<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
BIRMINGHAM STEEL CORPORATION
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(Name of Registrant as Specified In Its Charter)
THE UNITED COMPANY SHAREHOLDER GROUP
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
THE UNITED COMPANY SHAREHOLDER GROUP
1005 GLENWAY AVENUE
BRISTOL, VIRGINIA 24201
Dear Fellow Shareholders:
As shareholders of Birmingham Steel Corporation (the "Company"), we have
become dissatisfied over the Company's performance in recent years. We along
with other shareholders have formed a shareholder group (the "Group") to
nominate nine persons for election as directors of the Company. We have slated
John D. Correnti, former Chief Executive Officer of Nucor Corporation, to be the
Chief Executive Officer of the Company. In order to install Mr. Correnti as
Chief Executive Officer, we need you to vote for our director nominees.
The persons we have nominated for election as directors (the "Group
Nominees") are: John D. Correnti, James A. Todd, Jr., James W. McGlothlin, Donna
M. Alvarado, Robert M. Gerrity, Alvin R. Carpenter, Robert H. Spilman, Jerry E.
Dempsey, and Steven R. Berrard. Each of these nominees is committed to electing
Mr. Correnti as Chief Executive Officer. Based on his productivity and success
at Nucor Corporation, we believe Mr. Correnti possesses the managerial and
relationship skills necessary to improve the Company's financial and operational
performance and increase shareholder value. As apparent from the Company's
recent restructuring announcement, we believe that current management is
determined to continue managing the Company without regard to the best interests
of the shareholders.
The Group is seeking your proxy to: (1) vote your shares for the Group
Nominees at the Company's Annual Meeting, and, in the alternative, (2) execute a
written consent on your behalf to remove and replace the Company's current Board
of Directors with the Group Nominees prior to the Annual Meeting. A written
consent action allows you, the shareholder, to change the directors of the
Company without waiting until the Annual Meeting. The Company has scheduled the
Annual Meeting for December 2, 1999, more than five months after the 1999 fiscal
year end. On September 17, 1999, James A. Todd, Jr., a member of the Group, sent
a letter to the Secretary of the Company indicating the Group's intention to
pursue a written consent action and requesting the Board of Directors set a
record date for the consent action. The Company has set October 7, 1999 as the
record date of the consent action. If a majority of the Company's shareholders
grant the Group the authority to execute a written consent on their behalf, the
Group will be able to immediately remove the current Board of Directors and
replace such directors with the Group Nominees. The Group believes that prompt
action to remove the current Board of Directors and elect the Group Nominees is
necessary to implement immediate efforts to staunch the significant cash
outflows that continue to plague the Company. To facilitate a consent action
please return the enclosed BLUE proxy card today.
To enable us to vote your shares for our director nominees, or in the
alternative to execute a written consent on your behalf for our director
nominees, PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED BLUE PROXY CARD TODAY
IN THE ENVELOPE PROVIDED. If you have already returned the proxy card sent to
you by the Company, you may revoke that proxy and vote for our nominees by
marking, signing, dating, and mailing a later dated BLUE proxy card.
Sincerely yours,
/s/ JOHN D. CORRENTI
--------------------------------------
John D. Correnti
/s/ JAMES A. TODD, JR.
--------------------------------------
James A. Todd, Jr.
The United Company
By /s/ JAMES W. MCGLOTHLIN
------------------------------------
James W. McGlothlin
Its President
<PAGE> 3
1999 ANNUAL MEETING OF STOCKHOLDERS
OF
BIRMINGHAM STEEL CORPORATION
PROXY STATEMENT OF THE UNITED COMPANY SHAREHOLDER GROUP
IN OPPOSITION TO THE BOARD OF DIRECTORS
OF BIRMINGHAM STEEL CORPORATION
GENERAL
This Proxy Statement and the accompanying BLUE proxy card are being
furnished in connection with the solicitation of proxies by a group of
shareholders composed of John D. Correnti, James A. Todd, Jr., The United
Company, and certain other shareholders named herein (the "Group") to be voted
at the 1999 Annual Meeting of the Stockholders of Birmingham Steel Corporation
(the "Company"), to be held on December 2, 1999 and at any adjournments,
postponements, or reschedulings thereof (the "Annual Meeting"). As of the date
of this Proxy Statement, the Company has not set the time or place of the Annual
Meeting. At the Annual Meeting, nine directors of the Company will each be
elected for a one-year term or until the election and qualification of each of
their successors. The Group is soliciting your proxy in support of the election
of the Group's nine nominees named herein (the "Group Nominees") as directors of
the Company.
Additionally, we are soliciting proxies to execute a written consent on
your behalf to remove and replace the Company's current Board of Directors with
the Group Nominees. A written consent action allows you, the shareholder, to
elect a new Board of Directors without waiting until the date of the Annual
Meeting.
This proxy statement and proxy card are first being mailed to the
stockholders of the Company on or about October 13, 1999. The principal office
of the lead shareholder of the Group is located at 1005 Glenway Avenue, Bristol,
Virginia 24201. The principal office of the Company is located at 1000 Urban
Center Drive, Birmingham, Alabama 35242.
IMPORTANT
THE GROUP SEEKS, EITHER AT THE ANNUAL MEETING OR THROUGH A WRITTEN CONSENT
ACTION (THE "CONSENT ACTION"), TO ELECT THE GROUP NOMINEES AS THE DIRECTORS OF
THE COMPANY. THE GROUP URGES YOU TO MARK, SIGN, DATE AND RETURN THE ENCLOSED
BLUE PROXY CARD IN SUPPORT OF THE GROUP NOMINEES. YOUR PROXY IS IMPORTANT. NO
MATTER HOW MANY OR HOW FEW SHARES YOU OWN, PLEASE EXECUTE THE BLUE PROXY CARD IN
SUPPORT OF THE GROUP NOMINEES.
THE GROUP URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY THE COMPANY
(BIRMINGHAM STEEL CORPORATION). IF YOU HAVE ALREADY MAILED A PROXY CARD SUPPLIED
TO YOU BY THE COMPANY, YOU HAVE EVERY RIGHT TO CHANGE YOUR VOTE BY SIGNING,
DATING AND RETURNING THE ENCLOSED BLUE PROXY CARD IN THE ENCLOSED ENVELOPE. ONLY
YOUR LATEST DATED PROXY FOR THE ANNUAL MEETING WILL COUNT.
IF YOU HAVE ANY QUESTIONS OR HAVE ANY DIFFICULTY GRANTING PROXIES, YOU ARE
INVITED TO CONTACT CHASEMELLON TOLL-FREE AT (800) 636-8927.
VOTING AND PROXY PROCEDURES
VOTING AT ANNUAL MEETING
At the Annual Meeting, nine directors of the Company will each be elected
for a one-year term or until the election and qualification of their successors.
The Group is soliciting your proxy in support of the election of the Group
Nominees. See "ELECTION OF DIRECTORS".
<PAGE> 4
The Company has fixed the close of business on October 19, 1999 as the
record date for determining the stockholders of the Company entitled to vote at
the Annual Meeting and any adjournment thereof. Each share of common stock is
entitled to one vote with respect to each matter to be voted on at the Annual
Meeting. According to the Company's bylaws, directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the Annual Meeting and entitled to vote on the election of directors. A
plurality means the nine nominees who receive the greatest number of votes win
the election. Your vote for the Group Nominees is very important.
CONSENT ACTION
The Group is also soliciting your proxy to execute a written consent on
your behalf to remove the Company's current Board of Directors and replace the
current directors with the Group Nominees. A written consent action allows you
to change the directors without waiting until the Annual Meeting. Under Delaware
law, the directors of the Company may be replaced without an annual meeting, if
a written consent setting forth such action is executed by a majority of the
Company's shareholders. By executing the enclosed proxy card in favor of the
Consent Action you give the Group authority to sign and deliver a written
consent on your behalf. If a majority of the Company's shareholders grant the
Group the authority to execute a written consent on their behalf, the Group will
be able to remove the current Board of Directors and replace such directors with
the Group Nominees without waiting until the Annual Meeting. The Company has set
December 2, 1999 as the date of the Annual Meeting. This means the Annual
Meeting will not occur until over five months after the 1999 fiscal year end. A
consent action is your remedy to the Company's delay tactics. As described
below, the Group believes that prompt action to remove the current board and
elect the Group Nominees is necessary to implement immediate efforts to staunch
the significant cash outflows that continue to plague the Company.
On September 17, 1999, James A. Todd, Jr., a member of the Group, sent a
letter to the Secretary of the Company indicating the Group's intention to
pursue the Consent Action and requesting the Board of Directors to set a record
date for the Consent Action. The Company has set October 7, 1999 as the record
date for the Consent Action.
If BLUE proxy cards representing a majority of the outstanding shares of
the Company's common stock are executed and delivered to the Group and grant the
Group the authority to execute a written consent removing and replacing the
current Board of Directors with the Group Nominees, then the Group Nominees will
become the directors of the Company to serve until the next Annual Meeting of
Stockholders and until their successors are elected and qualified.
Your grant of authority to the Group to execute a consent action on your
behalf may be revoked at any time by executing a written revocation before the
time that the action authorized by the executed consent becomes effective. A
revocation may be in any written form validly signed by you as long as it
clearly states that the consent previously given is no longer effective. You may
revoke a written revocation by executing a later dated BLUE proxy card granting
the Group the authority to execute a written consent on your behalf.
If the action described herein is taken through the execution and delivery
of a written consent, the Group will provide written notice to all shareholders
that enough proxies have been received to execute a written consent and that
their revocation rights have expired.
PROXY PROCEDURES
Shares represented by the enclosed BLUE proxy card will be voted as
specified. If no specification is made, shares represented by the enclosed BLUE
proxy card will be voted for, or in the alternative, consented to the election
of the Group Nominees as directors of the Company and for approval and
ratification of the selection of Ernst & Young LLP as the Company's independent
auditors. An executed proxy may be revoked either by a later-dated proxy
concerning the same matters, by voting in person at the Annual Meeting, or by
giving notice of revocation in writing to the Group at c/o ChaseMellon, 450 West
33rd Street, 14th Floor, New York, New York 10001 Attn: Dan DeWeever.
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The Group knows of no other business to be presented at the Annual Meeting,
but if other matters do properly come before the Annual Meeting, the persons
named in the enclosed Proxy will use their discretion to vote on such matters in
accordance with their best judgment.
If you own your shares in the name of a brokerage firm, bank nominee or
other institution, only they can vote your shares of common stock. Accordingly,
you should contact the person responsible for your account and give instructions
with respect to the granting of proxies.
REASONS FOR THIS SOLICITATION
INTRODUCTION
As stockholders of the Company, the Group has become dissatisfied over the
Company's performance in recent years. The current CEO joined the Company in
January 1996 and has led the Company during the past three fiscal years. Under
the leadership of the current CEO, the share price of the Company's stock has
decreased significantly over the past three fiscal years as shown by the
following chart.
(Stock Price Chart)
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<PAGE> 6
Additionally, the Company's stock has significantly under performed both
the Standard & Poor's ("S&P") 500 Stock Index and a peer group index over the
past three fiscal years, as shown by the following graph. The graph reflects the
investment of $100 on June 30, 1996 in the Company's stock, the S&P 500 Index
and the S&P Steel Industry Group Index and sets forth the cumulative total
shareholder return for the periods indicated.
INDEXED RETURNS
YEARS ENDING
<TABLE>
<CAPTION>
BIRMINGHAM STEEL CORP. S&P 500 INDEX IRON & STEEL 500
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<S> <C> <C> <C>
6/30/96 100 100 100
6/30/97 96 135 113
6/30/98 80 175 104
6/30/99 28 215 99
</TABLE>
4
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Additionally, the earnings of the Company have significantly decreased over
the past two fiscal years as shown by the following chart.
BIRMINGHAM STEEL CORPORATION
FISCAL YEAR 1998-1999 QUARTERLY EARNINGS PER SHARE
(BIRMINGHAMN STEEL CORP. CHART)
Note: The Company's fiscal year begins on July 1 and ends on June 30, so fiscal
years 1998 and 1999 began on July 1, 1997 and July 1, 1998, respectively.
- ---------------
(1) Represents earnings per share from continuing operations. Total earning per
share for the fiscal 1999 fourth quarter were negative $6.90 per share
including a loss of $6.31 from discontinued operations. The Company is
reporting the SBQ business as discontinued operations for the fiscal 1999
fourth quarter.
The Group believes that the drop in the price of the Company's stock and
the decrease in the Company's earnings have resulted from the following
unsuccessful capital investments by current management:
- Continued start up costs at Memphis facility (23 months after
commencement of initial start up in November 1997)
- Fiscal 1997 investment in Pacific Coast Recycling which was fully written
off after 3 years of operating losses
- Cartersville rolling mill project which cost the Company at least $150
million, $80 million over the original estimated cost of $70 million,
with total estimated start up costs of an additional $26 million
- Fiscal 1998 investment in LaClede Steel Company which was fully written
off after nine months and recognized losses of $2,715,000
- Fiscal 1997 investment in Birmingham Southeast LLC which has failed to
turn a profit.
Note: For a more detailed discussion of these unsuccessful capital investments
see "General Performance and Operational Problems of the Company."
The Group believes that the directors and certain management of the Company
need to be replaced as soon as possible to maximize stockholder value, improve
earnings, and restore the investment community's confidence in the Company. The
Group plans to replace the directors with the Group Nominees and replace the
current CEO with John D. Correnti. Through his connections and relationships in
the steel industry, Mr. Correnti will assemble a talented, experienced, and
capable team of managers to lead the Company. Upon
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assembling his management team, Mr. Correnti and his team will assess the
operations of the Company and develop specific plans to increase profitability
and shareholder value. The Group estimates that it will take approximately 60
days to develop such plans. The Group has been unable to develop any specific
plans to date because the Group lacks access to the Company's plants, equipment,
and books and records. The Group continues to obtain knowledge and information
about the Company in order to facilitate the preparation of and reduce the
development period for its specific plans. If the Group is successful in
changing the Company's directors and management there is no assurance that
profitability or shareholder value will be increased.
The Group's general plan is to:
- Provide effective management leadership
- Re-establish relationships with customers
- Make necessary investments in the Memphis and Cartersville facilities to
allow them to operate at name plate capacity
- Improve the Company's financial position
- Restore credibility with the investment community
In order to remove any obstacle to enhancing shareholder value, the Group
Nominees, if successfully elected, intend to remove the Company's poison pill.
The Group believes the Company's poison pill inhibits shareholder value by
discouraging the actions of potential purchasers of the Company. The Group
believes the poison pill places too much discretion in the hands of the
Company's directors and may possibly be used by directors to entrench themselves
and management in office instead of maximizing shareholder wealth. Removal of
the poison pill would allow the Group to purchase additional shares of the
Company. However, the Group currently has no plans to make or solicit a tender
offer for the Company. There are certain disadvantages in removing the Company's
poison pill. Namely, if the poison pill remains in place it could discourage,
delay, or prevent a takeover or change of control of the Company, or could
prevent a sudden shift in corporate policy and contribute to the stability of
the Company's corporate governance However, as discussed above, the Group
believes the removal of the poison pill is in the best interests of the
shareholders.
RECENT DEVELOPMENTS
Restructuring Announcement
On August 18, 1999, the Company announced a restructuring of its
operations, including the sale of its SBQ (Special Bar Quality) business with
operations in Memphis, Tennessee and Cleveland, Ohio. On September 15, 1999, at
the time of its 1999 fiscal fourth quarter earnings announcement, the Company
disclosed that in addition to the sale of the SBQ business, it would write off
its entire investment in Pacific Coast Recycling (PCR), a west coast scrap joint
venture. The result of this restructuring is that losses from the SBQ business
and PCR will no longer be reported as losses from continuing operations, and the
Company will be able to report positive earnings from continuing operations in
future quarters. Continuing losses from the discontinued operations will,
however, have to be funded and will continue to cost the Company substantial
amounts until the SBQ business is actually sold. In a conference call on
September 16, 1999 (the "Conference Call"),(2) the Company reported that it
expects it to be 3 to 6 months before the SBQ business is sold.
In the Company's fourth quarter earnings release current management pledged
to "get Memphis performance on track" during the interim period before the SBQ
assets are sold. The Group does not believe that current management can meet
this pledge based on their prior performance. Based on recent Company
borrowings, the Group believes that losses from the SBQ business in the first
quarter of fiscal 2000 will exceed
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2 The Conference Call was organized and conducted by the Company in connection
with its fourth quarter earnings release for fiscal year 1999. The Conference
Call was attended by analysts, the press, and significant shareholders. The
Group obtained a transcript of the Conference Call from one of the Group's
brokers.
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the 24.3 million of losses in the fourth quarter of fiscal 1999. In a September
29, 1999 press release, the Company acknowledged that in the 3 months from June
30, 1999 to September 28, 1999 the Company had to borrow approximately $29
million in addition to consuming cash from its continuing operations. At the
current rate at which the Company is using cash, if the sale of the SBQ business
does not occur for six months, the Group anticipates that the Company could be
required to borrow an additional $30 to $60 million. The Group believes that
John Correnti and his management team need to be installed immediately to
restore the operation of the SBQ business and thereby increase the market value
of the SBQ assets so that a sale of such assets would bring an acceptable price.
The Consent Action would allow the Group to effect a change in the Board of
Directors and management much sooner than waiting for the Annual Meeting.
The current management appears to be in a position where it must sell the
SBQ business regardless of the price it can get because it cannot provide
adequate management to run the SBQ business at an acceptable production rate and
therefore the SBQ business will continue to lose significant amounts of money.
The Group does not see why shareholders should believe the current CEO will be
able to significantly increase the operational performance at Memphis to
facilitate an acceptable sales price. The Company expects a significant loss on
the sale of the SBQ business. According to its fourth quarter earnings release
dated September 15, 1999, the Company has recorded "a $173.2 million provision
for the estimated losses to be incurred in connection with the disposition of
the SBQ operations." The Group does not believe current management can achieve
even the production levels it has projected in estimating the cost of exiting
the SBQ business. If losses in excess of management's estimates are incurred,
the Company will be required to recognize additional losses and further reduce
shareholder's equity in connection with the restructuring.
The Group believes the SBQ assets have significant potential. In an April
21, 1999 third quarter earnings release, the Company reported the Memphis
facility had achieved a break-even production rate of 50,000 tons in March 1999.
The Company stated the Memphis facility was exhibiting "improved performance
trends", "positive feedback on quality", and continued improvement in the work
force. The Company further reported that billet production costs at Memphis fell
to $300/ton and the conversion costs at the Cleveland facility decreased to
$55/ton. A strong backlog at the Cleveland facility was also reported. In sum,
management indicated that the SBQ business was poised to return to
profitability.
However, in the Conference Call, the Company reported that production at
Memphis fell to 27,000 tons in July and that current production was
approximately 40,000 tons per month. Current management has been unable to
provide sustainable production at Memphis of 45% (50,000 tons/month) of rated
capacity (1,100,000 tons/year) in the twenty-three months since the initial
start up of the Memphis facility in November 1997. The Group believes that
because current management has been unable to properly manage the SBQ business
they have retreated to last resorts and decided to sell the SBQ business at a
distressed price in a depressed market. The group believes current management
needs to be replaced as soon as possible so that further damage is avoided. As
production rates fall and losses rise, the market value of the SBQ business
plummets. Because time is of the essence, the Group believes a Consent Action is
the preferred means of removing and replacing the current Board of Directors
with the Group Nominees.
Current management's proxy statement blames the failure of the SBQ business
on pre-1996 management, namely Mr. James A. Todd, Jr., a member of the Group.
Current management takes no responsibility for the current status of the SBQ
business and instead blames Mr. Todd who retired from his management duties at
the Company more than 3 1/2 years ago.
During Mr. Todd's tenure as the Company's CEO, the Company entered the SBQ
business in November 1993 with the acquisition of American Steel & Wire
("AS&W"). With the acquisition of AS&W, the Company obtained the Cleveland
facility and another SBQ facility in Joliet, Illinois. At the time of the
acquisition, AS&W was the largest producer of high quality rod and wire products
in North America.
Subsequent to the AS&W acquisition and under the direction of Mr. Todd, the
Company constructed a bar and rod mill at the Cleveland facility which doubled
the capacity of the Cleveland facility to approximately 1.1 million tons
annually. With the increased capacity at Cleveland, the Company, under the
direction of Mr. Todd, decided to convert the Joliet facility from a SBQ
facility to a rebar and merchant facility.
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When the Cleveland facility was acquired it was purchasing 100% of its
billet requirement from outside sources and was one of the largest purchasers of
billets in the world. In order to reduce costs, under Mr. Todd's leadership, the
Company developed and formulated plans to construct a high quality melting
facility in Memphis, Tennessee to supply billets to the Cleveland facility. Mr.
Todd retired from his CEO position in January 1996 and the current CEO took
office.
When the current CEO arrived at the Company in January of 1996 his first
task was to review the Memphis project, make any modifications that were
necessary, become involved in the construction schedule, and negotiate vendor
contracts for the facility. In a press release on Business Wire dated June 27,
1996, the current CEO stated, "We have selected a core group of world-class
suppliers for our Memphis project. These vendors [of the operating equipment]
were chosen because of their commitments to quality, cost control and their
ability to work on an aggressive timetable. Each supplier is committed to
developing a melt shop that will be an industry benchmark for technology,
quality and productivity."
The goal of the Group is not to bring in previous management of the
Company. The Group has slated John Correnti to be the new CEO of the Company.
Mr. Correnti was previously CEO of Nucor Corporation, the premiere mini mill
company in the world. Mr. Correnti has never been associated with the Company.
The Group believes Mr. Correnti possesses the managerial and relationship skills
necessary to improve the Company's financial and operation performance. See
"John D. Correnti as Chief Executive Officer."
The lenders, note holders, and investment bankers will be compensated for
their part in the restructuring through fees, increased interest rates, and
security. The shareholder has been rewarded by having the book value of his
shares cut almost in half. As of June 30, 1999, after recording the results of
the restructuring, the book value of the Company's common shares decreased to
approximately $7 to $8/share from over $14.00/share before the restructuring
charge with the possibility of further reductions depending on current
management's ability to operate the SBQ business during the interim period
before the SBQ assets are sold and their success in obtaining an adequate sales
price for the assets.
In an analyst report dated August 19, 1999 (one day after the restructuring
announcement), Scott Morrison,(3) an analyst with Donaldson, Lufkin and Jenrette
expressed the following opinion on the Company's restructuring plans,
We view the restructuring plan that Birmingham Steel announced
last night as a disappointment . . . [M]anagement has announced a plan
to divest its special bar quality (SBQ) division which includes the
new melt shop in Memphis, TN; the rolling mills in Cleveland, OH; and
the 50% interest in the AIR DRI facility . . . . The company has
invested over $400 million in these assets over the last four years
and originally acquired the Cleveland location for $134 million in
1993. There have been significant start-up and operational problems at
both Memphis and Cleveland which we believe cost the company close to
$100 million. We view the decision to divest these assets as being a
disappointment for shareholders, particularly if the recent management
indications are true that operating and financial performance has
improved significantly at Memphis. We believe that the current market
value is likely less than half of the approximately $650 million that
has been invested in them to-date due to the fact that the steel
market is at a cyclical low and that the recent performance at the
three assets has been poor. Since the debt for the DRI facility is
off-balance-sheet, we believe that the sale of the three assets would
reduce the company's on-balance-sheet debt by less than $300 million.
This would leave the company with an enterprise value of about $525
million and EBITDA of less than $100 million, implying that the
company is about fairly valued at the current share price. We believe
that the better situation for shareholders would be for current or new
management to complete the start-up of the assets and await the
cyclical recovery of the market before making a restructuring
decision.
In addition to selling the Memphis and Cleveland facilities, the Company
plans to divest its 50% stake in American Iron Reduction, LLC ("AIR"). AIR
operates a direct reduced iron facility in Louisiana. The
- ---------------
3 Mr. Morrison has consented to the Group's use of this information.
8
<PAGE> 11
Company is currently obligated to purchase a minimum of 600,000 metric tons of
direct reduced iron annually from the AIR facility. A release from this
commitment may be difficult and possibly expensive because of the current
uneconomical prices of direct reduced iron. Amounts spent to terminate this
commitment may reduce the amount of cash the Company will receive from the sale
of the SBQ business.
Release of Fourth Quarter Results and Current Debt Levels
On September 15, 1999, the Company announced financial results for the
fiscal 1999 fourth quarter. The Company reported a net loss per share of $6.90
for the fourth quarter and a net loss per share of $7.61 for the 1999 fiscal
year. The reported losses include the effects of classifying the SBQ segment as
discontinued operations and the Company's write-off of its entire investment in
PCR.
In the fourth quarter earnings release, the Company reported that total
debt outstanding decreased from $610 million as of March 31, 1999 to $521.5
million as of June 30, 1999. The Company failed to report in its earnings
release the reasons for the decrease. During the Conference Call the Company
admitted that only $8 million of the $89 million decrease came from income
derived from normal operations. The primary reason for the decrease was the
reclassification of $67 million of debt as a leveraged lease at the Cartersville
facility. Additionally, the liquidation of approximately $14 million in
inventory facilitated the remaining amount of the decrease in debt levels. The
Company further reported in a press release that as of September 28, 1999, the
Company's outstanding balance under its bank line of credit had increased from
approximately $187 million as of June 30, 1999 to $216 million, an increase of
$29 million. Therefore, from June 30, 1999 to September 28, 1999 it appears that
cash generated from its continuing operations did not fulfill the company's cash
requirements during this period. In addition to the leveraged lease at
Cartersville, the Company, under current management, has also reclassified an
additional $85 million of debt with a leveraged lease of $75 million on the
operating equipment at the Memphis facility and approximately $10 million on a
tax lease at Cartersville. The three leveraged leases total $152 million and
essentially raise total debt obligations from $521.5 million to $673.5 million
as of June 30, 1999.
Debt Restructuring
The Company's restructuring plans require the approval of the Company's
lenders. As mentioned in the Conference Call, the Company will be required by
its lenders to execute certain amendments to existing debt instruments which
will increase the current interest rate of the debt and provide unencumbered
assets as collateral. Furthermore, the Company will pay fees to the lenders in
connection with the amendment of the debt.
Additionally, upon the sale of the SBQ assets, the Company must satisfy or
the purchaser must assume the following financial obligations.
- Memphis
- $75 Million Leveraged Lease (off balance sheet)
- $26 Million in Solid Waste Disposal Revenue Bonds
- Cleveland
- $15 Million in Solid Waste Disposal Revenue Bonds
The Group's Plans
The Memphis equipment is proven electric furnace technology that is capable
of producing high quality blooms and billets. The same equipment is being
successfully operated in many parts of the world. The Group believes the problem
at Memphis is lack of leadership, inexperienced management and poorly trained
personnel and supervisors, not equipment or infrastructure. In fact, the current
CEO in his letter to stockholders in the 1998 Annual Report (the "Stockholder's
Letter") stated that the Company was "generally pleased with the [Memphis]
facility's design and equipment." The CEO admitted that "the management
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<PAGE> 12
team responsible for start-up operations [at Memphis] was unable to successfully
implement the initial start-up plan."
The Memphis facility is ideally located on the Mississippi River for access
to low priced scrap, direct reduced iron, pig iron and other metallics.
Leadership at the Memphis facility has changed several times and employee
turnover has been extremely high. With good management and leadership the Group
believes that the Memphis operation is capable of profitability and making an
excellent return. Unless the problems with the SBQ business caused by current
management are so severe that it is not in the best interest of the Company and
its shareholders to do so, John Correnti plans to recruit and establish a
management team that will implement strategies at the Memphis facility in order
to provide economical high quality billets to Cleveland.
The Cleveland plant was developed to be the premiere high quality coiled
bar/rod producer in America. It has the proven capability to produce product at
dimensional tolerances unequaled in America. Products rolled at Cleveland from
Japanese manufactured billets are approved for use by Honda, the most stringent
quality standards in the automotive market. This illustrates that the Cleveland
mill can roll to the most stringent quality standards when supplied with high
quality billets. The Group believes with the proper management in place at
Memphis quality billets can be produced at Memphis resulting in a profitable
Cleveland facility. The Cleveland rolling facilities have become a more
significant factor in the 3/8" to 1 9/16" coil market as a result of continuing
consolidation among other steel producers resulting in the closure of mills
which produce products in this size range. As a non-union mill, Cleveland has a
major cost and operational advantage over its competition. Cleveland's domestic
competition comes primarily from unionized mills.
The Group believes the SBQ Division could become a substantial profit
producer. The key is to properly manage the Memphis facility. The Group is
confident that it can solve the problems at the Memphis facility and bring its
production rate up so that either it will be a substantial contribution to the
Company's profitability or can be sold at a price that will provide the Company
a fair value.
Meetings with Company Representatives
Representatives of the Group met with representatives of the Company in
Washington, D.C. on August 9, 1999 (the "Meeting"). As a preamble to the meeting
the Group advised that its position was clearly stated in the Group's July 29,
1999 13D Filing -- designation of John Correnti as Chairman and CEO and a
majority of the Board of Director seats. The Group further advised that unless
these issues were on the table, a meeting would not be productive. Present at
the Meeting on behalf of the Group were James W. McGlothlin and counsel for the
Group. The Company was represented by Stephen Clegg, a director of the Company
and representative of the Company's Board of Directors, and Peter Atkins,
counsel for the Company. The Group specified that it would not be useful to have
Mr. Garvey attend the meeting and this was agreed upon.
The meeting took place with Mr. McGlothlin proposing that (i) the Board be
expanded to 12 members -- 7 designated by the Group and 5 designated by the
Company, (ii) John D. Correnti be elected Chairman and Chief Executive Officer,
and (iii) a single proxy agreed to by the Group and the Company be submitted for
shareholder approval.
Mr. Clegg proposed that since Mr. Correnti was in Washington D.C. on
another matter that he meet with Mr. Correnti. Furthermore, Mr. Clegg requested
that Mr. McGlothlin meet with Mr. Garvey who was in another room at the meeting
site. These meetings were held and at the conclusion of these discussions Mr.
McGlothlin reiterated the Group's position to Mr. Clegg.
On or about August 12, 1999, Mr. Clegg notified Mr. McGlothlin that the
Company's Board of Directors was not receptive to the Group's proposal.
Accordingly, no further meetings or discussions have been held. Therefore, the
Group has proceeded to conduct this proxy solicitation.
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JOHN D. CORRENTI AS CHIEF EXECUTIVE OFFICER
The Group has slated John D. Correnti to become the Chief Executive Officer
of the Company. The Group believes Mr. Correnti is the preeminent steel
mini-mill operator in the world. Mr. Correnti possesses the managerial and
relationship skills necessary to improve the Company's financial and operational
performance and enhance shareholder value.
Mr. Correnti was President, Chief Executive Officer, and Vice Chairman of
Nucor Corporation, a mini mill manufacturer of steel products, from January 1996
to June 1999 and President and Chief Operating Officer from 1991 to 1996. Mr.
Correnti left Nucor in June, 1999. Mr. Correnti resigned from Nucor because of
philosophical differences between Mr. Correnti and the Nucor Board of Directors
regarding the future direction of Nucor. The Nucor Board desired to evaluate
business opportunities outside the steel industry, whereas, Mr. Correnti
believed Nucor should focus on steel operations.
While Mr. Correnti served in an executive capacity, Nucor's revenues
increased from approximately $1.5 billion in 1991 to $4.1 billion in 1998.
Earnings increased during the same period to nearly $300 million from
approximately $75 million, and stockholder equity to over $2.0 billion from
approximately $1.1 billion. Nucor is recognized as the premiere steel mini mill
company in the world and is the second largest steel producer in the USA. In
1998, Mr. Correnti was recognized by New Steel Magazine as its Steel Maker of
the Year. Mr. Correnti has over 30 years experience in the steel industry. Prior
to joining Nucor, he was associated with United States Steel Corporation from
1969 to 1980 in various managerial capacities. He is a graduate of Clarkson
University with a degree in Civil Engineering. See "ELECTION OF DIRECTORS" and
"ADDITIONAL INFORMATION REGARDING GROUP NOMINEES".
GENERAL PERFORMANCE AND OPERATIONAL PROBLEMS OF THE COMPANY
Set forth below are some of the reasons the Group believes that
management's performance has been inadequate and why the Group is seeking your
proxy. The Group believes that John Correnti has the management skills and
managerial experience to promptly address the operational problems of the
Company and implement strategies to return the Company's operations to
profitability and to enhance shareholder value.
Operational Problems
The major operational problem that has plagued the Company over the past
two years is start-up costs. In this regard, Michelle Applebaum, a steel analyst
with Salomon Smith Barney commented in a Steel Mini Mills -- Basic Report Series
dated November 20, 1997(4) as follows with respect to certain of the Company's
start-up operations at the Company's Memphis facility, "while start-up risk is a
fact of life in the steel industry, most of the Company's spending is on proven
technology. Consequently production problems are not likely to be major." This
puts start up costs into perspective, but the Group believes because of
inattention, poor supervision and inadequate leadership, start-ups have been a
major problem for the Company.
One of the principal strengths of John Correnti is in building cutting edge
technology mills, on time and with expected start-up results. This has been the
greatest advantage of Nucor in the mini mill industry. Mr. Correnti is a
communicator and motivator with employees, steel analysts, shareholders,
customers and suppliers. The Group believes that his qualifications will help
increase revenues, decrease operating costs, and thereby increase earnings and
market value.
Start-up operations at the Memphis facility began in November 1997. The
original announcement by the Company was that the mill would be operating at a
rate of seventy-five percent of capacity by June 1998. The Company revised the
production forecast to August-September of 1998 which resulted in a pledge by
the current CEO in August of 1998 to spend a day each week at Memphis
supervising the operation. The current CEO in his letter to stockholders in the
1998 Annual Report stated that "The management team responsible for start-up
operations [at Memphis] was unable to successfully implement the initial
start-up plan." The
- ---------------
4 Ms. Applebaum has not consented to the Group's use of this information.
11
<PAGE> 14
current CEO further stated that the Company was "generally pleased with the
[Memphis] facility's design and equipment."
As a precursor to the Memphis facility, the Company entered the specialty
bar quality ("SBQ") business with the purchase of American Steel and Wire
("AS&W") in Cleveland, Ohio in November of 1993. AS&W had an inefficient rod
mill at Cleveland, and an antiquated mill at Joliet, Illinois and purchased high
quality billets at high prices around the world. Even with these disadvantages,
AS&W was profitable and contributed $20.8 million in operating earnings to the
Company in fiscal year 1995 under prior management. AS&W was also profitable for
the first 3 quarters of fiscal year 1996, but entered a loss position in the
fourth quarter of fiscal year 1996 under the current CEO and has lost money
since. The Company planned to build a world class bar mill at Cleveland that
would extend the mill's position in the high quality, critical SBQ automotive
product line.
Sumitomo agreed to act as technical advisor on the construction and start
up of the new rolling mill at the Cleveland site as well as a new electric
furnace melt shop to be constructed at the Memphis facility. The Cleveland bar
mill would add to the Company's market share in the high priced automotive
products market by selling two-thirds of the bar mill's production to existing
customers and the Memphis facility would supply Cleveland with an economical
source of high quality billets.
The SBQ business now includes the Cleveland and Memphis operations and a
50% interest in the Convent, Louisiana direct reduced iron ("DRI") plant. With
the new bar mill and a refurbished rod mill, the Cleveland operation has an
annual capacity of approximately 1.1 million tons of SBQ products. As a result
of the start-up problems at the Memphis plant, the Memphis plant has been unable
to produce an adequate supply of acceptable billets for use at Cleveland, and
the Company has been unable to conduct a stable operation at its Cleveland
facility. As a result, the SBQ business has not been profitable. The Company
recently announced a restructuring of its operations, including the intention to
sell the Memphis and Cleveland facilities. See "Restructuring Announcement."
In November of 1996 the Company and Atlantic Steel Industries, Inc.
("Atlantic") formed Birmingham Southeast LLC ("Birmingham Southeast"), 85% owned
by the Company and 15% by an affiliate of Atlantic. The Company contributed the
assets of its Jackson, Mississippi facility to Birmingham Southeast. Subsequent
to its formation, Birmingham Southeast purchased Atlantic's Cartersville,
Georgia facility and shut down the facility's rolling mill. Planning then began
to purchase and install a mid section rolling mill at Cartersville and a melt
shop upgrade ($18 million) was begun. The renovated and highly efficient
Mississippi mill that produced operating earnings of $12.8 million in fiscal
year 1995 under previous management was converted to all merchant products and
essentially broke even on an operating profit basis in fiscal year 1997 and in
fiscal year 1998 produced operating profits of approximately $4 million.
Birmingham Southeast assumed liabilities of $44 million related to the purchase
of the Cartersville plant and has made estimated expenditures of the following
amounts: $18 million (Cartersville melt shop upgrade); $43 million (cash for
purchase of Cartersville); and $150 million (mid section rolling mill), for
total expenditures and assumed liabilities of $255 million, plus operating and
start up costs at the Cartersville facility of $1.3 million in fiscal year 1998
and $12.9 million in fiscal year 1999. The Company, during the Conference Call,
estimated that approximately $12 million in start up expenses will be incurred
at Cartersville during fiscal year 2000. Significant amounts of capital have
been invested in Birmingham Southeast by current management without a return of
profits.
The mid section rolling mill at Cartersville was built to satisfy the
majority of the melting capacity of the Cartersville melt shop and extend the
product size range of merchant bar products. The mill was conceived as a $70
million project with start-up scheduled for the latter part of calendar year
1998. The projected start up date was later moved to March 1999 and the cost of
the project ballooned to $150 million as reported in the Company's 1999 third
quarter earnings release materials dated April 21, 1999. In the Conference Call,
the Company reported that it will be six to nine months before the Cartersville
mill is fully operational and out of the start up mode.
Cartersville last changed management in July 1999 and during the start up
process at Memphis numerous management changes have also occurred. The Company
has also changed suppliers and contractors of the
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electrical controls at Cartersville. The Group believes that the instability in
management plus the lack of profitability has adversely affected morale and
increased the length of start up operations.
In September 1997, the Company purchased from IVACO, Inc. approximately 25%
of the outstanding common shares and voting control of the board of directors of
Laclede Steel Company ("Laclede") for $14,953,000. At the time of the investment
purchase in Laclede, Laclede's most recent Form 10K indicated that Laclede had
unfunded pension and health insurance liabilities totaling more than $130
million, long term debt of approximately $107 million and shareholders equity of
only $17 million. For the period from September 24, 1997 through June 30, 1998,
the Company recognized $2,715,000 in losses on its investment in Laclede under
the equity method of accounting. In June 1998 (less than a year after the
investment purchase), the Company determined that the remaining amount of its
investment in Laclede was impaired and, accordingly, recorded a $12,383,000
write off.
In fiscal year 1997, the Company and Raw Materials Development Co., Ltd.,
an affiliate of Mitsui & Co., Ltd., formed a 50/50 joint venture, Pacific Coast
Recycling, LLC ("PCR") that purchased an export scrap operation in southern
California. PCR has apparently never been profitable and is burdened by a lease
with the Port of Long Beach that requires significant monthly payments and has
over 18 more years remaining. On September 15, 1999, the Company announced it
would write-off its $19.3 million investment in PCR, less than three years after
the initial investment. See "Restructuring Announcement."
Under current management the Company has sold assets including former steel
mill sites in valuable commercial locations at Emeryville, California and
Seattle, Washington. The Company has also received substantial electrode price
settlements generated from Justice Department settlements with international
electrode suppliers. These transactions have provided over $30 million in
additional cash that has been spent by current management of the Company.
If the Group is successful in changing the Board of Directors, Mr. Correnti
and his new team of managers will assess the operations of the Company and
develop specific plans to increase profitability and shareholder value. To date,
the Group has been unable to develop any specific plans because the Group lacks
access to the Company's plants, equipment, and books and records. If the Group
is successful in changing the directors and management of the Company there is
no assurance that profitability or shareholder value will be increased.
Communications with Investment Community
The Company has, over the past two years, repeatedly failed to meet
earnings expectations and has not provided the investment community with
adequate information to enable analysts to make accurate earnings estimates. As
a result, the Group believes the Company has lost the confidence of the
investment community.
By way of example, Michelle Galanter Applebaum of Salomon Smith Barney(5)
(the "Analyst") during the second quarter of fiscal year 1998 gave the stock a
buy rating and a target price of $21 a share. However, by the fourth quarter of
fiscal year 1998 the stock rating had been downgraded to neutral and the target
price reduced to $15 per share. The Analyst's original earnings estimate for
fiscal year 1998 was 69 cents per share. However, the Company reported actual
earnings of 5 cents per share for the 1998 fiscal year.
Steel analysts predict both earnings for the current fiscal year and the
following fiscal year so that shareholders have a long term view of the steel
company's plans and prospects. During fiscal year 1998, the Analyst's original
earnings estimate for fiscal year 1999 was decreased from $1.35 per share to
$1.12 per share. The Analyst's earnings estimate for fiscal year 1999 was
further decreased during fiscal year 1999 to negative 90 cents per share.
However, the Company reported an actual loss of $7.61 per share, including
certain restructuring charges. During the 1999 fiscal year, the Analyst's target
price of the Company's stock decreased from $15 per share to $5 per share.
Furthermore, the market price of the Company's shares fell to $3.88 in the
second quarter of the 1999 fiscal year.
- ---------------
5 The information provided in this section is taken from Research Call Notes
published by Ms. Applebaum and dated 11/13/97, 4/16/98, 7/21/98, 6/2/99. Ms.
Applebaum has not consented to the Group's use of this information.
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<PAGE> 16
On July 29, 1999 (Fiscal Year 2000), the Group filed a Schedule 13D with
the United States Securities and Exchange Commission. The Schedule 13D expressed
the Group's intention to replace the current CEO of the Company with Mr.
Correnti. After the Schedule 13D was filed, the Analyst issued a Buy
recommendation on the stock and revised the target price upward from $5 per
share to $15 per share.
CERTAIN EFFECTS OF A CHANGE IN CONTROL OF THE BOARD OF DIRECTORS
The Company is a party to several debt and employee benefit agreements
whereby, under certain conditions, a change in a majority of the Company's Board
of Directors would affect the Company's obligations under such agreements. In
each case, if the current Board of Directors nominates a compromise slate agreed
to by the Group and the current Board of Directors or the slate proposed by the
Group, and that slate is elected, no change of control results, and the change
in control provisions of the following agreements would not be invoked.
Therefore, the Company's current Board of Directors has the ability to avoid the
expense and disruption that would result from a change in control by electing a
compromise slate of directors or the Group's slate which would include John
Correnti as chairman and his election as Chief Executive Officer.
The Company, as announced in the Conference Call, is currently
restructuring the terms of its Note Purchase Agreements and Revolving Credit
Agreement (both of which are discussed in more detail below). This debt
restructuring is a result of the Company's decision to sell the SBQ business and
write off its investment in PCR and will result in restructuring fees, higher
interest rates, and security in the Company's assets. As part of the debt
restructuring, the Group requested by letter dated September 17, 1999 to the
Company's Board of Directors that the Note Purchase Agreements and Revolving
Credit Agreement be amended to eliminate the change in control provisions.
Pursuant to a Note Purchase Agreement dated September 1995, the Company is
the obligor under a set of senior notes totaling $150,000,000. Additionally,
pursuant to a Note Purchase Agreement dated December, 1993, the Company is
obligor under an additional $130,000,000 senior note. Both Note Purchase
Agreements contain provisions requiring the Company to make to the holders of
the senior notes, a written offer to prepay the senior notes upon a "change in
control" of the Company. The holders of the senior notes may then either accept
or reject the Company's offer to prepay the senior notes. A change in control
under the senior notes includes any acquisition by any person or group of the
power to elect, appoint or cause the election or appointment of at least a
majority of the members of the Board of Directors (other than the normal
acquisition of proxies by the current Board of Directors), through beneficial
ownership of the Company's stock or otherwise.
The Company is the borrower under a $300,000,000 Revolving Credit Agreement
dated as of March 17, 1997 between the Company and various financial
institutions. A "change in control" of the Company constitutes an event of
default under the Credit Agreement. A "change in control" under the Credit
Agreement includes a change in the majority of the Board of Directors during any
twelve month period (other than by action of the existing Board of Directors).
The Group intends to seek discussions with the financial institutions concerning
the possibility of waiving these events of default if the Group is successful in
this proxy solicitation. The Group has engaged Merrill Lynch to assist the Group
in evaluating the change of control provisions in the Note Purchase Agreements
and the Revolving Credit Agreement. See "ADDITIONAL INFORMATION."
The Company has adopted an Executive Retirement and Compensation Deferral
Plan (the "Deferral Plan") pursuant to which the Company has made certain
contributions to the retirement accounts of certain executive officers. Pursuant
to the Deferral Plan, the executive officers may not be fully vested in all
contributions made by the Company on their behalf. However, upon a "change in
control" of the Company, the participants in the Deferral Plan will become fully
vested in all contributions made by the Company on their behalf. A "change of
control" includes a change in the majority of the Board of Directors during any
period of two consecutive years, unless the new directors are elected or
nominated by at least two-thirds of the existing directors.
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The Company has also adopted an Executive Severance Plan (the "Severance
Plan"). Participation in the Severance Plan is limited to a select number of key
members of management of the Company as designated by the Board of Directors.
The Severance Plan provides certain benefits and protections to key members of
management upon a change in control of the Company. A "change in control"
includes a change in the majority of the Board of Directors within a period of
two consecutive years or less unless the new directors were elected or nominated
by at least two-thirds of the continuing directors. A participant is entitled to
benefits under the Severance Plan if, within two years after a "change in
control", the participant's employment is terminated by the Company "without
substantial cause" or is voluntarily terminated by the participant for "good
reason." The benefits provided under the Severance Plan following a change in
control include a lump sum payment upon covered terminations equal to 200% of a
participant's annual compensation for the year immediately preceding his or her
termination. Annual compensation for purposes of the Severance Plan means the
total of all compensation, including wages, salary, bonuses, and any other
benefit of monetary value, whether in the form of cash or otherwise, paid as
consideration for the participant's service to the Company, except for amounts
paid by the Company in connection with a participant's coverage under certain
employee welfare benefit arrangements. Benefits under the Severance Plan also
include the maintenance by the Company of all life insurance, accidental death
and dismemberment insurance, and medical, dental and prescription drug plans in
which the participant was entitled to participate for up to one year after the
participant's termination following a change in control. The Severance Plan also
requires the Company to provide participants with a lump-sum payment equal to
any accrued but unpaid salary, bonuses, and other benefits.
While the Group cannot easily gauge the costs under the Deferral Plan and
the Severance Plan which would result from a change in control of the Board of
Directors, the Group believes the magnitude of such costs could be significant.
Again, in each of the above cases, if the current Board of Directors
nominates the slate proposed by the Group or a compromise slate agreed to by the
Group and the current Board of Directors, and that slate is elected, no change
of control results, and the change in control provisions of the above agreements
would not be invoked. Therefore, the Company's current Board of Directors has
the ability to avoid the expense and disruption that would result from a change
in control by agreeing to name John Correnti as Chairman and Chief Executive
Officer and proposing a Board of Directors slate that would accomplish this
purpose.
ELECTION OF DIRECTORS
The Company's bylaws provide that the Board of Directors be comprised of at
least three and not more than fifteen members, as determined by the Board of
Directors. According to publicly available information, the Company currently
has nine Directors, all of whose terms will expire at the Annual Meeting. The
Group has nominated the Group Nominees to fill the nine director positions which
will expire at the Annual Meeting or at an earlier date under the Consent
Action. The Group Nominees are listed below and have furnished the following
information concerning their principal occupations and certain other matters.
Each Group Nominee, if elected at either the Annual Meeting or through the
Consent Action, would hold office until the next Annual Meeting of Stockholders
or until his or her successor has been elected and qualified. Each of the Group
Nominees has consented to serve as a director if elected. Although the Group has
no reason to believe that any of the Group Nominees will be unable to serve as
Directors, if any one or more of the Group Nominees are not available for
election, the proxies will be voted for the election of or a consent will be
executed for such other nominees as may be proposed by the Group.
THE GROUP NOMINEES
The Group Nominees are as follows:
1. John D. Correnti, age 52, is currently self employed as a
consultant. Mr. Correnti served in various capacities at Nucor Corporation,
a manufacturer of steel products, from 1980 until June 1999, including most
recently as Vice Chairman of the Board of Directors, President and Chief
Executive Officer. Mr. Correnti currently serves on the Board of Directors
of Harnischfeger Industries and Navistar
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International Corporation. Mr. Correnti's business address is 6833
Aronomink Drive, Charlotte, North Carolina 28210.
2. James A. Todd, Jr., age 71, is retired. Mr. Todd was the Chief
Executive Officer and Chairman of the Board of Directors of the Company
from 1991 until January 1996. He served as an employee and Director of the
Company from January 1996 until retiring in August 1996 and as a consultant
to the Chairman of the Board from August 1996 until December 1996. In 1993,
Mr. Todd was recognized by New Steel Magazine as its Steelmaker of the
Year. Mr. Todd is a director of Kinross Gold Corporation.
3. James W. McGlothlin, age 59, has been President, Chief Executive
Officer, and Chairman of the Board of Directors of The United Company,
since 1987. The United Company is primarily engaged in the business of
financial services and also invests in or has operations in oil and gas,
real estate and golf development, cogeneration, and construction supply and
distribution. Mr. McGlothlin serves on the Board of Directors of CSX
Corporation. Mr. McGlothlin's business address is 1005 Glenway Avenue,
Bristol, Virginia 24203.
4. Donna M. Alvarado, age 50, has been President of Aguila
International, an international business development consulting firm, since
1994. Ms. Alvarado was President and Chief Executive Officer of Quest
International, a non-profit organization engaged worldwide in developing,
publishing and marketing training products for public and private education
systems, from 1989 to 1994. Ms. Alvarado is a director of Harnischfeger
Industries and Park National Bank. Ms. Alvarado's business address is 91
Jefferson Avenue, Columbus, Ohio 43215.
5. Robert M. Gerrity, age 61, has been self-employed as a consultant
since 1995. Mr. Gerrity was Vice Chairman and a member of the Board of
Directors of New Holland N.V., an agricultural and industrial equipment
manufacturing company, from 1991 to 1995. From 1987 to 1991, Mr. Gerrity
served as the President and Chief Executive Officer of Ford New Holland
Inc., an agricultural and industrial equipment manufacturing company
subsequently consolidated into New Holland N.V. Prior thereto, Mr. Gerrity
served in various management capacities at Ford Motor Company, including
President of Ford of Brazil. Mr. Gerrity is currently a director of
Standard Motor Products and Harnischfeger Industries. He also served as a
director of Rubbermaid Inc. from 1992 to 1998. Mr. Gerrity's business
address is 114 Division Street, Bellaire, Michigan 49615.
6. Alvin R. Carpenter, age 57, has been President and CEO of CSX
Transportation, Inc., a railroad transportation company and a wholly-owned
subsidiary of CSX Corporation, since 1991. Mr. Carpenter has also been Vice
Chairman of CSX Corporation since July, 1999. Mr. Carpenter served as
Executive Vice President of Sales and Marketing at CSX Transportation from
1989 to 1991. Mr. Carpenter's business address is 50 North Laura Street,
Jacksonville, Florida 32202.
7. Robert H. Spilman, age 71, is sole-proprietor of Spilman
Properties, an investment company. Mr. Spilman served in various capacities
at Bassett Furniture Industries, Inc., a manufacturer and retail seller of
home furniture, from 1957 until 1997, including as Chief Executive Officer
and Chairman of the Board of Directors. Mr. Spilman currently serves as
director of The Pittston Company and Dominion Resources. Mr. Spilman's
business address is 3559 Fairystone Park Highway, Bassett, Virginia 24055.
8. Jerry E. Dempsey, age 66, is retired. Mr. Dempsey was Chief
Executive Officer and Chairman of the Board of Directors of PPG Industries,
Inc., a manufacturer of protective and decorative coatings, fiberglass
products, and specialty chemicals, from 1993 until 1997. Mr. Dempsey was
President and Chief Executive Officer of Chemical Waste Management and
Senior Vice President of WMX Technologies, from 1985 until 1993. Mr.
Dempsey is a director of Eastman Chemical Company and Navistar
International Corporation.
9. Steven R. Berrard, age 45, is Managing Partner of New River Capital
Partners, a private equity firm with an investment strategy focused on
branded specialty retail, e-commerce and education. From January 1997 to
September 1999, Mr. Berrard was Co-Chief Executive Officer of AutoNation,
Inc., the world's largest automotive retailer and a leading provider of
vehicle rental services. Prior to joining AutoNation, he was President and
Chief Executive Officer of the Blockbuster Entertainment Group, a
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division of Viacom, Inc., one of the world's largest entertainment
companies. He served as Vice Chairman, President and Chief Operating
Officer of Blockbuster Entertainment Corporation until its merger with
Viacom in 1994. In addition, Mr. Berrard served as President and Chief
Executive Officer and a Director of Spelling Entertainment Group, Inc. from
1993 to 1996 and as a Director of Viacom from 1994 to 1996. Mr. Berrard
currently serves as a Director of Gerald Stevens, Inc., Boca Resorts, Inc.
and AutoNation. Mr. Berrard's business address is One Financial Plaza,
Suite 1100, Fort Lauderdale, Florida 33344.
The United Company has agreed to indemnify the Group Nominees from
liability resulting from the proxy solicitation.
THE GROUP STRONGLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION
OF THE GROUP NOMINEES.
ADDITIONAL INFORMATION REGARDING GROUP NOMINEES
Correnti Consulting and Employment Agreement
On September 10, 1999, Mr. Correnti entered into a Consulting Agreement
effective as of July 1, 1999 with The United Company, the lead shareholder of
the Group, whereby Mr. Correnti has agreed to serve as a consultant to the Group
until December 31, 1999, subject to agreed upon extensions. Earlier termination
of the Consulting Agreement may occur (a) by The United Company if the proxy
solicitation is abandoned prior to the Annual Meeting, (b) by Mr. Correnti if
the Company's Board of Directors does not adopt the Employment Agreement
(discussed below) by December 31, 1999, or (c) automatically if the Group
Nominees are not elected to a majority of the Board of Directors at the Annual
Meeting. Pursuant to the Consulting Agreement, the United Company pays Mr.
Correnti a monthly fee of $50,000 for his consulting services and reimburses him
for all out of pocket expenses related thereto.
Contemporaneously with the execution of the Consulting Agreement, The
United Company entered into a Stock Option Agreement effective as of July 1,
1999 with Mr. Correnti whereby The United Company granted Mr. Correnti an option
to purchase from affiliates of The United Company 100,000 shares of the
Company's common stock at an exercise price of $4.88, the price of the Company's
shares at the close of business on July 15, 1999. The option is currently
exercisable and the exercise term extends until the earlier to occur of (i) six
months after the Annual Meeting, or (ii) June 30, 2000. The United Company has
agreed to finance the exercise of the option by Mr. Correnti. If Mr. Correnti
elects to finance the exercise of the option, he must grant The United Company a
promissory note (the "Note") for the amount financed under commercially
reasonable terms, provided, the Note must include the following terms: (i) the
Note shall be interest free if Mr. Correnti exercises the option prior to the
Annual Meeting, after such date, the interest rate shall be the prime rate as
reported from time to time in the "Money Rates" section of the Wall Street
Journal, (ii) the principal and interest due under the Note shall be payable in
full no later than three years after the date of exercise, and (iii) The United
Company shall retain a security interest in the shares purchased upon exercise
of the options.
Under the Consulting Agreement, The United Company has agreed to indemnify
Mr. Correnti from liability resulting from the proxy solicitation.
The Consulting Agreement contains a form of employment agreement (the
"Employment Agreement") which will be presented to the Board of Directors for
approval if the Group's proxy solicitation is successful. Under the Employment
Agreement, Mr. Correnti will become Chairman of the Board and Chief executive
Officer of the Company for a term of five years, subject to annual renewals. Mr.
Correnti will be paid a base salary of $600,000 per year and a bonus equal to 1%
of earnings before interest, taxes, depreciation, and amortization.
Pursuant to the Employment Agreement, Mr. Correnti will be granted 100,000
shares of the Company's common stock (the "Stock Award). Mr. Correnti becomes
vested in one-third of the Stock Award at the end of each of his first three
years of service so that at the end of his third year of service (the "Third
Anniversary") he is completely vested in the full amount of the Stock Award.
Notwithstanding the foregoing,
17
<PAGE> 20
if prior to the Third Anniversary, Mr. Correnti's employment is terminated (i)
without cause by the Company, (ii) for good reason by Mr. Correnti, (iii) after
a change in control of the Company, or (iv) as a result of his death or
disability, Mr. Correnti will receive the full amount of the Stock Award.
Pursuant to the Employment Agreement, Mr. Correnti will receive a total of
1,000,000 Stock Options (the "Options") vesting in increments of 200,000 shares
per year over a period of five years beginning on Mr. Correnti's date of
employment. All unvested Options will vest upon termination of Mr. Correnti's
employment other than termination for cause. The strike price for the Options
will be $4.88, the price of the Company's shares at the close of business on
July 15, 1999. The Options will expire ten years from the grant date. On the day
the Board of Directors approves the Employment Agreement, the excess, if any, of
the fair value of the Company's stock over the strike price of $4.88 will be
calculated and amortized on a straight line basis as an expense over Mr.
Correnti's five year vesting period.
Pursuant to the Employment Agreement, if Mr. Correnti's employment is
terminated (i) by the Company without cause, (ii) by Mr. Correnti for good
reason, or (iii) as a result of a change in control of the Company, Mr. Correnti
will receive a severance payment equal to three times (a) Mr. Correnti's
currently effective annual base compensation plus (b) the average of bonuses
received by Mr. Correnti for the three prior fiscal years.
Todd Retirement Arrangements and Interested Transaction
Mr. Todd retired from the Company in August 1996 under the provisions of
the Company's Management Security Plan (the "MSP") providing for annual
retirement payments for twenty years and a split dollar life insurance policy.
Pursuant to the Security Plan, Mr. Todd received approximately $236,440 in
retirement benefits in 1998 and for the current calendar year has received
approximately $157,627 through September 12, 1999.
Under the terms of the MSP, upon a change of control, Mr. Todd is entitled
to receive an individual life insurance policy with a face value equal to his
death benefit under the MSP and a cash surrender value equal to the present
value of his remaining retirement benefits under the MSP (less applicable
taxes), as well as an amount intended to cover his tax liability with respect to
the distribution of the policy. All compensation costs pursuant to this
arrangement, estimated to be in the range of $1,700,000 to $2,100,000, should be
already accrued by the Company in accordance with its accounting policies.
Mr. Todd is a director and shareholder of EMSOURCE, Inc. ("Emsource"), an
environmental remediation company. On December 23, 1997, the Company and
Emsource entered into an Agreement of Sale whereby the Company conveyed to
Emsource a parcel of land formerly occupied by Norfolk Steel Corporation (the
"Site"). Pursuant to the Agreement of Sale, a trust fund was established to fund
the remediation and long term monitoring of the Site. Emsource received a fee of
approximately $72,500 for its remediation services. Under the Agreement of Sale,
the Company held a mortgage on the Site of up to $390,000 (the "Mortgage"). On
December 4, 1998, Emsource sold a portion of the Site to a third party and
Emsource distributed a portion of the sales proceeds to the Company in
satisfaction of the Mortgage.
COMMON STOCK OWNERSHIP OF GROUP NOMINEES
Messrs. Correnti, Todd, and McGlothlin are the only Group Nominees who
beneficially own common stock of the Company. See "BENEFICIAL STOCK OWNERSHIP OF
GROUP."
18
<PAGE> 21
INFORMATION CONCERNING THE GROUP
MEMBERS OF THE GROUP
The Group is comprised of the following entities and individuals:
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS
---- ----------------
<S> <C> <C>
1. The United Company........................................ 1005 Glenway Avenue
Bristol, Virginia 24201
2. United Management Company, LLC............................ 1005 Glenway Avenue
Bristol, Virginia 24201
3. United Opportunities Fund, LLC............................ 1005 Glenway Avenue
Bristol, Virginia 24201
4. The Summit Fund, LLC...................................... 1005 Glenway Avenue
Bristol, Virginia 24201
5. UC Investment Trust....................................... 1005 Glenway Avenue
Bristol, Virginia 24201
6. Nicholas D. Street........................................ 1005 Glenway Avenue
Bristol, Virginia 24201
7. James W. McGlothlin....................................... 1005 Glenway Avenue
Bristol, Virginia 24201
8. Lois A. Clarke............................................ 1005 Glenway Avenue
Bristol, Virginia 24201
9. James A. Todd, Jr......................................... 2005 Garden Place
Birmingham, Alabama 35223
10. Mark A. Todd.............................................. 1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
11. John D. Correnti.......................................... 6833 Aronomink Drive
Charlotte, North Carolina 28210
12. Paul Ekberg............................................... 3349 Hermitage Road
Birmingham, Alabama 35223
</TABLE>
United Entities
Nicholas D. Street and James W. McGlothlin directly or indirectly control
the following entities (collectively, the "United Entities"):
1. The United Company. Mr. Street and Mr. McGlothlin wholly own The
United Company, a Virginia corporation ("United Company"), with each of
them owning fifty percent (50%) of the outstanding common stock of United
Company.
United Company is primarily engaged in the business of financial
services and also invests in or has operations in oil and gas, real estate
and golf development, cogeneration, and construction supply and
distribution. Mr. Street is vice president, secretary, and a director of
United Company. Mr. McGlothlin is president, chief executive officer,
treasurer, and chairman of the board of directors of United Company. Lois
A. Clarke is executive vice president and chief financial officer of United
Company. Wayne L. Bell is executive vice president and general counsel and
Ted G. Wood is president of operations.
2. United Management Company, LLC. Mr. Street and Mr. McGlothlin are
the controlling owners of United Management Company, LLC, a Delaware
limited liability company ("Management Company"), with each of them owning
a forty-seven and one-half percent (47.5%) ownership interest in Management
Company. Management Company's principal business is investing in securities
and managing investments for third parties. Management Company is managed
by a Board of Managers consisting of Messrs. Street, McGlothlin, Bell, Wood
and Ms. Clarke. Executive officers of Management Company are as follows:
(a) Ms. Clarke -- president, (b) Mr. Street -- secretary and treasurer, (c)
Jimmy D. Viers -- executive vice president, (d) Ronald E.
Oliver -- executive vice president and assistant treasurer, and (e) Steven
Layfield -- vice president and secretary.
19
<PAGE> 22
3. United Opportunities Fund, LLC and The Summit Fund, LLC. Messrs.
Street and McGlothlin indirectly control the United Opportunities Fund,
LLC, a Delaware limited liability company ("UO Fund"), and The Summit Fund,
LLC, a Delaware limited liability company ("Summit Fund"), by virtue of
their direct control of United Company, the principal owner of the UO Fund
and Summit Fund, and by their direct control of Management Company, the
managing member of both UO Fund and Summit Fund. UO Fund and Summit Fund
are privately held investment funds. United Company owns approximately
seventy-six percent (76%) of UO Fund and ninety-nine percent (99%) of
Summit Fund. Management Company owns one percent (1%) of both UO Fund and
Summit Fund in its managing member capacity.
4. UC Investment Trust. UC Investment Trust, an Ohio business trust
("UCI Trust"), operates the UC Investment Fund, a publicly traded mutual
fund ("UCI Fund"). Messrs. Street and McGlothlin indirectly control the
investment decisions of UCI Fund and consequently, UCI Trust, by virtue of
their direct ownership control of Management Company, the investment
manager of UCI Fund. Mr. McGlothlin and Ms. Clarke also serve as Chairman
and President of the UCI Trust, respectively.
Individual Members of the Group
Messrs. McGlothlin and Street, and Ms. Clarke are principally employed by
United Company and its affiliates in the capacities listed above. Mr. McGlothlin
is also a Group Nominee. See "GROUP NOMINEES" for a profile of Mr. McGlothlin.
James A. Todd, Jr. is an individual member of the Group as well as a Group
Nominee. See "GROUP NOMINEES" for a profile of Mr. James Todd.
John D. Correnti is an individual member of the Group as well as a Group
Nominee. See "GROUP NOMINEES" for a profile of Mr. Correnti.
Mark A. Todd is principally employed as a shareholder in the law firm of
Jenkens & Gilchrist, P.C.
Paul Ekberg is not presently employed. Mr. Ekberg served in various
capacities at the Company from July 1991 to July 1996, including the positions
of President, Chief Operating Officer, Vice Chairman of the Board of Directors,
and Director.
20
<PAGE> 23
BENEFICIAL STOCK OWNERSHIP OF THE GROUP
As of the close of business on October 12, 1999, the Group beneficially
owned in the aggregate 2,310,303 shares of the Company's common stock,
constituting approximately 7.8% of the total outstanding shares (based upon the
number of shares reported to be outstanding in the Company's Form 10Q for the
fiscal quarter ended March 31, 1999). The Group intends to vote such shares for
the election of the Group Nominees. The following table sets forth the
beneficial ownership of individual members of the Group as well as the Group as
a whole. Unless otherwise noted in the footnotes to the table, the persons named
in the table have sole voting and investment power with respect to all shares of
the Company's common stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
<S> <C> <C>
Nicholas D. Street....................................... 1,969,200(1)(2) 6.6%
James W. McGlothlin...................................... 1,980,200(1)(3) 6.7%
Lois A. Clarke........................................... 3,600(4) *
James A. Todd, Jr........................................ 193,603(5) *
Mark A. Todd............................................. 106,749(6) *
John D. Correnti......................................... 101,000(7) *
Paul Ekberg.............................................. 11,151(8) *
Group as a whole......................................... 2,310,303 7.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Messrs. Street and McGlothlin, by reason of their control of the United
Entities, share with each other voting and disposition powers of the shares
owned by the following members of the United Entities and may be deemed
beneficial owners of such shares:
<TABLE>
<CAPTION>
% OF TOTAL
-----------------------------------
ENTITY NUMBER OF SHARES PERCENT OF CLASS
- ------ ---------------- ----------------
<S> <C> <C>
UO Fund..................................................... 1,635,300 5.5%
Summit Fund................................................. 190,100 *
UCI Trust................................................... 90,800 *
</TABLE>
Management Company is the beneficial owner of 39,000 shares which are held
in certain individual discretionary investment accounts managed by Management
Company. Management Company has sole voting and disposition power over the
shares held in these discretionary investment accounts. By virtue of their
control of Management Company, Messrs. Street and McGlothlin share with each
other voting and disposition powers over these 39,000 shares and may be deemed
beneficial owners of such shares, which constitutes less than 1% of the shares
outstanding.
(2) Includes 2,000 shares owned directly by Mr. Street's spouse, and 2,000
shares owned directly by his minor daughter.
(3) Includes 25,000 shares owned directly Mr. McGlothlin's spouse.
(4) Includes 1,700 shares owned directly by Progressive Enterprises, a
general partnership. By virtue of her ownership in Progressive Enterprises, Ms.
Clarke may be deemed to share voting and disposition powers with respect to
these shares.
(5) Includes 74,549 shares owned directly by Mr. James Todd's spouse.
(6) As a trustee of certain trusts benefitting the Todd family (the "Todd
Trusts"), Mr. Mark Todd shares voting and disposition power as to 93,475 shares
with Jennifer Todd Reed, the joint trustee of the Todd Trusts. Mr. Mark Todd's
beneficial ownership also includes 745 shares owned by his three minor children,
Courtney C. Todd, Hunter B. Todd, and Hayley A. Todd. Mr. Mark Todd is the son
of Mr. James Todd.
(7) Includes 100,000 shares that may be acquired upon exercise of the stock
option granted to Mr. Correnti by the United Company. See "Correnti Consulting
and Employment Agreement."
(8) Includes 9,000 shares owned directly by Mr. Ekberg's spouse.
21
<PAGE> 24
All transactions in securities of the Company engaged in by any member of
the Group or any Group Nominee during the past two years are summarized on
Schedule I.
The powers of disposition and voting of Management Company with respect to
shares owned beneficially by it on behalf of its discretionary account clients
are held pursuant to written Investment Management Agreements (the
"Discretionary Account Agreements") with such clients. Under the terms of the
Discretionary Account Agreements, Management Company is granted the sole power
to vote and actively trade securities held in the discretionary investment
accounts. The disposition power of Management Company, with respect to shares
owned beneficially by it through its management of the UCI Fund, is held
pursuant to a written Advisory Agreement (the "UCI Advisory Agreement") between
Management Company and UCI Trust. Under the terms of the UCI Advisory Agreement,
Management Company has the sole power to trade securities held by the UCI Fund.
The UCI Advisory Agreement was originally executed by United Investment
Corporation ("UI Corporation"). UI Corporation was reorganized into Management
Company in 1998 and Management Company succeeded to the rights and obligations
of UI Corporation under the UCI Advisory Agreement.
APPROVAL AND RATIFICATION OF SELECTION OF AUDITORS
The Company's Board of Directors has, subject to approval and ratification
by the stockholders, selected Ernst & Young LLP as independent auditors for the
Company for the fiscal year ending June 30, 2000. The affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting by the
stockholders entitled to vote on the matter will be required to approve the
selection of Ernst & Young LLP as independent auditors.
THE GROUP RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL AND
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS.
SOLICITATION OF PROXIES
The Group may solicit proxies by mail, courier service, advertisement,
telephone, telecopier, global computer networks (including the Internet), and in
person. The Group has entered into an agreement with ChaseMellon Consulting
Services, L.L.C. ("ChaseMellon") pursuant to which ChaseMellon has agreed to
assist the Group with its solicitation of proxies. ChaseMellon is to receive a
base retainer fee of $40,000, plus reimbursement for its reasonable
out-of-pocket expenses. In addition a success fee of $35,000 will be payable to
ChaseMellon if John D. Correnti is named Chief Executive Officer of the Company.
It is anticipated that ChaseMellon will make available approximately 12
persons in connection with its efforts on behalf of the Group. In addition to
the solicitation of proxies from retail investors, brokers, banks, nominees and
other institutional holders, such persons will, among other activities, provide
consultation pertaining to the planning and organization of the proxy
solicitation. The Group has also agreed to indemnify ChaseMellon against certain
liabilities and expenses relating to the proxy solicitation.
Banks, brokers, custodians, nominees and fiduciaries, and other custodians,
will be requested to forward solicitation materials to the beneficial owners of
the common stock. The Group will reimburse such institutions for their
reasonable out-of-pocket expenses incurred in forwarding these materials to the
beneficial owners.
The entire cost of the Group's solicitation will be borne by the Group. The
Group estimates that its total expenditures relating to the solicitation of
proxies will be approximately $1,400,000, plus additional expenditures if there
is litigation. To date, the Group has incurred expenditures of $311,400. The
Group plans to seek reimbursement for such expenses from the Company.
22
<PAGE> 25
ADDITIONAL INFORMATION
Certain information concerning the Company has been taken from or is based
upon documents and records on file with the United States Securities and
Exchange Commission and other publicly available information issued by the
Company, such as press releases. The Group has no knowledge that would indicate
that statements relating to the Company contained in this Proxy Statement in
reliance upon such publicly available information are inaccurate or incomplete.
The Group, however, has not been given access to the books and records of the
Company, was not involved in the preparation of such information and statements,
and is not in a position to verify, or make any representation with respect to
the accuracy or completeness of any such information or statements. Except as
described in this Proxy Statement, none of the Group Nominees or members of the
Group (i) is or was within the past year a party to any contract, arrangement,
or understanding with any person with respect to any securities of the Company
(ii) has any arrangement or understanding with any person (a) with respect to
any future employment by the Company or its affiliates, or (b) with respect to
any future transactions to which the Company or any of its affiliates will or
may be a party.
Information regarding the Company's director nominees, management, and five
percent stockholders will be contained in the Company's proxy statement. Also
included in the Company's proxy statement is the date by which stockholder
proposals intended to be submitted at the Company's next annual meeting must be
received by the Company for inclusion in the Company's proxy statement.
The Group has retained Merrill Lynch & Co. to act as its exclusive
financial advisor in connection with capital structure issues relating to the
outstanding debt of the Company. Merrill Lynch is not engaged to provide advice
in connection with the Group's proxy solicitation including its proposal to gain
control of the board of directors of the Company.
Pursuant to the terms of the engagement the Group has agreed to pay Merrill
Lynch customary fees for such services and to indemnify Merrill Lynch against
certain liabilities and expenses relating to or arising out of its engagement.
FORWARD-LOOKING STATEMENTS
The U.S. securities laws provide a "safe harbor" for certain
forward-looking statements. This proxy statement contains forward-looking
statements, including statements concerning the business, future financial
position, results of operations, business strategy, estimated cost savings and
other benefits of the Group's proposed management of the Company.
Forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those projected. Readers are cautioned
not to put undue reliance on forward-looking statements. The Group disclaims any
intent or obligation to update such forward-looking statements.
THE UNITED COMPANY SHAREHOLDER GROUP
October 13, 1999
23
<PAGE> 26
SCHEDULE I
TRANSACTIONS IN COMMON STOCK DURING PAST TWO YEARS
<TABLE>
<CAPTION>
NUMBER
TRADE DATE TYPE OF TRANSACTION OF SHARES
- ---------- ------------------- ---------
<S> <C> <C>
UO FUND
07/30/98 Purchase.................................................... 5,500
07/31/98 Purchase.................................................... 100
08/05/98 Purchase.................................................... 15,000
08/06/98 Purchase.................................................... 7,000
08/10/98 Purchase.................................................... 23,900
08/11/98 Purchase.................................................... 10,000
08/13/98 Purchase.................................................... 6,000
08/14/98 Purchase.................................................... 15,000
08/17/98 Purchase.................................................... 10,000
08/21/98 Purchase.................................................... 9,000
08/26/98 Purchase.................................................... 10,000
08/27/98 Purchase.................................................... 15,000
09/03/98 Purchase.................................................... 80,000
09/04/98 Purchase.................................................... 50,000
09/08/98 Purchase.................................................... 50,000
09/09/98 Purchase.................................................... 30,000
09/10/98 Purchase.................................................... 50,000
09/11/98 Purchase.................................................... 80,000
09/18/98 Purchase.................................................... 20,000
09/24/98 Purchase.................................................... 20,000
09/25/98 Purchase.................................................... 80,000
09/28/98 Purchase.................................................... 10,000
10/01/98 Purchase.................................................... 15,000
10/05/98 Purchase.................................................... 40,000
06/07/99 Purchase.................................................... 10,000
06/08/99 Purchase.................................................... 58,500
06/10/99 Purchase.................................................... 93,900
07/19/99 Purchase.................................................... 97,000
07/20/99 Purchase.................................................... 41,000
07/20/99 Sale........................................................ 1,000
07/21/99 Purchase.................................................... 96,500
07/22/99 Purchase.................................................... 102,600
07/23/99 Purchase.................................................... 95,000
07/26/99 Purchase.................................................... 99,000
07/27/99 Purchase.................................................... 167,500
07/28/99 Purchase.................................................... 117,800
08/03/99 Purchase.................................................... 3,000
08/04/99 Purchase.................................................... 3,000
MANAGEMENT COMPANY(1)
07/30/98 Purchase.................................................... 500
08/11/98 Purchase.................................................... 1,500
08/25/98 Purchase.................................................... 2,500
08/27/98 Purchase.................................................... 500
09/04/98 Purchase.................................................... 1,000
09/08/98 Purchase.................................................... 2,000
06/09/99 Purchase.................................................... 7,500
06/10/99 Purchase.................................................... 10,000
06/11/99 Purchase.................................................... 5,000
07/26/99 Purchase.................................................... 2,000
07/28/99 Purchase.................................................... 6,000
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
NUMBER
TRADE DATE TYPE OF TRANSACTION OF SHARES
- ---------- ------------------- ---------
<S> <C> <C>
UCI TRUST
06/14/99 Purchase.................................................... 55,000
06/16/99 Purchase.................................................... 35,800
THE SUMMIT FUND LLC
08/26/98 Purchase.................................................... 25,000
09/01/98 Purchase.................................................... 1,900
09/02/98 Purchase.................................................... 13,200
09/03/98 Purchase.................................................... 30,000
09/04/98 Purchase.................................................... 15,000
09/09/98 Purchase.................................................... 10,000
10/02/98 Purchase.................................................... 15,000
NICHOLAS D. STREET
09/02/98 Purchase.................................................... 10,000
09/02/98 Purchase.................................................... 2,000(2)
09/03/98 Purchase.................................................... 2,000(3)
JAMES W. MCGLOTHLIN
07/19/99 Purchase.................................................... 25,000(4)
LOIS A. CLARKE
08/11/98 Purchase.................................................... 2,000
JAMES A. TODD
1/10/97 Sale........................................................ 13,300
1/13/97 Sale........................................................ 17,700
1/14/97 Sale........................................................ 6,500
1/15/97 Sale........................................................ 9,200
1/16/97 Sale........................................................ 25,300
1/17/97 Sale........................................................ 19,400
1/21/97 Sale........................................................ 2,132
1/22/97 Sale........................................................ 8,500
8/28/97 Sale........................................................ 80,272
05/27/98 Sale........................................................ 7,650
JOHN D. CORRENTI
10/12/99 Purchase.................................................... 1,000
PAUL EKBERG
01/21/98 Sale........................................................ 2,000
03/23/98 Sale........................................................ 3,744
04/17/98 Sale........................................................ 7,500
12/28/98 Sale........................................................ 4,649
07/21/99 Purchase.................................................... 10,000(5)
</TABLE>
- ---------------
(1) Represents shares purchased by Management Company on behalf of discretionary
account clients.
(2) Represents 2,000 shares purchased by Mr. Street's minor child, Lauren
Street. Mr. Street may be deemed to beneficially own the 2,000 shares
purchased by his minor child.
(3) Represents 2,000 shares purchased by Mr. Street's wife, Fay H. Street. Mr.
Street may be deemed to beneficially own the 2,000 shares purchased by his
wife.
(4) Represents 25,000 shares purchased by Mr. McGlothlin's wife, Frances
McGlothlin. Mr. McGlothlin may be deemed to beneficially own the 25,000
shares purchased by his wife.
(5) Includes 9,000 shares purchased by Mr. Ekberg's wife, Nancy Ekberg. Ekberg
may be deemed to beneficially own the 9,000 shares purchased by his wife.
25
<PAGE> 28
PROXY SOLICITED BY THE UNITED COMPANY SHAREHOLDER GROUP
BIRMINGHAM STEEL CORPORATION 1999 ANNUAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE UNITED COMPANY SHAREHOLDER GROUP
(THE "GROUP") for use at the 1999 Annual Meeting of Stockholders (the "Annual
Meeting") and/or in connection with a written consent action conducted by the
Group. The undersigned hereby appoints John D. Correnti and James A. Todd, Jr.,
and each of them, attorneys and proxies with full power of substitution, to vote
in the name of and as proxy for the undersigned at the Annual Meeting, and at
any adjournment thereof, and/or to execute and submit to Birmingham Steel
Corporation (the "Company") a written consent on behalf of the undersigned,
according to the number of votes that the undersigned would be entitled to cast
if personally present on the following matters.
ANNUAL MEETING
(1) To elect the following nominees as directors to serve until the next Annual
Meeting of Stockholders and until their successors are elected and
qualified: John D. Correnti; James A. Todd, Jr.; James W. McGlothlin; Donna
M. Alvarado; Robert M. Gerrity; Alvin R. Carpenter; Robert H. Spilman;
Jerry E. Dempsey; and Steven R. Berrard. You may withhold authority to vote
for any one or more of the nominees by writing their name in the space
provided below.
<TABLE>
<S> <C> <C> <C>
[ ] FOR all nominees listed above(except as indicated to the [ ] WITHHOLD AUTHORITY to vote for all nominees
contrary below) listed above:
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
(2) To approve and ratify the selection of Ernst & Young LLP as the independent
auditors for the Company and its subsidiaries for the fiscal year ending
June 30, 2000.
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
CONSENT ACTION
(1) To execute a written consent removing the Company's current Board of
Directors: William J. Cabiniss, Jr., C. Stephen Clegg, Alfred C. DeCrane,
Jr., E. Mandell de Windt, Robert A. Garvey, E. Bradley Jones, Robert D.
Kennedy, Richard de J. Osborne, and John H. Roberts. You may withhold
authority to execute and deliver a written consent removing any one or more
of the current Board of Directors by writing their name in the space
provided below.
<TABLE>
<S> <C> <C> <C>
[ ] GRANT AUTHORITY to execute and deliver written consent [ ] WITHHOLD AUTHORITY to execute and deliver written
with respect to the removal of the current Board of consent with respect to the removal of the current Board
Directors (except as indicated below) of Directors
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
(2) To execute a written consent electing the following persons (the "Group
Nominees") to the Board of Directors to serve until the next Annual Meeting
or until their successors are elected and qualified: John D. Correnti;
James A. Todd, Jr.; James W. McGlothlin; Donna M. Alvarado; Robert M.
Gerrity; Alvin R. Carpenter; Robert H. Spilman; Jerry E. Dempsey; and
Steven R. Berrard. You may withhold authority to execute and deliver
written consent with respect to any one or more of the Group Nominees by
writing their name in the space provided below.
<TABLE>
<S> <C> <C> <C>
[ ] GRANT AUTHORITY to execute and deliver written consent [ ] WITHHOLD AUTHORITY to execute and deliver written
with respect to the election of all of the Group consent with respect to the election of the Group
Nominees (except as indicated below) Nominees
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
OTHER ITEMS
(1) To consider and take action upon such other matters as may properly come
before the Annual Meeting or adjournments or postponements thereof.
PROPERLY EXECUTED PROXIES WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN, SUCH PROXIES WILL BE VOTED FOR ALL
NOMINEES REFERRED TO IN PARAGRAPH (1) UNDER ANNUAL MEETING, FOR THE PROPOSAL
REFERRED TO IN PARAGRAPH (2) UNDER ANNUAL MEETING, AND ON SUCH OTHER MATTERS AS
MAY COME BEFORE THE ANNUAL MEETING AS THE PROXIES DEEM ADVISABLE, AND WILL GIVE
THE PROXIES THE AUTHORITY TO EXECUTE A WRITTEN CONSENT ON YOUR BEHALF REMOVING
AND REPLACING THE CURRENT BOARD OF DIRECTORS WITH THE GROUP NOMINEES.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD TODAY USING THE ENVELOPE
PROVIDED.
The undersigned revokes any prior proxies to vote the shares covered by this
Proxy.
------------------------------
Signature
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Signature
Date: , 1999
-------------------
NOTE: Please sign exactly
as name appears hereon. When
shares are held by joint
tenants, both should sign.
When signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
