59,785) (525) (59,260)
-------- ------- -------- --------
Other income and expenses:
Interest expense.......................... 12,846 (228) (12,726)E 2,935
3,043F
Interest and other income................. (1,327) 1,288G (39)
-------- ------- -------- --------
TOTAL OTHER INCOME AND EXPENSES... 11,519 (228) (8,395) 2,896
-------- ------- -------- --------
Loss income before income taxes............. (71,304) (753) (62,156)
Benefit for income taxes.................... (25,957) 297 3,274H (22,386)
-------- ------- -------- --------
NET LOSS.................................... $(45,347) $ (456) $ (5,121) $(39,770)J
======== ======= ======== ========
Net loss per share.......................... $ (1.85) $ (0.49)K
======== ========
</TABLE>
18
<PAGE> 22
NORTHWESTERN STEEL AND WIRE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 3 MONTHS ENDED OCTOBER 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
INCREASE/(DECREASE)
OCTOBER 31, 1999 --------------------- OCTOBER 31, 1999
HISTORICAL EXCHANGE PRO FORMA I
---------------- --------------------- ----------------
<S> <C> <C> <C>
Net sales................................... $87,131 $87,131
Cost and operating expenses:
Cost of goods sold (excluding
depreciation).......................... 86,545 86,545
Depreciation.............................. 3,264 3,264
Selling and administrative................ 3,408 3,408
Non-recurring items....................... -- --
------- -------
TOTAL COST AND OPERATING
EXPENSES........................ 93,217 93,217
------- -------
Operating loss............................ (6,086) (6,086)
------- -------
Other income and expenses:
Interest expense.......................... 3,308 $(3,114)E 1,313
1,119F
Interest and other income................. (1,282) 385G (897)
------- ------- -------
TOTAL OTHER INCOME AND EXPENSES... 2,026 (1,610) 416
------- ------- -------
Loss income before income taxes............. (8,112) (6,502)
Benefit for income taxes.................... -- --
------- ------- -------
NET LOSS.................................... $(8,112) $(1,610) $(6,502) J
======= ======= =======
Net loss per share.......................... $ (0.33) $ (0.08) K
======= =======
</TABLE>
FOOTNOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
A To reflect the execution of the exchange; including the payment of cash
($52,500), increased borrowings under the company's new revolving credit
facility ($42,144), 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. The issuance of new senior debt may
reduce the amount of increased borrowings needed under the revolving
credit facility to finance the payment of cash in the exchange.
B 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.
C To reflect the remaining unamortized discount associated with the senior
notes.
D To reflect the reclassification of the inventory write-down associated
with the 1999 non-recurring item as cost of goods sold. This adjustment
is a correction in classification which will be reflected as such in all
future periods.
E To reflect the reduction of interest expense associated with the senior
notes.
19
<PAGE> 23
F To reflect interest expense for borrowings under the new revolving credit
facility necessary to effect the exchange.
G To reflect the reduction in interest income related to excess cash used
in the exchange.
H To record the tax impacts of the Pro Forma Adjustments utilizing a 39%
effective rate.
I The unaudited pro forma consolidated statements of operations do not
include non-recurring items related to the exchange, including 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.
J The proposed new senior debt and the related interest expense have not
been included in the unaudited pro forma consolidated financial
information. The estimated additional interest expense that would be
incurred on the $170,000 of new senior debt is $22,100 and $5,500 for the
year ended July 31, 1999 and the three months ended October 31, 1999,
respectively.
K 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.
L During the first quarter of fiscal 1999, we announced the closure of our
unprofitable wire fabricating operation. As a result, we recorded a
one-time, non-recurring pre-tax charge of approximately $41,600. The
charge was primarily non-cash and included the write-down to estimated
fair market value of the facility and equipment related to the wire
operations, closure costs, and employee termination expenses for
approximately 330 people as follows:
<TABLE>
<S> <C>
Asset impairment.................................... $ 3,889
Inventory write-down................................ 2,514
Employee termination expense, including pension and
post-retirement impacts........................... 33,100
Other............................................... 2,094
-------
$41,597
=======
</TABLE>
The last affected production departments ceased operations in November
1998 and shipments ceased in March 1999.
As of the closure of the wire fabricating operations, we identified
approximately $9,900 in related fixed assets. A significant amount of the
identified fixed assets were reconfigured to be utilized in our on-going
operations. The asset impairment charge for the wire operations includes
primarily machinery and equipment utilized in the wire operations that
cannot be utilized elsewhere in our on-going production process. The net
book value of the impaired fixed assets was $4,100. Due to the age of
these wire fabricating fixed assets, we did not believe it was likely
that they would recover a significant portion of the remaining net book
value. In the fourth quarter of 1999, we amended our original asset
impairment estimate based on actual proceeds received on the sale of the
wire operations fixed assets of $1,900. This reduced the non-recurring
charge by $1,700.
We attempted to utilize as much of the raw materials in the wire facility
as possible during the wind-down of operations as the materials are not
utilized elsewhere in our production process. As a result, a significant
amount of finished goods inventory beyond the normal capacity
requirements existed. We began to "fire sale" the finished goods
inventory to reduce the remaining balance and have estimated the
write-down based upon discussions with third parties regarding the
current market price third parties are willing to pay given the current
situation.
The closure of the wire mill resulted in the termination or forced
retirement of employees, consisting primarily of hourly wire mill workers
covered under our current collective bargaining agreement with our union
as well as certain salary administrative personnel affiliated with the
wire mill. The employee termination charge consists of a pension
curtailment charge, a post-retirement curtailment charge,
20
<PAGE> 24
special termination benefits required pursuant to the existing collective
bargaining agreement, severance, vacation pay and WARN pay. Approximately
100 hourly employees included in the original estimate of terminations
were able to find employment elsewhere within our steel operations,
resulting in lower employee termination expense than originally estimated
(primarily WARN pay, severance and vacation pay). Approximately 150
employees elected the retirement option (as opposed to approximately 135
included in the original estimate) pursuant to the collective bargaining
agreement resulting in higher employee retirements than originally
estimated. The net impact of lower employee terminations and higher
employee retirements resulted in our reducing our employee termination
charge by approximately $2,700 in the third quarter of fiscal 1999. As of
October 31, 1999, we had remaining reserves of approximately $1,700 for
unpaid employee termination expenses, which are expected to be spent
during the next one to three fiscal years. The number of employees
terminated through October 31, 1999 was 226.
The "Other" charge associated with the closure of the wire fabricating
operation includes the write-off of wire mill deferred expenses as of the
closure date and an estimate of expenses related to the clean up of the
facility. As of October 31, 1999, approximately $700 of the "Other"
charge remains and is expected to be expended in fiscal 2000.
The estimated annual revenue and net operating income related to the wire
operations that will not be continued are $72,600 and $108, respectively.
These amounts have been estimated by utilizing the 1998 results for the
wire operations.
During the third fiscal quarter of 1999, we sold our Hickman facility for
approximately $8,300. The sale included all of the assets at the facility
including the real estate, equipment, inventory and operating supplies on
site as of April 30, 1999. The sale resulted in a one-time charge of
approximately $8,200, which was primarily non-cash and included the
write-down of the land, buildings, equipment and inventory to the
contract price.
During fiscal 1997, we closed our Houston rolling mill, incurring a
one-time, non-recurring charge of approximately $92,900. The charge was
primarily for the write-down of facilities and equipment to estimated
fair market value. The property has been marketed since that time and in
the fourth fiscal quarter of 1999, the facility was sold for cash of
approximately $9,900. As a result of the sale of the Houston facility in
the fourth quarter of 1999, and the sale of remaining equipment
subsequent to year end, we recorded an additional non-recurring charge of
approximately $900 in the fourth quarter of fiscal 1999 to write-down
these assets to their realized value. At July 31, 1999 no reserves remain
related to the Houston mill closure.
The on-going annual revenue and net operating (losses) related to the
Houston mill that have been eliminated from our annual operating results
in fiscal 1998 were $133,910 and $(9,443), respectively. These amounts
have been estimated by utilizing the 1997 results of operations for the
Houston mill, excluding the non-recurring charge.
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.
21
<PAGE> 25
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 approximate number of people eligible to
participate in the plan is 260. Of the 260 people eligible to participate ten
are classified as officers and/or directors and 250 are classified as employees.
There are no consultants or advisors currently eligible to participate in the
plan. The purpose of the plan 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 shareholders
through compensation that is directly linked to the profitability of our
business and increases in shareholder 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 by our board of directors.
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 offer. 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 shares;
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 all material provisions of the plan is
qualified in its entirety by reference to the full text of the plan which is
attached as Exhibit D.
SUMMARY OF PROVISIONS
The board of directors approved the adoption of the 2000 Stock Incentive
Plan effective as of November 18, 1999, subject to shareholder 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 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 400,000 shares of common stock
22
<PAGE> 26
reserved under the plan may be granted to any participant during any fiscal
year. The plan's major provisions include:
Stock Options may be either "incentive stock options" (within the meaning
of Section 422 of the Code) or nonstatutory options. The exercise price per
share purchasable under an option shall be determined at the time of grant by
the compensation committee. If the stock option is intended to qualify as an
incentive stock option, the exercise price per share may not be less than the
fair market value of the common stock on the date of grant. The closing price of
the common shares on February 8, 2000 was $0.562. 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 our option, we 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
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,
provided that no such amendment shall be made without the approval of the
Company's shareholders to the extent such approval is required by law, agreement
or rules of any stock exchange or market where the common shares are listed.
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 are 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 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
23
<PAGE> 27
(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 or, if the per share exercise price equals or exceeds the
change in control price, the outstanding awards shall terminate
and be cancelled.
- 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.
EFFECT OF FEDERAL INCOME TAXATION
The following summary of tax consequences with respect to the awards
granted under the Plan is based upon laws and regulations in effect on January
1, 2000, and summarizes in all material respects the tax consequences for those
individuals subject to the tax laws of the United States of America. 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 due to their particular situation or circumstances.
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.
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 a stock appreciation right for common shares, the fair
market value of the shares on the date of exercise is used. We, in computing our
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
24
<PAGE> 28
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 Northwestern 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.
BOARD OF DIRECTORS RECOMMENDATION
The board has determined that the adoption of the 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.
25
<PAGE> 29
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 offer 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 offer 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 $8-10
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 material 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 offer (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 offer 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. We recommend that
you read a copy of the proposed plan which is attached hereto as Exhibit E.
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 offer documents submitted to the holders of our senior
notes, including additional valuation information, please contact Thomas M.
Vercillo, our Vice President -- Finance, at (815) 625-2500.
We are seeking your vote for the prepackaged plan in the event that it
becomes necessary to use a bankruptcy proceeding to conclude the exchange offer
and in the event that your interests would be determined to be impaired in such
bankruptcy. If our shareholders approve the Prepackaged Bankruptcy Plan attached
to this proxy statement, we shall, if necessary, through a bankruptcy
proceeding, effectuate the exchange offer and proposals 1, 2 and 3.
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.
26
<PAGE> 30
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.
<TABLE>
<CAPTION>
NAME AGE SERVED AS DIRECTOR SINCE
- ---- --- ------------------------
<S> <C> <C>
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
Christopher Lacovara(2)(3)(4)............................... 35 1992
</TABLE>
- ---------------
(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 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 from January 1997
until the present. 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").
27
<PAGE> 31
Christopher Lacovara has been a Principal of Kohlberg & Co., L.L.C., a
private merchant banking firm, since 1995 and an associate of Kohlberg & Co.,
L.L.C. 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 and Gildehaus 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. He is currently the Vice President of Investment Banking for The Renco
Group, Inc., a private equity manager in New York, where he 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 1990
until 1996. 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 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 1991. 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 Williams Enterprises of
Georgia, Inc., a diversified steel fabrication and construction company, since
1967.
28
<PAGE> 32
SECURITY OWNERSHIP OF NEW BOARD MEMBERS
The table below sets forth certain information regarding beneficial
ownership of common shares as of January 26, 2000, by those individuals who
would be appointed to the board upon the consummation of the exchange offer.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME OF COMMON STOCK(1) COMMON STOCK(2)
- ---- ------------------ ---------------
<S> <C> <C>
James N. Chapman(3)........................................ 0 *
James Dondero(4)........................................... 4,967,940 6.1%
Michael E. Lewitt(5)....................................... 5,164,174 6.3%
Frank E. Williams(6)....................................... 130,000 *
</TABLE>
- ---------------
* Signifies less than 1%.
(1) Assumes that the exchange has been consummated prior to January 26, 2000 but
does not reflect the Reverse Stock Split.
(2) Assumes 81,616,133 shares outstanding after the exchange offer is
consummated.
(3) The address for Mr. Chapman is 14 Alpine Rd., Greenwich, Connecticut 06830.
(4) Highland Capital, for which Mr. Dondero is President and Chief Investment
Officer, is the portfolio manager of three funds which own senior notes and
upon the consummation of the exchange offer will own 4,967,940 common shares
of Northwestern Steel and Wire Company. Mr. Dondero disclaim beneficial
ownership with respect to such shares. The address for Mr. Dondero is 3800
Shenandoah, Highland Park, Texas 75205.
(5) Mr. Lewitt is the Executive Vice President of Harch Capital Management, Inc.
which owns senior notes and upon the consummation of the exchange offer will
own 5,164,174 common shares of Northwestern Steel and Wire Company. Mr.
Lewitt disclaim beneficial ownership with respect to such shares. The
address for Mr. Lewitt is 8600 Twin Lake Dr., Boca Raton, Florida 33496.
(6) The address for Mr. Williams is 2789 S Hartland RD., Falls Church, Virginia
22043.
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 James A. Kohlberg (who resigned as
a director effective as of February 8, 2000), 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.
29
<PAGE> 33
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.
MANAGEMENT
Set forth below is a table identifying the executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
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
</TABLE>
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 held
the positions of Manager, Construction Coordination and Manager, Material
Handling Services at Ispat Inland and Birmingham Steel Company.
30
<PAGE> 34
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.
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").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
FISCAL # OPTION ALL OTHER
NAME AND TITLE YEAR SALARY BONUS(1) AWARDS COMPENSATION
- -------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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 -- --
</TABLE>
- ---------------
(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.
31
<PAGE> 35
(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.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(2)
-------------------------------------------------- -----------------------------------
5% 10%
---------- ----------- ---------- ---------- ---------------- ----------------
% OF TOTAL
NUMBER OF OPTIONS EXERCISE AGGREGATE AGGREGATE
OPTIONS GRANTED TO PRICE (PER EXPIRATION POTENTIAL POTENTIAL
NAME GRANTED(1) EMPLOYEES SHARE) DATE REALIZABLE VALUE REALIZABLE VALUE
- ---- ---------- ----------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Frederick J. Rocchio,
Jr. .................... 400,000 42.0% $ 1.50 11/18/2003 $165,769 $366,306
Thomas A. Gildehaus(3).... 2,500 N/A $ 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
</TABLE>
- ---------------
(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.
32
<PAGE> 36
OPTION EXERCISES AND FISCAL YEAR END VALUES FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON EXERCISE REALIZED FY-END (#) EXERCISABLE FY-END ($) EXERCISABLE
NAME (#) ($) /UNEXERCISABLE /UNEXERCISABLE(1)
---- ----------- -------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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 OF 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 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. This belief is premised on two
factors. First, based on the present ownership of our senior notes, no one
entity or
33
<PAGE> 37
individual will acquire more than 30% of our outstanding voting securities upon
the consummation of the exchange offer. Second, the four new directors will be
appointed by the present directors. 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)
<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.
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
34
<PAGE> 38
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.
- 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.
35
<PAGE> 39
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
<TABLE>
<S> <C> <C>
James A. Kohlberg(1)(2) Darius W. Gaskins, Jr. Christopher Lacovara
</TABLE>
- ---------------
(1) Chairman of Compensation Committee
(2) Mr. Kohlberg resigned as a director of Northwestern Steel and Wire Company
effective as of February 8, 2000
36
<PAGE> 40
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
[GRAPH]
<TABLE>
<CAPTION>
NORTHWESTERN STEEL & WIRE S&P STEEL INDEX S&P 400 INDEX
------------------------- --------------- -------------
<S> <C> <C> <C>
7/29/94 100.00 100.00 100.00
7/31/95 108.11 83.52 128.52
7/31/96 55.41 66.40 148.22
7/31/97 20.95 90.54 222.82
7/31/98 31.76 68.36 264.13
7/30/99 8.78 70.74 330.27
</TABLE>
37
<PAGE> 41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding beneficial
ownership of common shares as of February 14, 2000, 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME OF COMMON STOCK(1) COMMON STOCK
- ---- ------------------ -------------
<S> <C> <C>
KNSW Acquisition Company, L.P.(2)........................... 8,687,000 34.8%
Dimensional Fund Advisors, Inc.(3).......................... 1,419,500 5.7%
William F. Andrews(4)....................................... 18,020 *
Birchel S. Brown (4)(5)..................................... 0 *
Darius W. Gaskins, Jr(4).................................... 20,500 *
Thomas A. Gildehaus(4)...................................... 15,000 *
David L. Gore(4)............................................ 5,400 *
James A. Kohlberg(6)........................................ 8,687,000 34.8%
Christopher Lacovara(6)..................................... 8,687,000 34.8%
Andrew R. Moore(4).......................................... 48,024 *
Frederick J. Rocchio, Jr(4)................................. 251,184 1.0%
Michael S. Venie(4)......................................... 67,500 *
Thomas M. Vercillo(4)....................................... 73,638 *
Richard D. Way (4)(7)....................................... 0 *
All executive officers and directors and director nominee as
a group (15 persons)(6)................................... 9,236,266 37.7%
</TABLE>
- ---------------
* Signifies less than 1%.
(1) Includes shares issuable pursuant to options which may be exercised within
60 days after January 26, 2000.
(2) KNSW Acquisition Company, L.P. ("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) The address for the individuals listed above is 121 Wallace Street,
Sterling, IL 61081.
(5) Mr. Brown resigned from the Company effective August 9, 1999 and is no
longer an officer of the Company.
(6) Includes the 8,687,000 common shares owned by KNSW. (See Note 2). The
address for Messrs. Kohlberg and Lacovara is 171 Radio Circle, Mt. Kisco, WY
10549. Mr. Kohlberg resigned as a director of Northwestern Steel and Wire
Company effective as of February 8, 2000.
(7) Mr. Way resigned from the Company effective January 1, 1999 and is no longer
an officer of the Company.
38
<PAGE> 42
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.
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 & Co. At the time of the 1992 Investment, the
Company and Kohlberg & Co. entered into a fee agreement (the "Fee Agreement")
pursuant to which Kohlberg & Co. 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 & Co. a
fee of $43,435 per fiscal quarter at the beginning of each quarter. The Fee
Agreement provides that Kohlberg & Co., 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 & Co. 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.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Frank E. Williams, Jr. was an executive officer and director of the John F.
Beasley Construction Company prior to the time the firm filed for bankruptcy
(Chapter 11) on July 1, 1995. Mr. Williams resigned from his position in June
1995, and had no further involvement with the firm which was subsequently
liquidated. That firm was a wholly owned subsidiary of Williams Industries, Inc.
where Mr. Williams is currently serving as a director.
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 20, 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.
39
<PAGE> 43
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
We are incorporating by reference into this proxy statement the following
sections of our Quarterly Report on Form 10-Q for the three months ended October
31, 1999:
- Item 1 -- Financial Statements
- Item 2 -- Managements Discussion and Analysis of Financial Condition
Our Annual Report on Form 10-K for the year ended July 31, 1999 and
Quarterly Report on Form 10-Q for the three months ended October 31, 1999 have
been mailed to you concurrently with this proxy statement.
By Order of the Board of Directors
/s/ THOMAS M. VERCILLO
------------------------------------
Thomas M. Vercillo
Secretary
Sterling, Illinois
February 17, 2000
40
<PAGE> 44
EXHIBIT A
NORTHWESTERN STEEL AND WIRE COMPANY
PRESENTATION TO COMMITTEE MEMBERS
ON
SEPTEMBER 30, 1999
<PAGE> 45
NORTHWESTERN
STEEL AND WIRE COMPANY
Northwestern Steel and Wire Company
Presentation to Noteholders
September 30, 1999
A-1
<PAGE> 46
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
AGENDA
I. Executive Overview
II. Industry Overview
III. Company Overview
IV. Historical Financial Overview
V. Strategic Plan
VI. Business Plan
VII. Transaction Overview
- -------------------------------------------------------------------------------
Confidential 1
- -------------------------------------------------------------------------------
A-2
<PAGE> 47
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
EXECUTIVE OVERVIEW
A-3
<PAGE> 48
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
EXECUTIVE OVERVIEW
SUMMARY STRATEGIC PLAN
o Northwestern Steel and Wire Company ("NWSW" or the "Company") has developed
a plan to improve its competitiveness and create and maximize long-term
value for all of its stakeholders. The plan consists primarily of the
following:
o Construction of a new, more efficient, low cost mill to replace
certain of the Company's existing 14" and 24" rolling mill
capacity at a cost of $120 million;
o Workforce efficiencies through a new collective bargaining
agreement (the "Collective Bargaining Agreement") with the
Company's union;
o Modernizing the Company's existing melting capabilities with the
construction of a new furnace to replace the Company's existing
three furnaces; and
o In connection with the modernization the Company will require the
restructuring of the existing $115 million bond debt as described
in Tuesday's press release.
o It is anticipated that the facility modernization component of the strategic
plan will cost $130 million and result in $55 million of annual savings.
o NWSW's plan is dependent on successfully obtaining sufficient funding under
the Emergency Steel Loan Guarantee Act of 1999 (the "Byrd Bill").
- -------------------------------------------------------------------------------
Confidential 3
- -------------------------------------------------------------------------------
A-4
<PAGE> 49
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
INDUSTRY OVERVIEW
A-5
<PAGE> 50
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
INDUSTRY OVERVIEW
The following are some of the major industry factors which face the Company:
o Beginning in early 1998, despite continued strong demand, steel prices began
to plummet as foreign competition began "dumping" product on the
marketplace.
o Since mid 1998, NWSW has seen prices of its products decline by
approximately 25% to 30%, primarily due to imports. Though scrap prices have
declined, the decline has been insufficient to offset the large decreases in
selling prices.
[BAR CHART]
o Supply of structural products is expected to exceed demand throughout the
forecast period. Imports will be replaced by new domestic capacity recently
added or under construction.
- -------------------------------------------------------------------------------
5
- -------------------------------------------------------------------------------
A-6
<PAGE> 51
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
EMERGENCY STEEL LOAN GUARANTEE ACT OF 1999/
EMERGENCY OIL AND GAS GUARANTEED LOAN PROGRAM ACT
o The U.S. Senate passed legislation creating a $1.0 billion loan guarantee
program for the steel industry, a bill designed to provide relief to the
steel industry that has lost thousands of jobs despite a decade of economic
prosperity.
o Application procedures have not been finalized and will not be until the
Board issues its regulations, expected to be no later than October 18, 1999.
o The lender, joined by the borrower, will apply for the guarantee.
o The aggregate amount of loans that can be guaranteed under this program at
any one time is $1 billion, with no one company eligible for more than $250
million.
o To be eligible for a guaranteed loan, a steel company must meet three
criteria:
o be incorporated under the laws of any State;
o be engaged in the production and manufacture of a product defined by
the American Iron and Steel Institute as a basic steel mill product;
and
o have experienced layoffs, production losses, or financial losses since
January of 1998 due to imports.
o For an eligible steel company to receive a guaranteed loan, the Loan Board
must determine:
o credit is not otherwise available to the company under reasonable terms
or conditions;
o there is reasonable assurance of repayment of the loan; and
o the loan bears interest at a rate deemed reasonable by the Board.
- -------------------------------------------------------------------------------
6
- -------------------------------------------------------------------------------
A-7
<PAGE> 52
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
EMERGENCY STEEL LOAN GUARANTEE ACT OF 1999/
EMERGENCY OIL AND GAS GUARANTEED LOAN PROGRAM ACT
o The Company expects the Board to approve or deny each application for a
guarantee as soon as possible after receipt of such application.
o Up to 85 percent of the amount of the principal of the loan can be
guaranteed.
o All guaranteed loans must be paid in full no later than December 31, 2005.
o A charge of no more than 0.5 percent of the outstanding principal balance of
the guaranteed loan shall be paid to cover the costs of the program.
o It is anticipated from the hearings which were held in Washington that the
loans under the program will carry a requirement to be used for plant
modernization and not used to refinance existing indebtedness.
- -------------------------------------------------------------------------------
7
- -------------------------------------------------------------------------------
A-8
<PAGE> 53
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
COMPANY OVERVIEW
A-9
<PAGE> 54
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
COMPANY OVERVIEW
o Founded in 1879, NWSW pioneered the use of electric arc furnaces for
steelmaking, making it the first mini-mill.
o Today, NWSW is focussed on production of light to medium structural
forms, a market where it has a leading position in the Midwest and
which tends to be less cyclical than the heavy steel structural market.
o The Company sells its products to a variety of customers, including
Original Equipment Manufacturers ("OEMs"), service centers, and
directly into consumer markets, as follows:
<TABLE>
<CAPTION>
PRODUCTS END USE MARKETS CUSTOMERS
- -------- --------------- ---------
<S> <C> <C>
STRUCTURAL:
Wide Flange Beams Non Residential Construction SVC Centers
Bridges Fabricators
Truck Trailers Export
Manufactured Housing
Other Structurals Non Residential Construction SVC Centers
Pre Engineered Metal Buildings Fabricators
Machinery and Equipment Railroad Equipment
Rail Cars Export
Manufacturing AG
Machinery and Equipment
BARS:
MBQ Flats Pre Engineered Metal Buildings SVC Centers
Machinery and Equipment Metal Building Manufacturers
- Industrial OEMs
- Agricultural
Rail Cars and Equipment
RODS:
Carbon Steel Rod Drawn and Fabricated Wire Products Wire Drawers
Nails OEMs
Fencing
Shelving
Hangers
Brushes
Furniture
Automotive
Mesh Products
</TABLE>
- -------------------------------------------------------------------------------
9
- -------------------------------------------------------------------------------
A-10
<PAGE> 55
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
COMPANY OVERVIEW
o NWSW's production focus is on the $2.0 billion light to medium structural
steel market.
o Management estimates that the Company has a 12% and 8% share of the total
domestic light to medium and total structural steel market, respectively.
[1998 DOMESTIC STRUCTURAL STEEL MARKET]
[PIE CHART]
- -------------------------------------------------------------------------------
10
- -------------------------------------------------------------------------------
A-11
<PAGE> 56
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
COMPANY OVERVIEW
o The Company enjoys a significant freight advantage in its core markets
over almost all of its competitors.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(dollars per ton)(1)
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Chaparral Nucor(2) Birmingham Steel(2) SMI Bayou Bayou(2)
Shipped From: MIDLOTHIAN, TX HUGER, SC CARTERSVILLE, GA BIRMINGHAM, AL LA PLACE, LA CHICAGO, IL
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Freight Cost Variance: $26.69 $38.44 $26.81 $25.74 $38.42 ($ 1.67)
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Bayou Northstar Northstar Lasco(3) Nucor Nucor
Shipped From: CATOOSA, OK CALVERT CITY, KY WILTON, IA WHITBY, ON JEWETT, TX NORFOLK, NE
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Freight Cost Variance: $19.14 $10.97 $ 2.41 $33.04 $36.74 $16.84
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Nucor Nucor SDI(3) Ameristeel KY Electric Steel Chaparral(3)
Shipped From: DARLINGTON, SC BLYTHEVILLE, AR FT WAYNE, IN JACKSON, TN ASHLAND, KY PETERSBURG,VA
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Freight Cost Variance: $32.49 $13.41 $ 2.52 $16.76 $15.65 $29.04
</TABLE>
(1) Using NWSW shipped tonnage.
(2) Freight from depot, which does not include freight and additional
handling costs associated with transferring the product from the
actual mill to the depot.
(3) Represents new capacity.
- -------------------------------------------------------------------------------
11
- -------------------------------------------------------------------------------
A-12
<PAGE> 57
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
COMPANY OVERVIEW
[UNITED STATES MAP]
- -------------------------------------------------------------------------------
12
- -------------------------------------------------------------------------------
A-13
<PAGE> 58
- --------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
COMPANY OVERVIEW
o In November 1998, the Company brought in Mr. Frederick Rocchio and a
significant part of the management team to formulate and initiate a
new strategic plan. From his background at Birmingham Steel and
Inland Steel, Mr. Rocchio has extensive experience in overseeing the
design and build-out of major new mill facilities. In total, the key
NWSW executives have over 150 years of experience, which is summarized
briefly below:
<TABLE>
<CAPTION>
Manager Position Experience
- ------- -------- ----------
<S> <C> <C>
Frederick Rocchio CEO and President Birmingham Steel, Inland Steel
Michael Venie Senior Vice President, Sales & Marketing Kaiser Aluminum
Thomas Vercillo CFO, Secretary & Treasurer Northwestern since 1985
Daniel Brisson Vice President, Quality and Planning Birmingham Steel, Inland Steel
Chris Fiora Vice President/General Manager Primary Birmingham Steel, WCI
Operations
Andrew Moore Vice President, Human Resources Northwestern since 1979
Louis Pisani Vice President/General Manager Structural Inland Steel
Operations
</TABLE>
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
A-14
<PAGE> 59
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
COMPANY OVERVIEW
COMPETITIVE CHALLENGE
o Proliferation of "Greenfield Mills" and extensive refurbishment of other
mills have continuously driven production costs lower, and many producers
benefit from higher labor productivity.
o NWSW needs to make material enhancements to its production facilities and
processes to remain competitive.
[NWSW/COMPETITOR COMPARISON BAR CHART]
- -------------------------------------------------------------------------------
14
- -------------------------------------------------------------------------------
A-15
<PAGE> 60
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
HISTORICAL FINANCIAL OVERVIEW
A-16
<PAGE> 61
- --------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
HISTORICAL FINANCIAL OVERVIEW
SELECTED INCOME STATEMENT INFORMATION
(Audited, $000,000s Omitted)
(1999 figures are unaudited)
<TABLE>
<CAPTION>
Fourth Quarter
Fiscal Year Ended July 31, Ended July 31, (Unaudited)
--------------------------------------------- --------------------------
1999 1998 1997 1996 1999 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues, Net $ 349.345 $ 596.437 $ 640.980 $ 661.069 $ 77.546 $ 148.818
Cost of Sales (Goods Sold) 351.489 514.454 613.072 613.562 84.187 124.525
--------- --------- --------- --------- --------- ---------
Gross Profit (2.144) 81.983 27.908 47.507 (6.641) 24.293
--------- --------- --------- --------- --------- ---------
Gross Profit % -0.6% 13.7% 4.4% 7.2% -8.5% 16.3%
Nonrecurring Gain (Loss) (46.291) 0.000 (92.943) 0.000 0.704 0.000
--------- --------- --------- --------- --------- ---------
Total Operating Expenses 11.350 13.017 13.546 11.920 2.650 3.105
--------- --------- --------- --------- --------- ---------
Operating Income (59.785) 68.966 14.362 35.587 (8.587) 21.188
Interest Expense 12.846 16.372 20.031 18.583 3.322 3.961
Other Income (Expense) 1.325 16.324 0.192 0.163 0.428 10.481
Pretax Income (Loss) (71.306) 68.918 (98.420) 17.167 (11.481) 27.708
Income Taxes (Credit) (25.957) 27.222 (35.300) (3.503) (4.505) 10.766
Net Income (Loss) $ (45.349) $ 41.696 $ (63.120) $ 20.670 $ (6.976) $ 16.942
========= ========= ========= ========= ========= =========
Depreciation/Amortization $ 14.476 $ 17.548 $ 25.827 $ 24.788 $ 3.434 $ 4.174
========= ========= ========= ========= ========= =========
Capital Expenditures $ 8.057 $ 12.069 $ 17.435 $ 36.269 $ (3.125) $ 4.831
========= ========= ========= ========= ========= =========
EBITDA (Excluding Nonrecurring) $ 0.982 $ 86.514 $ 40.189 $ 60.375 $ (5.857) $ 25.362
========= ========= ========= ========= ========= =========
EBITDA % 0.3% 14.5% 6.3% 9.1% -7.5% 17.0%
EBIT (Excluding Nonrecurring) $ (13.494) $ 68.966 $ 14.362 $ 35.587 $ (9.291) $ 21.188
========= ========= ========= ========= ========= =========
EBIT % -3.9% 11.6% 2.2% 5.4% -11.9% 14.2%
</TABLE>
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
A-17
<PAGE> 62
- --------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
HISTORICAL FINANCIAL OVERVIEW
SELECTED BALANCE SHEET INFORMATION
(Audited, $000,000s Omitted)
(1999 figures are unaudited)
<TABLE>
<CAPTION>
As Of July 31,
----------------------------------------------
ASSETS 1999 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C>
Current Assets:
Cash & Equivalents $ 41.475 $ 36.930 $ 4.078 $ 5.558
Accounts Receivable 29.585 52.057 67.228 68.004
Inventories 51.485 84.022 86.708 98.401
Income Tax Receivable 0.013 0.013 8.158 0.000
Deferred Tax Assets 1.764 14.147 13.442 11.517
Other Current Assets 3.967 14.085 4.596 6.799
--------- --------- --------- ---------
Total Current Assets 128.289 201.254 184.210 190.279
--------- --------- --------- ---------
Fixed Assets:
Land 2.828 5.952 5.952 5.952
Buildings 27.979 38.249 38.132 38.958
Machinery and Equipment 264.381 274.455 262.579 362.485
Less: Accum. Depreciation 173.175 166.196 148.659 166.206
--------- --------- --------- ---------
Net Fixed Assets 122.013 152.460 158.004 241.189
--------- --------- --------- ---------
Deferred Income Taxes 50.744 12.287 31.886 6.616
Deferred Financing Costs 0.869 1.990 3.212 4.434
Other Assets 16.625 15.208 5.968 0.000
--------- --------- --------- ---------
Total Assets $ 318.540 $ 383.199 $ 383.280 $ 442.518
========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
A-18
<PAGE> 63
- --------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
HISTORICAL FINANCIAL OVERVIEW
SELECTED BALANCE SHEET INFORMATION
(Audited, $000,000s Omitted)
(1999 figures are unaudited)
<TABLE>
<CAPTION>
As of July 31,
------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY 1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable $ 17.471 $ 42.953 $ 43.405 $ 75.470
Current Maturities 0.609 0.609 8.018 7.504
Accrued Expenses 27.064 34.897 35.084 22.768
------------ ------------ ------------ ------------
Total Current Liabilities 45.144 78.459 86.507 105.742
Long-Term Debt 135.228 116.141 163.450 153.646
Other Liabilities 91.342 101.899 82.852 77.114
------------ ------------ ------------ ------------
Total Liabilities 271.714 296.499 332.809 336.502
Stockholders' Equity:
Common Stock 123.973 123.973 123.966 123.786
Retained Earnings (71.822) (26.475) (68.171) (5.051)
Minimum Pension Liability 0.000 (5.473) 0.000 (7.395)
Less: Treasury Stock (5.325) (5.325) (5.324) (5.324)
------------ ------------ ------------ ------------
Net Stockholders' Equity 46.826 86.700 50.471 106.016
------------ ------------ ------------ ------------
Total Liabilities & Stockholders' Equity $ 318.540 $ 383.199 $ 383.280 $ 442.518
============ ============ ============ ============
Net Working Capital $ 83.145 $ 122.795 $ 97.703 $ 84.537
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
18
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A-19
<PAGE> 64
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
HISTORICAL FINANCIAL OVERVIEW
REVOLVING CREDIT FACILITY DISCUSSION
o On April 23, 1999, the Company's Senior Credit Facility was amended to
revise certain provisions and terms of the credit agreement through October
30, 1999. The principal amendment is the determination of compliance with
the fixed charge coverage ratio, limiting the total revolving credit
exposure to be no greater than $30 million and permitting the sale of the
Hickman, Kentucky facility. At the option of the Company, any borrowings of
Revolving Credit Loans bear interest at (a) the prime rate plus applicable
margin, or (b) the LIBOR rate plus applicable margin.
o The Company is about to close on a new $65 million revolving credit facility
which will provide maximum borrowing of $60 million and expires in September
2002. The new revolving facility is not dependent on reaching agreement with
the Company's noteholders.
- -------------------------------------------------------------------------------
19
- -------------------------------------------------------------------------------
A-20
<PAGE> 65
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
STRATEGIC PLAN
A-21
<PAGE> 66
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
STRATEGIC PLAN
MODERNIZATION PROJECT
o A major component of NWSW's Strategic Plan is its $130 million Modernization
Project.
o The main initiatives of the Modernization Project are:
o Construction of the new mill (the "New Mill");
o Conversion to one electric arc furnace operation (the "Single EAF
Project"); and
o Initiating improved control and maintenance programs designed by
Fluor-Daniels.
o The Modernization Project will provide the Company with significant
benefits:
o $55 million annual cost savings;
o Increased capacity;
o Improved quality; and
o Reduced inventories.
o The economic feasibility and market analysis have been verified by
independent third parties.
- -------------------------------------------------------------------------------
21
- -------------------------------------------------------------------------------
A-22
<PAGE> 67
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
STRATEGIC PLAN
NEW MILL PROJECT
GOALS
- -----
o Design a new mill facility in the open bay at the Company's existing 24"
mill.
o Provide maximum flexibility to adjust product mix to changing market
conditions.
o The New Mill is equipped to provide quick change capability to 30 minute
change-overs, increasing productivity while reducing inventory.
o Installation and construction of the New Mill is expected to be completed in
14 to 16 months.
o The New Mill will show improvements in yield and throughput related to the
more efficient, modern equipment.
o Reduction in semi-finished SKUs from eight to four.
SCOPE
- -----
o New state of the art multi-product structural mill.
o Cartridge type quick change rougher and finishing stands.
o State of the art cut-to-length and stacking system.
o Profile monitoring of the finished product.
o Performance guarantees.
- -------------------------------------------------------------------------------
22
- -------------------------------------------------------------------------------
A-23
<PAGE> 68
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
STRATEGIC PLAN
FACILITIES OVERVIEW
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Quantity Current Facilities Capacity
(in tons)
- ----------------------------------------------------------------------------
<S> <C> <C>
3 Electric Arc Furnaces 2,400,000
2 Ladle Met. Furnaces (LMF) 2,400,000
3 Casters 2,400,000
1 12" Rod mill 432,000
1 14" Structural/Bar Mill 432,000
1 24" Structural Mill 432,000
</TABLE>
[GRAPHIC]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Quantity Proposed Facilities Capacity
(in tons)
- ----------------------------------------------------------------------------
<S> <C> <C>
1 Electric Arc Furnace (one as backup) 1,720,000
2 Ladle Met. Furnaces (LMF) 2,400,000
2 Casters 2,000,000
1 12" Rod mill 522,000
1 22" Structural Mill 900,000
</TABLE>
- -------------------------------------------------------------------------------
23
- -------------------------------------------------------------------------------
A-24
<PAGE> 69
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
STRATEGIC PLAN
SINGLE EAF PROJECT
GOALS
- -----
o Engineer a single EAF operation with the capacity to produce 1.7 million
liquid steel tons and decommission the other two existing furnaces.
o A tap to tap time of 100 minutes.
o Management anticipates completing the Single EAF Project in January of 2000.
BENEFITS
- --------
o Streamline the melt process by installing one new high production
steelmaking unit.
o Reduce tap to tap time in the melt shop from approximately three hours for
each of the existing three furnaces to 100 minutes for the single Ultra-High
Powered furnace.
o Improve steel cleanliness and quality with eccentric bottom tapping.
o Single EAF Project will result in inventory reduction of 20,000 tons,
representing a savings of $4.5 million.
- -------------------------------------------------------------------------------
24
- -------------------------------------------------------------------------------
A-25
<PAGE> 70
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
STRATEGIC PLAN
COLLECTIVE BARGAINING AGREEMENT
o Provide a workable partnership environment.
o Provides significant manpower utilization methods that will enable the
Company to more efficiently staff and schedule its operations.
o Includes annual wage increases, some of which are based upon meeting certain
Company financial performance targets.
o Eliminates numerous jurisdictional issues.
o Extends the term of the Agreement to October 31, 2003.
o The Strategic Plan anticipates reducing the number of workers required for
operations by 443.
o THE COLLECTIVE BARGAINING AGREEMENT IS CONTINGENT UPON THE COMPANY OBTAINING
FINANCING FOR THE NEW MILL.
BAR/STRUCTURAL PRODUCTS PRODUCT COST/TON EFFECT
o Management estimates that the Strategic Plan will reduce total product cost
per ton by 17 percent over the period 1998 to 2003.
- -------------------------------------------------------------------------------
25
- -------------------------------------------------------------------------------
A-26
<PAGE> 71
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
A-27
<PAGE> 72
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
MAJOR MODEL ASSUMPTIONS
o New mill to replace both the 14" and 24" mill.
o Cost of the new mill is $120 million (including $10 million training
expense).
o Installation of the new mill will require approximately 14 to 16 months.
o Sales volume from the new mill of 810,000 tons.
o $10 million investment made over one year for one furnace operation.
o Senior financing of $150.0 million.
BASE CASE MODEL RESULTS
o EBITDA in fiscal 2003 is projected to reach $75.3 million.
o Projected debt at year end fiscal 2003 is expected to be $101.4 million (net
of cash).
o During the next five years the minimum revolver availability is $32.3
million at peak borrowing periods.
- -------------------------------------------------------------------------------
27
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A-28
<PAGE> 73
- --------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
BUSINESS PLAN
PROJECTED FINANCIAL STATISTIC
($000,000s Omitted)
<TABLE>
<CAPTION>
Projected Fiscal Year Ending July 31,
---------------------------------------------------------------
2000 2001 2002 2003
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues, Net $ 385.494 $ 419.117 $ 421.737 $ 429.462
========= ========= ========= =========
Gross Profit $ 8.281 $ 53.010 $ 63.065 $ 66.271
========= ========= ========= =========
Margin 2.1% 12.6% 15.0% 15.4%
EBIT (Before Non-Recurring Charges) $ (5.825) $ 42.222 $ 51.677 $ 54.283
========= ========= ========= =========
EBIT Margin 1.5% 10.1% 12.3% 12.6%
EBITDA (Before Non-Recurring Charges) $ 6.287 $ 60.884 $ 71.850 $ 75.252
========= ========= ========= =========
EBITDA Margin 1.6% 14.5% 17.0% 17.5%
Capital Expenditures $ 100.664 $ 46.570 $ 15.700 $ 13.500
========= ========= ========= =========
Minimum Revolver Availability 2000 2001 2002 2003
--------- --------- --------- ---------
Quarter 1 $ 36.603 $ 37.749 $ 47.944 $ 49.085
Quarter 2 $ 33.055 $ 39.029 $ 45.047 $ 46.132
Quarter 3 $ 32.262 $ 48.304 $ 50.931 $ 52.128
Quarter 4 $ 36.037 $ 47.444 $ 48.031 $ 49.172
</TABLE>
Note: The Company continues to refine the projections, in particular the
transitional period during construction of the new mill where there
remains certain unresolved issues.
- --------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------
A-29
<PAGE> 74
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
DOWNSIDE CASE MODEL ASSUMPTIONS
o The recession begins in the second quarter of fiscal 2001 and lasts through
the second quarter of fiscal 2002.
o Volume is down 10 percent at the new 22" mill and continues to remain down
through the out years.
o There is no volume decrease at the 12" mill.
o Pricing has decreased 10 percent for all products.
o Scrap prices have been decreased 15 percent.
o There are no semi-finished sales during the second quarter of fiscal 2001
and last through the second quarter of fiscal 2002.
DOWNSIDE CASE MODEL RESULTS
o EBITDA in fiscal 2002 is projected to be $40.2 million.
o EBITDA in fiscal 2003 is projected to be $55.2 million.
o Projected debt at year end fiscal 2003 is expected to be $172.7 million (net
of cash).
o During the next five years the minimum revolver availability is $13.3
million at peak borrowing periods.
- -------------------------------------------------------------------------------
29
- -------------------------------------------------------------------------------
A-30
<PAGE> 75
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
STATUS QUO MODEL ASSUMPTIONS
o The same assumptions for pricing and market conditions were used to develop
a base case model if the new mill was not produced.
o This model has not taken into consideration the effects of competitor or
customer reaction to business as usual, which has major downside
implications.
o The single furnace project and the other strategic initiatives have been
assumed to have occurred.
o Union reaction has also been assumed to be neutral.
STATUS QUO MODEL RESULTS
o EBITDA in fiscal 2002 is projected to be $13.6 million.
o EBITDA in fiscal 2003 is projected to be $14.7 million.
o Projected debt at year end fiscal 2003 is expected to be $166.7 million.
o During the next five years the minimum revolver availability is $2.7 million
at peak borrowing periods.
o The Company believes it is unlikely that its operating cash flow will be
sufficient to repay or refinance its future obligations as they become due,
assuming no other operational improvements or significant changes in market
conditions other than those noted above.
- -------------------------------------------------------------------------------
30
- -------------------------------------------------------------------------------
A-31
<PAGE> 76
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
RESTRUCTURING OVERVIEW
A-32
<PAGE> 77
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
RESTRUCTURING OVERVIEW
OBJECTIVES
o Enhance the Company's ability to compete in the marketplace.
o Dramatically improve manpower efficiency which will make the Company
fundamentally more competitive.
o Modernize facilities to improve overall competitive position and
profitability.
o Restructure Capital Structure.
o Capital structure consistent with cash flow generating capabilities of
business.
o Capital structure which can sustain periods of volatile earnings
associated with steel price fluctuations.
- -------------------------------------------------------------------------------
32
- -------------------------------------------------------------------------------
A-33
<PAGE> 78
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
RESTRUCTURING OVERVIEW
ATTEMPTED M&A EFFORTS
o Beginning in early 1998, the Company began aggressively pursuing M&A
alternatives and Chase Securities was retained to assist in this effort.
o Ultimately, only one offer materialized and a letter of intent was executed.
o After substantial due diligence was completed, an additional condition to
the letter of intent effectively rescinded the offer.
o Given the current steel industry condition and the challenges facing NWSW,
an M&A alternative does not appear viable.
- -------------------------------------------------------------------------------
33
- -------------------------------------------------------------------------------
A-34
<PAGE> 79
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
RESTRUCTURING OVERVIEW
ATTEMPTED REFINANCING EFFORTS
o BT/Alex Brown ("BT") and CIBC Oppenheimer ("CIBC") were retained to secure
new financing for the Company.
o CIBC attempted to raise mezzanine/preferred financing which, together
with existing cash and the BT $125 million offering would have been
sufficient to refinance the existing bond debt. No commitments
materialized in connection with these efforts.
o BT attempted to obtain $125 million of new senior mortgage notes to
finance construction of the mill. Due to market conditions, and the
inability to raise the mezzanine/preferred financing, the new senior
mortgage note financing was unavailable.
NOTEHOLDER RESTRUCTURING
o With no currently viable options to sell the Company or refinance the notes
commercially, the Company must now complete a restructuring transaction
which will enable the Company to present the U.S. Government via The
Emergency Steel Loan Guarantee Act of 1999 with a viable application.
- -------------------------------------------------------------------------------
34
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A-35
<PAGE> 80
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
TRANSACTION OVERVIEW
A-36
<PAGE> 81
- -------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY
NOTEHOLDERS
o $50 million in cash (funded from existing cash and revolver availability).
o Issuance of common stock representing 70 percent interest in Company on a
fully diluted basis.
o Payment of all accrued interest at closing.
o Noteholders will be given the right to elect 4 of 7 directors.
o 95 percent of Noteholders must accept the offer.
SENIOR NOTES
o $150 million new Senior Notes guaranteed by the US Government as provided in
The Emergency Steel Loan Guarantee Act of 1999 (application to be
submitted).
o Expected rate of 9 percent.
o Six year balloon maturity.
o Standard Covenants.
REVOLVER
o $65 Million facility.
o Appropriate market spread.
o Estimated three-year evergreen maturity.
- -------------------------------------------------------------------------------
36
- -------------------------------------------------------------------------------
A-37
<PAGE> 82
- --------------------------------------------------------------------------------
Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
The following is a summary of the transaction structure:
<TABLE>
<CAPTION>
($000,000 Omitted)
SOURCES USES
- ------- ----
<S> <C> <C> <C>
Cash (a) $ 33,800 Cash for New Mill (c) $ 120,000
Revolver (b) 13,800 Fees (d) 8,000
New Senior Note 150,000 Repayment of Revolver 19,600
--------- Cash to Noteholders 50,000
---------
$ 197,600 $ 197,600
========= =========
</TABLE>
(a) Reflects estimated current cash balance.
(b) Revolver will be used to fund any cash shortfalls during new mill
construction period.
(c) Cash needed for the new mill construction.
(d) Estimated fees could be several million dollars higher.
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
A-38
<PAGE> 83
EXHIBIT B
NORTHWESTERN STEEL AND WIRE COMPANY
LIQUIDATION ANALYSIS
SUPPLIED TO HOLDERS OF THE SENIOR NOTES
ON
DECEMBER 14, 1999
<PAGE> 84
LIQUIDATION ANALYSIS
<TABLE>
<CAPTION>
EXPECTED
10/31/99(A) RECOVERY 10/31/99
----------- -------- --------
<S> <C> <C> <C> <C>
GROSS ASSET RECOVERIES
Unrestricted Cash.................................. $ 10.356 100.0% $ 10.356
Accounts Receivable (Valued by aged category)...... $ 34.252 78.5% $ 26.888
Inventory
Raw Scrap (90 percent of Scrap Value)............ $ 4.143 $ 3.872
Raw Materials.................................... $ 3.156 45.0% $ 1.420
Work In Process.................................. $ 23.894 55.0% $13.142
Finished......................................... $ 24.082 65.0% $15.654
-------- -------
Total Inventory.......................... $ 55.275 $ 34.088
Furnace
#6............................................... $ 0.125
#7............................................... $ 2.250
#8............................................... $ 2.250
Caster
#6 Strand........................................ $ 2.000
#3 Strand Jumbo.................................. $ 3.000
#8 Strand........................................ $ 2.000
Mill
24" 16 Stand..................................... $ 3.000
14" 16 Stand..................................... $ 2.700
12" 15 Stand..................................... $ 2.350
Other Mill Equipment............................... $ 9.300 $ 0.000
Land............................................... $ 2.991 25.0% $ 0.748
Buildings.......................................... $ 28.078 45.0% $12.635
Other PP&E......................................... $ 2.500 15.0% $ 0.375
-------- -------
Total PP&E............................... $125.641 $ 33.433
Other Assets....................................... $ 20.437 0.0% $ 0.000
-------- --------
Total Assets............................. $245.962 $104.765
LIQUIDATION EXPENSES/CLAIMS
Expenses of Liquidation............................ $ (6.000)
Projected Cash Flow Losses from 10/31/99 to
3/31/00.......................................... $ (7.300)
Operating Costs During Liquidation................. $(10.000)
--------
Total Available for Distribution......... $ 81.465
Secured Claims (including L/Cs).................... $(11.951)
Employee Related Priority Claims................... $ (6.400)
--------
Total Available for Distribution After
Secured Claims(b)...................... $ 63.114
General Unsecured Claims
Trade Payables................................... $ 26.120 24.246% $ 6.333
Accrued Expenses (less Worker Comp covered by
L/Cs)......................................... $ 26.944 24.246% $ 6.533
Senior Debt and other notes...................... $115.626 24.246% $28.035
Post Retirement Benefit Obligation............... $ 85.020 24.246% $20.614
Long Term Liabilities (including Pension
Obligation)................................... $ 6.594 24.246% $ 1.599
-------- -------
Total Indebtedness....................... $260.306 $ 63.114
General Claims Recovery............................ 24.246%
Equity Recovery.................................... 0.0%
</TABLE>
- ---------------
(a) Figures as reported on the Company's Consolidated Balance Sheet as of
10/31/99.
B-1
<PAGE> 85
(b) Total available for distribution does not take into consideration an $8.9
tax dispute with the IRS which could further reduce the $63.114 available
for unsecured claims.
Source: Interviews with International Machinery Marketing, Inc. and Company
management.
B-2
<PAGE> 86
LIQUIDATION ASSUMPTIONS
The following sets forth the basic assumptions used in the liquidation
analysis. We assumed a pro forma liquidation as of March 2000 utilizing the
available information as of October 31, 1999.
Unrestricted Cash -- Total available cash was $10.356 million as of October
31, 1999 and cash is assumed to be 100 percent recoverable.
Accounts Receivable -- Expected recovery percentage of accounts receivable
is based on the credit quality of the Company's customers, discounts to be taken
in a liquidation scenario and historical payment history. The collection rates
are assumed at 90 percent for accounts under 30 days from invoice; 60 percent
for accounts from 31 to 60 days from invoice; 40 percent for accounts from 61 to
90 days from invoice; and 20 percent for accounts to receivables over 90 days
from invoice.
Inventory (Raw Material) -- Raw material inventory is comprised primarily
of purchased scrap steel (which would be readily salable), materials and
supplies. Expected recovery for the raw materials inventory is 90 percent of
scrap value and 45 percent of material inventory.
Inventory (Work in Process) -- Work in process inventory represents cast
billets, blooms, and H-Beams that currently are sold to other steel mills on a
limited basis. Due to the different nature of competitor equipment all work in
process would have to be further processed or sold for scrap. Expected recovery
for the work in process inventory is 55 percent.
Inventory (Finished Goods) -- The expected recovery for finished goods
inventory takes into consideration the discount that would be needed to entice
customers to purchase steel without performance guarantees ensuring complete
shipments of the quality and grade which the Company now provides. The expected
recovery is 65 percent of book value.
Furnace -- Furnace equipment values were estimated based upon discussions
with industry machinery dealers and management. The Company's number six furnace
will be decommissioned by the end of 1999 and therefore is ascribed only scrap
value.
Mill and Caster -- Caster equipment values were estimated based upon
discussions with industry machinery dealers and management.
Other Mill Equipment -- Other mill equipment includes the reheat furnace
and other pieces of critical equipment for the operation of the mill. Wire mill
equipment values were based on discussions with management as well as actual
recoveries in the liquidation of the Company's Houston facility. Much of this
equipment would be usable by competitors and is ascribed a recovery value of 25
percent.
Land -- The Company owns approximately 600 acres of land in Sterling,
Illinois. Land includes farmland acreage in Illinois and assumes no
environmental situations, which may render liquidation non-viable. The Company's
site has a non-hazardous and a hazardous land fill. Realization percentages were
calculated based on comparable land values in the area.
Buildings -- Expected recovery percentages take into consideration the
location of the facility and the size of the facility. There are very few, if
any, alternative uses for the buildings. Removal of the buildings may reveal
environmental situations that may render liquidation non-viable. Expected
recovery for the buildings is estimated at 45 percent of the book value. This
recovery is approximately $3.70 per square foot.
Other Plant Property and Equipment -- Other Plant Property and Equipment
represent all other depreciable assets such as hand tools, forklifts, repair
equipment, etc. In a liquidation, this type of asset suffers shrinkage and does
not bring much in an auction. Total recovery is estimated at 15 percent of book
value.
Other Assets -- Other assets include principally prepaid pension assets and
intangible pension assets and are ascribed no value. Due to the shut down it is
anticipated that the prepaid pension asset would be seized by the Pension
Benefit Guaranty Corporation and used to offset potential pension obligations.
Expenses of Liquidation -- Expenses of liquidation include brokerage and
liquidator costs necessary to dispose of the assets. These costs are estimated
at approximately six percent of total asset value.
B-3
<PAGE> 87
Projected Cash Flow Losses -- Projected cash flow losses were estimated for
the six months prior to the beginning of liquidation and is included to adjust
the October 31, 1999 cash balance to an expected balance at the beginning of a
liquidation. This estimate does not include negative impact from customer
response to the Company's uncertain future.
Operating Costs during Liquidation -- Operating costs during liquidation
were estimated for the six to nine months that the Company would operate during
liquidation. They include professional fees, administrative expenses, costs to
maintain staff during a wind down, security and other costs.
Employee Related Claims -- Employee related claims were set at the legal
limit pursuant to the Bankruptcy Code, or approximately $4,000 (actual) per
employee.
Accrued Expenses -- Accrued expenses were analyzed and represent only the
expected cash payable expenses in liquidation. Accrued expenses were also
reduced by the amount of worker compensation obligations covered by letters of
credits and employee-related claims covered above.
Post Retirement Benefit Obligation -- Post retirement benefit obligations
were assumed payable as accrued on the most recent balance sheet. The
assumptions for this accrual were audited by PricewaterhouseCoopers as of July
31, 1999 for financial statement reporting.
Long Term Liabilities (including Pension Obligation) -- Pension obligations
are approximately $5 million, which represents the estimated underfunded amount
in the event of liquidation.
B-4
<PAGE> 88
EXHIBIT C
NORTHWESTERN STEEL AND WIRE COMPANY
PROJECTED FINANCIAL INFORMATION
SUPPLIED TO THE HOLDERS OF THE SENIOR NOTES
ON
DECEMBER 14, 1999
<PAGE> 89
PROJECTED FINANCIAL INFORMATION
INTRODUCTION
The following financial projections (the "Projections") were prepared by
Northwestern Steel and Wire Company (hereafter "NWSW" or "Company") for use
solely in connection with the Offering Memorandum and Solicitation Document to
which these Projections are attached (the "Offering Memorandum"). All
capitalized terms not defined herein are used with the meanings set forth in the
Offering Memorandum.
The Projections consist of projected balance sheets as of the end of fiscal
years 2000-2003 and summary income statements for the fiscal years then ended.
The Projections were prepared by the Company and were not prepared with a view
toward compliance with published guidelines of the SEC, the American Institute
of Certified Public Accountants or any other regulatory or professional agency
or body, generally accepted accounting principles or consistency with our
audited financial statements. In addition, PricewaterhouseCoopers LLP, the
independent auditors for the Company, has neither compiled nor examined the
Projections and, accordingly, does not express any opinion or any other form of
assurance with respect to, assumes no responsibility for, and disclaims any
association with, the Projections. These estimates and projections should be
read together with the information contained under the heading "Risk Factors" in
the Offering Memorandum and the information and financial statements and related
notes thereto included in our Annual Report on Form 10-K attached as Annex A
thereto.
The Projections are based upon a number of assumptions and estimates
regarding industry performance, steel prices, general economic conditions and
other matters that, while presented with numerical specificity and considered
reasonable by the Company when taken as a whole, inherently are subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control, and are based upon specific
assumptions with respect to future business decisions, some or all of which will
change. The Projections are necessarily speculative in nature and it can be
expected that some or all of the assumptions may not be realized. Additionally,
there are numerous risks related to the Company's businesses. A number of
factors, including but not limited to adverse competitive developments, could
negatively impact the attainability of the financial performance as set forth
herein. See "Risk Factors" in the Offering Memorandum.
Projections included herein should not be regarded as a representation by
the Company, the Company's advisors or any other person that the projected
results will be achieved. NWSW does not generally publish its business plan and
strategies or make external projections of its anticipated financial position or
results of operations and assumes no responsibility to update or otherwise
revise the Projections.
STRATEGY
The Company is planning to upgrade or replace major portions of its steel
facilities in Sterling, Illinois. The New Mill will replace the existing 14"
rolling mill and the 24" rolling mill. The Company anticipates the New Mill will
generate significant savings in production costs through the use of more
efficient equipment and a reduction in employee levels. The Company's strategy
will also focus on its customers within a 500-mile radius. This emphasis on
shipments in the Company's core and chosen markets is expected to create
additional freight cost advantages for products produced by the New Mill.
In addition to the cost savings generated by the New Mill, the Company has
also identified several other sources of significant savings, including:
- the installation of a single electric arc furnace to replace two
existing electric arc furnaces;
- a new maintenance program that will reduce maintenance costs and improve
productivity; and
- the impact of the new collective bargaining agreement.
The strategic plan does not rely on capacity increases or incremental sales
to achieve its goals.
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GENERAL ASSUMPTIONS
The Projections generally assume that no material change in general
economic conditions will occur during the projected period. The Projections do,
however, take into consideration the effects of current capacity in the
industry, recent capacity increases going to full production and announced
capacity increases that are expected to come on line.
The Projections assume that (i) the new rolling mill will come on line by
the end of the quarter ending July 31, 2001 and be fully operational by the end
of the quarter ending January 31, 2002, (ii) the 14" rolling mill will be phased
out of production in the quarter ending July 31, 2001 and (iii) the 24" rolling
mill will be phased out of production in the quarter ending October 31, 2001.
INCOME STATEMENT ASSUMPTIONS
Net Revenues
The Company's revenue projections are driven primarily by product mix by
mill type, tons shipped, and the selling price per net ton by product. Projected
product mix and tons shipped were based upon rolling mill capabilities and
management estimates of demand. Projected selling prices were estimated based
upon the projected spread of finished product selling prices over scrap prices,
taking into account projected supply/demand balances resulting from expected
increases in industry capacity. All volume and price estimates were based upon
historic market levels in the Company's core markets, current backlog, customer
contact, and management experience. Estimated tons shipped also take into
account the expected positive effect of the New Mill Project on customers'
perceptions of NWSW.
Net revenues for the Company are expected to increase from $349.3 million
in fiscal 1999 to $388.2 million in fiscal 2000, representing an increase of
11.1%, and from $388.2 million in fiscal 2000 to $406.1 million in fiscal 2001,
representing an increase of 4.6 percent. These increases are largely due to
anticipated firming of prices and increases in volume from a continued reduction
in imports of structural products and anticipated continued strength of the
economy. Net revenues from fiscal 2001 to fiscal 2002 are expected to decrease
by 1.2% from $406.1 million to $401.2 million primarily due to a forecast
reduction in the average selling price of the products resulting from
anticipated increases in domestic industry capacity. Net revenues from fiscal
2002 to fiscal 2003 are projected to increase by $10.2 million, or 2.6 percent,
to $411.5 million primarily due to expected general inflationary price increases
coupled with additional price increases for the Company's rod and wire products.
Gross Profit
Gross profit/loss is projected to increase from a $2.1 million loss in
fiscal 1999 to a $13.5 million profit in fiscal 2000 and a $42.8 million profit
in fiscal 2001. The principal reasons for these projected improvements are (i)
anticipated increases in the current spread between selling and scrap prices for
structural products due to declining pressure from imports, and (ii) lower costs
of production resulting from anticipated increases in efficiency and
productivity resulting from the collective bargaining agreement and the EAF
Project. Gross profits are expected to improve from $42.8 million in fiscal 2001
to $51.7 million in fiscal 2002 and $56.3 million in fiscal 2003. These
increases are due primarily to the significant cost benefits expected from the
New Mill, offset in part by expected decreases in spreads between selling and
scrap prices for structural products due to expected increases in domestic
capacity and increased depreciation as a result of the completion of the New
Mill.
The cost of sales projections are driven by scrap steel prices (the major
component of the cost of goods sold), labor costs associated with the various
production steps including the furnace operation, caster operation, and the
various rolling mills, the energy costs and the yield and efficiency of the
operation. Expected production costs are based upon historic costs per ton with
consideration given to forecast volume and projected savings from the EAF
Project and the phase-in of the New Mill Project and the structured maintenance
plan.
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Selling, Administrative and Other Expenses
Selling expenses have been estimated by management based upon historic
levels. Administrative expenses are also based upon historic levels and are then
increased to reflect the estimated costs of implementing the maintenance program
and increased to reflect administrative salary/benefit changes. Other expenses
were estimated by management. Other expenses also include anticipated pension
costs associated with the change in staffing levels and general overhead
including plant and corporate expense, selling and marketing expense and the
estimated interest costs associated with the New Senior Debt.
Selling, administrative and other expenses are projected to increase from
approximately $11.3 million in fiscal 1999 to $13.6 million in fiscal 2000
(reflecting a 20.3 percent increase) and then decrease to approximately $10.8
million in 2001 (reflecting a 20.6 percent decline). These changes are primarily
due to the inclusion of significant professional fees associated with the
proposed Exchange in fiscal 2000. Selling, administrative and other expenses are
expected to increase approximately 5.6 percent and 5.3 percent in 2002 and 2003,
respectively. Inflation and higher selling expenses associated with increased
sales volumes are projected to be the principal contributors to the 2002 and
2003 increases.
Income Taxes
Book taxes are based upon 40% of the pretax income level. Cash taxes also
assume a 40% rate, but also consider loss carryforwards, accelerated
depreciation and future projected losses. The Company currently has
approximately $17 million in restricted Net Operating Loss ("NOL") carryforwards
and anticipates generating additional NOLs in fiscal 2000, which would allow the
Company to recover approximately $5 million in past taxes paid.
BALANCE SHEET ASSUMPTIONS
Accounts Receivable
Accounts Receivable are based upon management estimates, taking into
consideration the past payment history of the Company's customers and are
estimated to average approximately 34 days.
Inventories
Inventories are based upon management estimates, which specifically examine
historic levels and anticipated reductions as a result of changes in product mix
and rolling schedules. Raw material inventory is estimated at 55,000 tons,
semi-finished at 80,000 tons and finished at 65,000 tons, and are adjusted for
seasonal differences. Final balance sheet amounts are based on the anticipated
scrap cost.
Fixed Assets
The Fixed Assets are projected to increase as the Company makes investment
in the new rolling mill and upgrades the furnace operations.
Accounts Payable
Accounts Payable are estimated by management based upon historic levels of
days payable and are expected to be 26 to 28 days outstanding, which represents
a slight increase over current days payable.
Accrued Expenses
Accrued Expenses have been estimated based upon 8 percent of Cost of Sales.
Long-Term Debt
The various components of long-term debt (as well as cash and the amounts
borrowed under the Revolving Credit Facility) are based upon terms of the
proposed Exchange and anticipated levels immediately prior to and immediately
after the Exchange with an anticipated closing at the end of April, 2000.
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<PAGE> 92
Capital Expenditures
Management has identified and quantified the major capital expenditures
anticipated to occur during the projected period, which include the New Mill
Project of approximately $120 million, the EAF Project of approximately $10
million, the maintenance program and continued discretionary capital
expenditures supported by appropriate returns. The projections assume that the
New Mill will supply over 85 percent of the same products as the two existing
14" and 24" mills and add additional production capabilities and that the EAF
Project will increase efficiency and reduce power consumption by using a bottom
tapping mechanism.
Capital expenditures for the New Mill are expected to be made over a 13 to
14 month period as the New Mill is installed. The New Mill is expected to come
on line in the quarter ending July 31, 2001 and be fully operational by the end
of the quarter ending January 31, 2002.
Liquidity
After obtaining the New Senior Debt, the Company expects to generate
sufficient cash flow from operations on an annual basis to fund its projected
operating expenses, interest payments, capital expenditures and other cash
needs. Thus, although we do anticipate making draws on our Revolving Credit
Facility from time to time during each fiscal year, the Projections do not show
any significant draws on the Revolving Credit Facility at the end of fiscal
2000, 2001, 2002 or 2003.
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<PAGE> 93
NORTHWESTERN STEEL AND WIRE COMPANY
PROJECTED INCOME STATEMENT (SUMMARY)
2000-2003
<TABLE>
<CAPTION>
ACTUAL ACTUAL PROJECTED
FYE FYE --------------------------------------------------
($000,000 OMITTED) 1998 1999 2000 2001 2002 2003
------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues, Net................ $596.437 $349.345 $388.157 $406.096 $401.215 $411.462
Cost of Sales (Goods Sold)... 496.906 337.012 361.337 347.517 327.060 327.475
Depreciation................. 17.548 14.476 13.299 15.735 22.421 27.689
-------- -------- -------- -------- -------- --------
Gross Profit................. 81.983 2.144 13.521 42.843 51.734 56.297
Margin..................... 13.7% -0.6% 3.5% 10.5% 12.9% 13.7%
Selling, Administrative and
Other Expenses............. 13.017 11.350 13.676 10.788 11.388 11.988
-------- -------- -------- -------- -------- --------
EBIT (Before Non-recurring
Charges)................... 68.966 (13.494) (0.155) 32.055 40.346 44.309
Non-recurring Charges........ 46.291 (0.895) -- 19.000 --
-------- -------- -------- -------- -------- --------
EBIT (After Non-recurring
Charges)................... 68.966 (59.785) 0.740 32.055 21.346 44.309
Total Interest Expense and
Other Income............... 0.048 11.519 7.800 (0.230) 16.957 22.224
-------- -------- -------- -------- -------- --------
Pre-Tax Income............... 68.918 (71.304) (7.059) 32.285 4.389 22.086
Book Taxes................... 27.222 (25.957) (2.823) 11.300 1.536 7.730
-------- -------- -------- -------- -------- --------
Net Income................... $ 41.696 $(45.347) $ (4.236) $ 20.985 $ 2.853 $ 14.356
======== ======== ======== ======== ======== ========
EBITDA....................... $ 86.514 $ 0.982 $ 13.144 $ 47.790 $ 62.767 $ 71.999
======== ======== ======== ======== ======== ========
EBITDA Margin................ 14.5% 0.3% 3.4% 11.8% 15.6% 17.5%
</TABLE>
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<PAGE> 94
NORTHWESTERN STEEL AND WIRE COMPANY
PROJECTED BALANCE SHEET
2000-2003
<TABLE>
<CAPTION>
ACTUAL PROJECTED FISCAL YEAR ENDING JULY, 31
FYE -----------------------------------------
($000,000 OMITTED) JUL-99 2000P 2001P 2002P 2003P
- ------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & Equivalents........................ $ 39.415 $ 2.598 $ 6.769 $ 9.456 $ 33.360
Cash Escrow for 22" Mill.................. 0.000 100.720 23.842 0.000 0.000
Cash Escrow for pollution control bonds... 0.000 2.094 1.469 1.000 1.000
Accounts Receivable....................... 29.585 37.446 38.125 37.184 37.892
Inventories............................... 51.485 49.241 41.110 40.727 41.601
Deferred Tax Asset........................ 0.000 0.000 0.000 0.000 0.000
Other Current Assets...................... 8.773 11.673 9.944 9.944 9.944
-------- -------- -------- -------- --------
Total Current Assets........................ 129.258 203.772 121.260 98.312 123.798
-------- -------- -------- -------- --------
Fixed Assets:
Land...................................... 2.796 2.991 2.991 2.991 2.991
Buildings................................. 27.966 28.078 28.078 28.078 28.078
22" Mill.................................. 4.036 13.082 89.960 113.802 113.802
Machinery and Equipment................... 260.390 276.227 294.627 292.727 306.227
Capitalized Interest...................... 0.000 5.525 27.625 33.150 33.150
Less: Accum. Depreciation................. 173.175 185.243 199.022 219.758 245.762
-------- -------- -------- -------- --------
Net Fixed Assets............................ 122.013 140.660 244.259 250.990 238.486
-------- -------- -------- -------- --------
Deferred Financing and Transaction Fees..... 0.869 10.771 8.815 7.130 5.445
Deferred Tax Asset.......................... 47.585 50.409 36.487 45.585 46.128
Other....................................... 18.685 22.497 22.497 22.497 22.497
-------- -------- -------- -------- --------
Total Assets................................ $318.409 $428.109 $433.319 $424.514 $436.354
======== ======== ======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.......................... $ 17.482 $ 29.541 $ 27.156 $ 24.535 $ 24.800
Income Taxes Payable...................... 0.000 0.100 0.100 0.100 0.100
Revolver.................................. 0.000 0.000 0.000 0.000 0.000
Revolver Draw Down until Transaction...... 19.600 0.000 0.000 0.000 0.000
Current Portion Long-Term Debt............ 0.609 0.108 0.108 0.108 0.108
Accrued Expenses.......................... 27.064 30.807 29.923 28.095 28.399
-------- -------- -------- -------- --------
Total Current Liabilities................... 64.755 60.555 57.287 52.837 53.407
Existing Long Term Debt due 2001............ 114.813 -- -- -- --
New Senior Debt............................. -- 170.000 170.000 170.000 170.000
Pollution Control Bonds..................... -- 10.000 10.000 10.000 9.722
Other Debt.................................. .817 0.706 0.598 0.490 0.382
Deferred Benefit Obligations................ 84.592 77.559 65.159 58.059 55.359
Deferred Tax Liability...................... 0.000 0.000 0.000 0.000 0.000
Other Liabilities........................... 6.606 7.450 7.450 7.450 7.450
-------- -------- -------- -------- --------
Total Liabilities........................... 271.583 326.270 310.494 298.836 296.320
-------- -------- -------- -------- --------
Stockholders' Equity:
Common Stock (Paid in Capital)............ 123.973 183.223 183.223 183.223 183.223
Retained Earnings......................... (71.822) (76.058) (55.073) (52.220) (37.864)
Less: Treasury Stock...................... (5.325) (5.326) (5.326) (5.326) (5.326)
-------- -------- -------- -------- --------
Net Stockholders' Equity.................... 46.826 101.839 122.825 125.678 140.033
-------- -------- -------- -------- --------
Total Liabilities & Stockholders' Equity.... $318.409 $428.109 $433.319 $424.514 $436.354
======== ======== ======== ======== ========
</TABLE>
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<PAGE> 95
EXHIBIT D
NORTHWESTERN STEEL AND WIRE COMPANY
2000 STOCK INCENTIVE PLAN
<PAGE> 96
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;
(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
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<PAGE> 97
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 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
the 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
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<PAGE> 98
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.
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, Non-Qualified 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.
(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
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<PAGE> 99
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 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,
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however, that if the Optionee dies within such period, an 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 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 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.
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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:
(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 shall be paid in cash or cash equivalents, unless the
Administrator provides otherwise).
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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), or, if the per share exercise price
equals or exceeds the Change in Control Price, the outstanding Award
shall terminate and be canceled.
(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 shall be settled for the Change in Control Price (less,
to the extent applicable, the per share exercise price).
(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
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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 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 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.
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(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 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
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or 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:
(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,
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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. 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.
(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.
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(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.
(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.
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(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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EXHIBIT E
PROPOSED
PREPACKAGED PLAN OF BANKRUPTCY
<PAGE> 110
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 COMPANY, a Delaware Corporation and
NORTHWESTERN STEEL AND WIRE COMPANY, an Illinois Corporation
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re
NORTHWESTERN STEEL AND WIRE CO.,
an Illinois Corporation and
NORTHWESTERN STEEL AND WIRE CO.,
a Delaware Corporation,
Debtors
Chapter 11
Case No. ________
JOINT PREPACKAGED PLAN OF
NORTHWESTERN STEEL AND
WIRE COMPANY, an Illinois
Corporation
and NORTHWESTERN STEEL AND
WIRE COMPANY, a Delaware
Corporation
Northwestern Steel and Wire Company, an Illinois corporation ("Northwestern
Illinois" or the "Company") and Northwestern Steel and Wire Company, 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.
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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.
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.
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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 "DISPUTED CLAIM" means every Claim that is not an Allowed Claim.
1.21 "DISPUTED EQUITY INTEREST" means every Equity Interest that is not an
Allowed Equity Interest.
1.22 "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.
1.23 "EQUITY INTEREST" means the interest of each owner of Outstanding
Common Stock.
1.24 "ESTATES" means the Debtors' estates created pursuant to Section 541
of the Bankruptcy Code upon commencement of the Reorganization Case.
1.25 "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.
1.26 "EXCHANGE AGENT" means Harris Trust Company of New York or such other
Person as may be appointed by the Debtors and identified in the Confirmation
Order.
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.
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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.
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 the record
date in the Proxy Statement.
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 notifying holders of
Outstanding Common Stock of our annual Shareholders meeting and soliciting
Proxies 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 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.
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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
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
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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
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.
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.
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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: On or as soon as practicable after the
Effective Date each holder of an Allowed Class 4A Claim will receive from
the Exchange Agent, for each $1,000 in principal amount of Senior Notes,
(i) $456.52 in cash, (ii) 49.674 shares of Common Stock (after giving
effect to 1-for-10 reverse stock split) and (iii) any accrued interest as
of the Effective Date, calculated at the applicable non-default contract
rate. 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 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 Exchange
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 certificates 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 together with a letter of transmittal,
which shall include, among other provisions, customary provisions
respecting authority to act and authenticity of signatures. If the Senior
Note(s) has been lost, destroyed, stolen or mutilated, such holder of a
Senior Note has executed and delivered an affidavit of loss which is
reasonably satisfactory to the Reorganized Debtor and the Exchange Agent,
and if the Reorganized Debtor reasonably requests, such holder of a Senior
Note has furnished a bond in form, substance and amount satisfactory to the
Reorganized Debtor. 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 Exchange 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 on or after the Effective Date by a holder
of a Senior Note of the certificate constituting such Senior Note to the
Exchange Agent, the Exchange Agent shall surrender it to the Reorganized
Debtor, which shall destroy or mark such certificate canceled or cause such
certificate 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 Exchange
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).
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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 therefor as set forth in the Offering
Memorandum. Unless these requirements are satisfied the Exchange Agent will
withhold an amount of the cash distribution payable to such holder that
will enable the Exchange 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.
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 5B 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
Exchange 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 effect a
1-for-10 reverse stock split.
7.6 Cancellation of Indenture
As of the Effective Date, the Indenture and the Senior Notes shall be
deemed canceled and shall be of no further force and effect.
7.7 Issuance of Common Stock
As of the Effective Date, 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.
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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 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.
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9.4 Section 1145 Exemption. The New Common Stock will be issued pursuant
to the 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 any and 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 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.
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9.15 Interest. Except as to Priority Tax Claims, and unless entitled to
other treatment under Bankruptcy Code Section 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 Exchange 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 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
Bank One Plaza
Chicago, IL 60603
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To Unofficial Committee:
Wendell H. Adair, Jr.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
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
Exchange 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.
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<PAGE> 123
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.
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
Bank One Plaza
Chicago, Illinois 60603
(312) 853-7000
By: -----------------------------------------------------
Attorneys for Debtors
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<PAGE> 124
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 January 26, 2000, at the Annual
Meeting of Shareholders of the Company to be held on Tuesday, March 21, 2000 at
9:00 a.m. Central Standard Time, at the Chicago Downtown Marriott Hotel, 540
North Michigan Avenue, 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 the prepackaged reorganization plan, attached to this Proxy Statement, if
necessary to effect the exchange offer and 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., Darius W. Gaskins, Jr., Thomas
A. Gildehaus, David L. Gore, 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.
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.
