SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Statement Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Kentucky Electric Steel, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement number:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[CORPORATE LOGO]
KENTUCKY ELECTRIC STEEL, INC.
POST OFFICE BOX 3500
ASHLAND, KENTUCKY 41105
(606) 929-1222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, FEBRUARY 6, 1997
To the Holders of the Common Stock of
Kentucky Electric Steel, Inc.
The Annual Meeting of Stockholders of Kentucky Electric Steel, Inc., a
Delaware corporation (the "Company"), will be held in Ballroom B, Ashland Plaza
Hotel, Ashland, Kentucky, on Thursday, February 6, 1997 at 10:00 a.m. (EST), for
the following purposes:
1. To elect one member of the Board of Directors to hold office until
the 2000 Annual Meeting of Stockholders and until his successor is
elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as independent
public accountants for the fiscal year ending September 27, 1997;
and
3. To consider and act upon such other business as may properly come
before the meeting and any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
December 12, 1996 as the record date for the determination of stockholders
entitled to receive notice of and to vote at the meeting and any adjournment
thereof.
By Order of the Board of Directors.
William J. Jessie, Secretary
December 12, 1996
Ashland, Kentucky
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
[CORPORATE LOGO]
KENTUCKY ELECTRIC STEEL, INC.
POST OFFICE BOX 3500
ASHLAND, KENTUCKY 41105
(606) 929-1222
PROXY STATEMENT
For Annual Meeting of Stockholders to be
Held on Thursday, February 6, 1997
Approximate Date of Mailing: January 6, 1997
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Kentucky Electric Steel, Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on Thursday, February 6, 1997, at 10:00 a.m. (EST) in
Ballroom B, Ashland Plaza Hotel, Ashland, Kentucky, and any adjournment thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
All proxies will be voted in accordance with the instructions contained
in the proxy. If no choice is specified, proxies will be voted in favor of the
election of the nominee for director proposed by the Board of Directors in
Proposal I, and in favor of the ratification of the appointment of Arthur
Andersen LLP as the Company's independent public accountants for the fiscal year
ending September 27, 1997, as recommended by the Board of Directors. A
stockholder who executes a proxy may revoke it at any time before it is
exercised by delivering to the Company another proxy bearing a later date or by
submitting written notice of such revocation to the Secretary of the Company.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended September 28, 1996 accompanies this proxy statement.
A plurality of the votes cast is required for the election of
directors. Votes withheld from a nominee for election as a director are not
included in the tabulation of the voting results on the election of directors
and, therefore, do not affect the election of directors. The ratification of the
appointment of Arthur Andersen LLP as the Company's independent public
accountants requires the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the proposals. Abstentions on
this matter will be counted for the purpose of determining the number of shares
represented by proxy at the meeting and voting upon such proposals, and shall
therefore have the same effect as if such shares were voted against such
ratification. Broker "non-votes" will be treated as not represented at the
meeting as to the ratification of Arthur Andersen LLP for purposes of
determining the number of votes needed for approval.
A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote upon a particular proposal because the nominee
does not have discretionary voting power with respect to that proposal and has
not received instructions from the beneficial owner. Broker "non-votes" and the
shares as to which stockholders abstain are included for purposes of determining
whether a quorum of shares is present at a meeting.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The close of business on December 12, 1996 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. Each outstanding share of the Company's common stock, $0.01
par value ("Common Stock"), is entitled to one vote. On December 12, 1996, there
were outstanding and entitled to vote 4,628,099 shares of the Common Stock.
Ownership of Directors, Nominee and Executive Officers
The following table sets forth information regarding the amount of the
Common Stock beneficially owned, as of December 12, 1996, by each director of
the Company, the nominee for election as a director of the Company, the
executive officers named in the Summary Compensation Table and all directors and
executive officers of the Company as a group:
Shares
Name Beneficially Owned(1) Percent
- --------------------------------------------------------------------------------
Charles C. Hanebuth............................. 122,288(2) 2.6%
Clifford R. Borland............................. 0 (3)
Carl E. Edwards, Jr. ........................... 400 (3)
J. Marvin Quin II............................... 6,000 (3)
David C. Struve................................. 4,570 (3)
William J. Jessie............................... 59,268(4) 1.3%
Joseph E. Harrison.............................. 45,658(5) 1.0%
William H. Gerak................................ 29,394(6) (3)
Directors and Executive Officers as a Group
(8 persons)................................... 267,578(7) 5.7%(8)
- ---------------
(1) Under rules of the Securities and Exchange Commission ("SEC"), persons who
have power to vote or dispose of securities, either alone or jointly with
others, are deemed to be the beneficial owners of such securities.
(2) Includes 33,929 restricted shares as to which Mr. Hanebuth possesses sole
voting power, but no investment power. Includes 60,411 shares which Mr.
Hanebuth had the right to acquire upon the exercise of stock options
exercisable on December 12, 1996 or within 60 days thereafter. Excludes 203
shares owned separately by Mr. Hanebuth's spouse and children; Mr. Hanebuth
disclaims that he is the beneficial owner of such shares.
(3) Shares beneficially owned do not exceed one percent of the outstanding
shares of Common Stock.
(4) Includes 11,498 restricted shares as to which Mr. Jessie possesses sole
voting power, but no investment power. Includes 19,854 shares which Mr.
Jessie had the right to acquire upon the exercise of stock options
exercisable on December 12, 1996 or within 60 days thereafter.
(5) Includes 11,394 restricted shares as to which Mr. Harrison possesses sole
voting power, but no investment power. Includes 18,686 shares which Mr.
Harrison had the right to acquire upon the exercise of stock options
exercisable on December 12, 1996 or within 60 days thereafter.
2
<PAGE>
(6) Includes 8,278 restricted shares as to which Mr. Gerak possesses sole voting
power, but no investment power. Includes 6,743 shares which Mr. Gerak had
the right to acquire upon the exercise of stock options exercisable on
December 12, 1996 or within 60 days thereafter.
(7) Includes 65,099 restricted shares and 105,694 shares subject to option as
described in the foregoing notes.
(8) The shares subject to options were deemed outstanding for purposes of this
calculation.
Ownership of Certain Beneficial Owners
On December 12, 1996, the following persons were known to the Company
to be the beneficial owners of more than five percent of the Common Stock:
Shares Beneficially
Name and Address Owned Percent
- --------------------------------------------------------------------------------
FMR Corp.......................................... 277,500(1) 6.0%
82 Devonshire Street
Boston, Massachusetts 02109
Pioneering Management Corporation................. 505,600(2) 10.9%
60 State Street
Boston, Massachusetts 02114
State of Wisconsin Investment Board............... 450,000(3) 9.7%
P.O. Box 7842
Madison, Wisconsin 53707
NS Group, Inc..................................... 400,000(4) 8.6%
Ninth and Lowell Streets
Newport, Kentucky 41072
Heartland Advisors, Inc........................... 740,000(5) 16.0%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
- ---------------
(1) Based on Schedule 13G dated September 9, 1996 filed with the SEC by FMR
Corp. ("FMR"). Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR, provides investment advisory service to
various investment companies (the "Fidelity Funds"). Fidelity Low-Priced
Stock Fund, one of the Fidelity Funds, owns the 277,500 shares. The Edward
C. Johnson III family, together with trusts for the benefit of his family,
own stock representing approximately 49% of the voting power of FMR. Edward
C. Johnson III, through control of FMR and Fidelity, has sole dispositive
power as to 277,500 shares. The Board of Trustees of Fidelity Low-Priced
Stock Fund has sole voting power as to 277,500 shares.
3
<PAGE>
(2) Based on Amendment No. 3 to Schedule 13G dated April 9, 1996 filed with the
SEC. Pioneering Management Corporation, an investment adviser, has sole
voting power and shared dispositive power as to 505,600 shares.
(3) Based on Amendment No. 2 to Schedule 13G dated February 6, 1996 filed with
the SEC. The State of Wisconsin Investment Board has sole voting and
dispositive power as to such shares.
(4) NS Group, Inc., a Kentucky corporation ("NS Group"), obtained such shares in
connection with the initial public offering of shares of the Company's
Common Stock as a partial consideration for the transfer of all of the
assets and liabilities of a subsidiary of NS Group to the Company. See
"Certain Transactions." Clifford R. Borland, a director of the Company,
serves as Chairman and Chief Executive Officer of NS Group. Mr. Borland
disclaims beneficial ownership of the shares owned by NS Group.
(5) Based on Schedule 13G dated October 10, 1996 filed with the SEC. Heartland
Advisors, Inc., an investment adviser, has sole voting power as to 609,000
shares and sole dispositive power as to 740,000 shares.
PROPOSAL I: ELECTION OF DIRECTOR
In accordance with the by-laws of the Company, the Board of Directors
has fixed the number of directors at five directors, divided into three classes
of one, two and two directors, with the terms of office of each class ending in
successive years. The Board of Directors has nominated Charles C. Hanebuth,
whose current term as a director expires at the 1997 Annual Meeting, for
election as a director to hold office until the 2000 Annual Meeting of
Stockholders, and until his successor is elected and qualified in the class to
which he is assigned or until his death, resignation or removal.
Shares represented by your proxy will be voted in accordance with your
direction as to the election as director of the person listed below as a
nominee. In the absence of direction, the shares represented by your proxy will
be voted FOR such election. In the event that the person listed as nominee
becomes unavailable as a candidate for election, it is intended that the shares
represented by your proxy will be voted for a substitute nominee, but the Board
knows of no reason to anticipate that this will occur.
Certain information with respect to the nominee and each of the
continuing directors is set forth below, including any positions they hold with
the Company.
Served as
Director
Positions or Offices Continuously
Name Age with the Company Since
- --------------------------------------------------------------------------------
NOMINEE FOR TERM ENDING IN 2000
Charles C. Hanebuth 52 President and Chief 1993
Executive Officer
DIRECTORS WITH TERMS ENDING IN 1998
Carl E. Edwards, Jr. 55 None 1993
J. Marvin Quin II 49 None 1993
DIRECTORS WITH TERMS ENDING IN 1999
Clifford R. Borland 59 None 1993
David C. Struve 56 None 1993
4
<PAGE>
The following are brief summaries of the business experience of the
nominee for election as director of the Company and the other directors whose
terms of office as directors will continue after the Annual Meeting, including,
where applicable, information as to the other directorships held by each of
them.
Nominee
Charles C. Hanebuth has been President and Chief Executive Officer of
the Company since its formation in August 1993. From November 1990 to October 6,
1993, Mr. Hanebuth was President and Chief Operating Officer of Kentucky
Electric Steel Corporation, a wholly owned subsidiary of NS Group. Prior to
November 1990, Mr. Hanebuth was a Vice President of ELCOR Corporation, a
manufacturer of roofing and industrial products, and President of its
wholly-owned subsidiary, Chromium Corporation, a remanufacturer of diesel engine
components. Mr. Hanebuth has 17 years management experience in the steel
industry. Mr. Hanebuth is a director of Ashland Bankshares, Inc., the holding
company of the Bank of Ashland, and Ashland Hospital Corporation, which operates
King's Daughters' Medical Center.
The Board of Directors recommends a vote FOR the election of the
nominee for director of the Company.
Continuing Directors
Clifford R. Borland has been Chairman and Chief Executive Officer of NS
Group, a holding company for steel mini-mill operations, since 1995. Prior
thereto, Mr. Borland was President, Chief Executive Officer and a director of NS
Group.
Carl E. Edwards, Jr. has been Executive Vice President, General Counsel
and Secretary of Lennox International Inc., a manufacturer of residential and
commercial air conditioning and heating equipment and industrial furnaces, since
February 1992. Prior thereto, Mr. Edwards was Vice President, General Counsel
and Secretary of ELCOR Corporation, a manufacturer of roofing and industrial
products.
J. Marvin Quin II has been Senior Vice President and Chief Financial
Officer of Ashland, Inc., a diversified corporation which produces and markets
petroleum products, chemicals, road construction services, and oil and natural
gas, since 1992. Prior thereto, Mr. Quin was treasurer of Ashland, Inc. Mr. Quin
also serves on the boards of directors of AECOM Technology Corporation and
Ashland Coal, Inc.
David C. Struve has been Chairman of the Board and Chief Executive
Officer of Latite Roofing and Sheet Metal Company Inc., a commercial and
residential roofing company, since 1983.
Board of Directors and Committees
The Board of Directors of the Company held five meetings during the
fiscal year ended September 28, 1996. The outside directors received no
additional compensation for meetings in excess of the four regularly scheduled
meetings. During such fiscal year all of the incumbent directors attended at
least 75% of the aggregate meetings held by the Board of Directors and all
committees on which they serve. The standing committees of the Board of
Directors are the Audit Committee and the Compensation Committee. The nominee(s)
for election as director(s) of the Company is (are) chosen by the full Board of
Directors, and there is no standing committee entrusted with this function.
5
<PAGE>
Audit Committee. Messrs. Quin (Chairman), Edwards and Struve are
members of the Audit Committee. The functions of the Audit Committee are to meet
with appropriate Company financial and legal personnel and independent public
accountants to review the internal controls of the Company and the objectivity
of its financial reporting. The Audit Committee recommends to the Board the
appointment of the independent public accountants to serve as auditors in
examining the corporate accounts of the Company. The Audit Committee met two
times during the fiscal year ended September 28, 1996.
Compensation Committee. Messrs. Struve (Chairman), Borland and Edwards
are members of the Compensation Committee. The functions of the Compensation
Committee are to review, discuss and advise management and make recommendations
to the Board of Directors regarding compensation and benefits for the executive
officers and highly compensated personnel of the Company. The Compensation
Committee also has oversight responsibilities for all broadly based compensation
and benefit programs of the Company. The Compensation Committee met three times
during the fiscal year ended September 28, 1996.
Compensation of Directors. Directors who are not employees of the
Company are paid an annual retainer of $16,000 and $1,000 for each meeting of
the Board of Directors attended in excess of four meetings per fiscal year,
along with expenses for attendance at meetings of the Board and Committees. In
addition, such outside Directors are paid $750 ($1,000 for Committee Chairmen)
for each Committee meeting attended. Directors who are employees do not receive
any compensation for service as directors, but the Company pays their expenses
for attendance at Board meetings.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table presents summary information for the 1994, 1995 and
1996 fiscal years concerning compensation awarded or paid to, or earned by, the
Chief Executive Officer and each of the other executive officers whose salary
and bonus exceeded $100,000 for the fiscal year ended September 28, 1996 (the
"named executive officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation(1)
--------------------------- --------------------------------------------
Restricted
Name and Bonus Stock Awards Options LTIP Payouts All Other
Principal Position Year Salary ($) ($)(2) ($) (3) (#) (4) ($) (5) Compensation ($)
- ------------------------------- ---- ------------- ------------ ------------- ------------- -------------- ------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth (6) 1996 $270,360 -- -- 34,521 -- $82,278(7)
President and Chief Executive 1995 246,000 $132,522 -- 34,521 $96,646 79,975(7)
Officer 1994 246,000 193,986 $216,000 69,042 -- 27,321(7)
William J. Jessie (8) 1996 $126,384 -- -- 10,340 -- $24,933(7)
Vice President, Secretary, 1995 115,000 $ 62,757 -- 10,340 $42,084 26,518(7)
Treasurer and Chief 1994 115,000 88,881 -- 24,197 -- --
Financial Officer
Joseph E. Harrison (9) 1996 $126,384 -- -- 10,340 -- $46,628(7)
Vice President, 1995 115,000 $ 62,757 -- 10,340 $42,084 46,606(7)
Sales and Marketing 1994 115,000 88,881 -- 21,862 -- 1,723(7)
William H. Gerak (10) 1996 $109,896 -- -- 8,991 -- $36,066(7)
Vice President, 1995 100,000 $ 54,185 -- 8,991 $36,591 36,383(7)
Administration 1994 75,000 58,661 -- 8,991 -- 1,125(7)
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<FN>
(1) Stock options and restricted stock awards granted under the Company's 1993 and 1994 Employee Stock Option/Restricted Stock Plans
provide for acceleration of vesting of awards in the event of a change of control of the Company, as defined in such plan.
(2) Amounts included under "Bonus" represent amounts paid or awarded under the executive compensation plan described in the
Compensation Committee Report on Executive Compensation. The Compensation Committee determined that all bonus earnings be
awarded in restricted stock in fiscal 1994, half of bonus earnings be awarded in restricted stock in fiscal 1995 and fiscal
1996. Based upon a market price of the Company's common stock at the end of each fiscal quarter and the bonus earned, the shares
awarded to Messrs. Hanebuth, Jessie, Harrison and Gerak in fiscal 1994 and 1995 respectively, were: 17,737 and 7,192 shares for
Mr. Hanebuth; 8,125, and 3,373 shares for Mr. Jessie; 8,021 and 3,373 shares for Mr. Harrison, and 5,365 and 2,913 shares for
Mr. Gerak. There were no bonuses awarded in fiscal 1996. Such shares vest three years from the grant date. Dividends, if any,
would be paid on such shares, whether or not vested. As of September 28, 1996, the value of the unvested portion of such
restricted stock grants for Messrs. Hanebuth, Jessie, Harrison and Gerak, respectively, was $169,829, $78,330, $77,622 and
$56,394.
(3) In connection with the Company's initial public offering of common stock, Mr. Hanebuth was granted a restricted stock award of
18,000 shares effective October 6, 1993. As of September 28, 1996, the value of such shares was $122,625. Such shares vest over
four years beginning on February 3, 1994. Dividends, if any, would be paid on such shares, whether or not vested.
7
<PAGE>
(4) Information represents stock options awarded under the Company's 1993 and 1994 Employee Stock Option/Restricted Stock Plans. The
options reflected for fiscal 1996 were granted on May 8, 1996 and the options reflected for fiscal 1995 were granted on July 27,
1995. Of the amount shown for fiscal 1994, 34,521 for Mr. Hanebuth, 10,340 for Mr. Jessie and 10,340 for Mr. Harrison were
granted effective October 6, 1993 in connection with the Company's initial public offering. The remaining fiscal 1994 options
were granted as of July 28, 1994.
(5) Amounts listed under "LTIP Payments" represent the total principal amount of loans made under the Key Employee Stock/Loan Plan
pursuant to which certain key employees may be granted the right to apply to the Company for a loan, the proceeds of which must
be used in conjunction with purchases of the Company's Common Stock. Such loans bear no interest and are repayable by the key
employee through continued service with the Company, with the principal amount of the loan being forgiven at the rate of 20% for
each year of continuous service subsequent to the date of the making of the loan. The outstanding balances of such loans are
required to be repaid on any termination of employment with the Company, except for termination due to disability, death or
retirement.
(6) Mr. Hanebuth has served as President and Chief Executive Officer of the Company since its formation in August 1993; he served as
President and Chief Operating Officer of Kentucky Electric Steel Corporation ("KESC") during fiscal 1993 and until October 6,
1993.
(7) Amounts included as "All Other Compensation" for the named executive officers consist of charges associated with the Company's
salary continuation program, charges in connection with certain disability insurance premiums for Mr. Hanebuth, contributions to
the Company's profit sharing plan, and imputed interest on loans made under the Key Employee Stock/Loan Plan. Under the
Company's salary continuation program, executive officers, upon retirement at age 62, will be paid an amount equal to 60% of
fiscal 1994 base salary to age 85. At age 85, Mr. Hanebuth would continue to receive a benefit of 30% of his fiscal 1994 base
salary. The salary continuation program for Messrs. Jessie, Harrison and Gerak was not in effect until the end of fiscal 1994
and charges for that year were less than $1,000 each. Charges associated with the salary continuation benefit during fiscal
1994, 1995 and 1996, respectively, for Mr. Hanebuth were $17,400, $66,656 and $70,597. During fiscal 1995 and 1996,
respectively, such charges were $20,637 and $22,288 for Mr. Jessie; $40,725 and $43,983 for Mr. Harrison; and $31,265 and
$33,766 for Mr. Gerak. As of September 28, 1996, Mr. Hanebuth's salary continuation benefits, payable at age 62, have been
vested by the Board of Directors as follows: 60% of his pre-age 85 benefit and 75% of his post-age 85 benefit. As of September
28, 1996, salary continuation benefits for other officers, payable at age 62, have been 45% vested by the Board of Directors.
The Company also provides an individual disability insurance policy for Mr. Hanebuth. In the event Mr. Hanebuth had been
disabled for more than 90 days, the policy would pay $6,200 per month during the term of disability up to age 65. Premiums paid
on behalf of Mr. Hanebuth amounted to $6,023 in 1994, 1995 and 1996. The Company made the following contributions to the profit
sharing plan in fiscal 1995: $4,920 on behalf Mr. Hanebuth; $4,782 on behalf of Mr. Jessie; $4,782 on behalf of Mr. Harrison;
and $4,152 on behalf of Mr. Gerak. Imputed interest under the Key Employee Stock/Loan Plan, which is described in the
Compensation Committee Report on Executive Compensation, for fiscal 1995 and 1996, respectively, was $2,376 and $5,658 for Mr.
Hanebuth; $1,099 and $2,645 for Mr. Jessie; $1,099 and $2,645 for Mr. Harrison; and $966 and $2,300 for Mr. Gerak. For fiscal
1994, All Other Compensation also represented Company matching contributions to the Salaried Employees Profit Sharing and
Flexible Compensation Plan.
(8) Mr. Jessie was elected Vice President, Secretary, Treasurer and Chief Financial Officer effective October 6, 1993. Prior to that
time and since 1986, Mr. Jessie was Controller of KESC. As Controller, Mr. Jessie was not an executive officer of the Company or
KESC.
8
<PAGE>
(9) Mr. Harrison has served as Vice President, Sales and Marketing of the Company since its formation in August 1993; he served as
General Sales Manager of KESC during fiscal 1993 until October 6, 1993.
(10) Mr. Gerak was elected Vice President, Administration effective January 1, 1994. Prior to that time, Mr. Gerak was not an
officer or employee of the Company or KESC.
</TABLE>
The following tables present certain additional information concerning
stock options granted to the named executive officers during fiscal 1996. No
stock options were exercised by the named executive officers during fiscal 1996.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(1)
-------------------------------------------------------------- --------------------------
% of Total
Options
Granted to Exercise or
Options Employees in Base Price
Name Granted (#)(2) Fiscal Year (per share)(3) Expiration Date 5% 10%
- ------------------- -------------- ------------- -------------- --------------- ------------ ------------
<C> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth 34,521 37.9% $7.625 5/08/06 $165,528 $419,430
William J. Jessie 10,340 11.3% $7.625 5/08/06 $ 49,580 $125,631
Joseph E. Harrison 10,340 11.3% $7.625 5/08/06 $ 49,580 $125,631
William H. Gerak 8,991 9.9% $7.625 5/08/06 $ 43,112 $109,241
- ---------------
<FN>
(1) The amounts shown under these columns are the result of calculations at 5% and 10% rates over the ten year term of the options
as required by the Securities and Exchange Commission and are not intended to forecast future appreciation of the stock price of
the Company's Common Stock. The actual value, if any, an executive officer may realize will depend on the excess of the stock
price over the exercise price on the date the option is exercised.
(2) These options were granted as of May 8, 1996 in connection with the Compensation Committee's review of compensation for fiscal
1997 and one fourth of each option becomes exercisable each year beginning May 8, 1997.
(3) The exercise price for these options is equal to the market price of the Company's Common Stock on May 8, 1996.
</TABLE>
9
<PAGE>
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options Options at
at September 28, 1996(#) September 28, 1996($) (1)
-------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- ------------- ------------ -------------
Charles C. Hanebuth 51,781 86,303 0 0
William J. Jessie 17,269 27,608 0 0
Joseph E. Harrison 16,101 26,441 0 0
William H. Gerak 6,743 20,230 0 0
- ---------------
(1) Based on the market value of the Company's Common Stock on September 28,
1996.
Other Compensation Arrangements
The Company entered into agreements ("Employment Agreements") with the
named executive officers effective June 7, 1994. The Employment Agreements
provide for continued employment of the respective officer by the Company for a
period of three years following a Change of Control (as defined) on an
equivalent basis to employment immediately before the change of control. If (i)
the employee terminates his employment for any reason other than death or
disability during the period from six months following a change of control and
ending 36 months following a change of control, (ii) the Company terminates the
employee's employment during the period from the date of the change of control
and ending 36 months following a change of control ("Change of Control Period")
or (iii) the employee terminates his employment for Good Reason (as defined)
during the first six months of the Change of Control Period, the Company shall
pay the employee a single lump sum cash payment equal to $1.00 less than three
times the employee's "Base Amount." The term Base Amount means the employee's
average annual compensation from the Company for the five consecutive years
preceding the change of control. The Employment Agreements also provide that for
a period of two years after the termination of the employee's employment under
such agreement, the employee will not engage in any Competition Activity (as
defined) and shall provide reasonable consulting services. Pursuant to the
Employment Agreements, the employee has also agreed not to disclose Confidential
Information (as defined) of the Company.
The Board of Directors adopted an Executive Severance Plan effective
June 7, 1994 for the named executive officers. In consideration for certain
non-competition and confidentiality covenants and provided his employment is not
terminated for Cause (as defined), each named executive officer is entitled to
be paid his regular base salary at the time of severance from the Company for a
period of 36 months for Mr. Hanebuth and 24 months for the other named executive
officers following termination. In addition, the executive would continue to
receive certain employee benefits and would be eligible to receive a pro rata
share of any incentive bonus plan compensation earned but not paid and he would
receive an amount equal to the cash value of all outstanding stock options,
stock appreciation rights and restricted stock held by such executive.
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The Employment Agreements and the Executive Severance Plan also provide
that an employee will be reimbursed for any legal expenses incurred in
litigating his rights under the agreement or the severance plan.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for fiscal 1996:
The Company's executive compensation program (the "Program") has been
designed to enable the Company to attract, motivate and retain senior management
by providing a competitive total compensation opportunity that emphasizes
variable, at-risk, performance-based compensation. The Program is comprised of
three basic elements; base salaries which are competitive in specific industry
segments within which the Company operates and which also reflect individual
performance; annual incentive opportunities which may be paid in cash and/or
awarded in restricted stock for the achievement of annual financial performance
goals established by the Compensation Committee; and long-term stock
based-incentive opportunities.
A discussion of each of the elements of the Program along with a
description of the significant decisions of the Compensation Committee with
regard to fiscal 1996 compensation is set forth below.
Annual total compensation for the executive officers consists of a base
salary and the potential for an annual bonus under the Executive Incentive
Compensation Plan (the "Incentive Compensation Plan"). Base salaries for the
executive officers have been compared with national survey data for all
industries and data from industry segments within which the Company operates.
With respect to fiscal 1996, national survey data for all industries, data from
industry segments within which the Company operates and evaluation of individual
performance were utilized to determine base salaries. The annual base salaries
for the executive officers other than the chief executive officer were
determined through an interactive review process between the Compensation
Committee and Mr. Hanebuth using the aforementioned criteria. Mr. Hanebuth's
base salary was reviewed and established by the Compensation Committee.
Under the Incentive Compensation Plan, officers may be awarded annual
incentive bonuses if the Company meets certain performance criteria. Annual
incentive bonuses for Mr. Hanebuth and other named executive officers are based
upon pre-tax return on equity targets which are established at the beginning of
the fiscal year. At specified levels of return, a participant is eligible to
receive an incentive bonus equal to a variable percentage of his annual base
salary, to a maximum of approximately 100% of annual base salary. The fiscal
1996 equity targets and incentive percentage levels were reviewed and approved
by the Compensation Committee. The Compensation Committee directed that one half
of all incentive compensation bonus payments for fiscal 1996 be awarded in
restricted stock which vests after three years because the Compensation
Committee believes that payments in restricted stock, as opposed to cash
payments, will strengthen the mutuality of interests between the Company's
executive officers and its shareholders. Seventy-five percent of the incentive
bonus may be paid quarterly during the fiscal year for which bonus payments are
calculated, with the balance paid after determination of results for the fiscal
year. Any contribution made by the Company for Profit Sharing to the Salaried
Employees Profit Sharing and Flexible Compensation Plan on behalf of any
executive officer results in a corresponding reduction in incentive compensation
bonus payments to the executive officers.
Under the Key Employee Stock/Loan Plan approved by the Compensation
Committee in February 1995, the Company may grant certain key employees rights
to apply to the Company for a loan, the proceeds of which must be used to
purchase Kentucky Electric Steel Common Stock at that time, applied to
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previous stock purchases not made in connection with the Stock/Loan Plan or be
used to meet tax obligations on restricted stock grants. The normal maximum
amount which may be loaned to each eligible key employee is a percentage of base
salary determined by a formula approved by the Compensation Committee. Such
loans bear no interest and are repayable by the key employee through continued
service with the Company, with the principle amount of the loan being forgiven
at the rate of 20% for each year of continuous service subsequent to the date of
the making of the loan. The outstanding balances of such loans are required to
be repaid on any termination of employment with the Company, except for
termination due to disability, death or retirement.
The long-term incentive component of the chief executive officer and
the executive officers' 1996 compensation includes stock options as well as
stock loan rights. Stock option grants under the 1993 and/or 1994 Employee Stock
Option/Restricted Stock Plans are designed to align the long-term interests of
the Company's executives and its shareholders and assist in the retention of
executives.
In May 1996, the Compensation Committee granted qualified and/or
non-qualified stock options to all of the executive officers, as well as certain
other management employees. The grants made to Mr. Hanebuth were determined with
reference to national survey data regarding stock option grants to chief
executive officers. Other executive officers were eligible for awards set at
approximately 65% of the level granted to Mr. Hanebuth. All options were granted
at fair market value on the date of grant.
Compensation Committee
David C. Struve (Chairman)
Clifford R. Borland
Carl E. Edwards, Jr.
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PERFORMANCE GRAPH
The following graph sets forth a comparison of the Company's cumulative
total stockholder return from September 30, 1993 through September 30, 1996 with
the cumulative total return for the same period of the Standard & Poor's 500
Steel Index. The graph assumes a $100 investment in the Company's Common Stock
and each index and the reinvestment of all dividends.
[GRAPHIC OMITTED]
09/30/93 09/30/94 09/30/95 09/30/96
-------- -------- -------- --------
S&P 500 Index 100 104 135 162
S&P Steel Index 100 129 91 90
Kentucky Electric Steel, Inc. 100 93 77 59
CERTAIN TRANSACTIONS
In June 1993, the Board of Directors of NS Group announced its
intention to sell all or substantially all of its interest in Kentucky Electric
Steel Corporation. The Company was formed on August 6, 1993, to acquire all of
the assets and liabilities of Kentucky Electric Steel Corporation and to be the
issuer of common stock pursuant to an initial public offering (the "Offering").
Prior to the completion of the Offering, the Company did not engage in any
business. On September 29, 1993, the Company, NS Group and Kentucky Electric
Steel Corporation entered into a Transfer Agreement (the "Transfer Agreement")
pursuant to which Kentucky Electric Steel Corporation transferred all of its
assets and liabilities to the Company upon completion of the Offering. In
addition, pursuant to the Transfer Agreement, (i) NS Group will indemnify the
Company for liabilities arising out of, relating to, based upon or incurred in
connection with the business and operations of NS Group and its subsidiaries
(other than Kentucky Electric Steel Corporation); (ii) the Company will
indemnify NS Group for liabilities arising out of, relating to, based upon or
incurred in connection with the business and operations of the Company, Kentucky
Electric Steel Corporation and predecessors of Kentucky Electric Steel
Corporation, including without limitation certain environmental conditions;
(iii) the Company has assumed sponsorship and administration of certain Kentucky
Electric Steel Corporation employee benefit plans; and (iv) certain intellectual
property rights were transferred to the Company.
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In connection with the Offering, NS Group, Kentucky Electric Steel
Corporation and the Company entered into a tax agreement pursuant to which (i)
NS Group will, subject to certain limitations, indemnify the Company and its
affiliates from liability for any and all federal and state income taxes of the
NS Group affiliated group or any member thereof, including Kentucky Electric
Steel Corporation and its affiliates, for taxable periods ending on or before
the closing of the Offering and (ii) the Company and its affiliates will
indemnify the NS Group affiliated group from liability for any and all other
taxes of Kentucky Electric Steel Corporation both prior to and following the
Offering, including any tax liability attributable to the transfer of assets by
Kentucky Electric Steel Corporation to the Company in excess of the tax
liability that would have resulted to NS Group if it had sold the stock of
Kentucky Electric Steel Corporation.
The Company has granted certain rights with respect to the registration
of shares of Common Stock that are owned by Kentucky Electric Steel Corporation.
Subject to certain limitations, NS Group or Kentucky Electric Steel Corporation
have the right at any time to require the Company to register the sale of such
shares under the Securities Act of 1933 and are also entitled to include such
shares in a registered offering of securities by the Company for its own account
or the account of any other security holder, subject to certain conditions and
restrictions. The registration expenses of NS Group or Kentucky Electric Steel
Corporation (other than underwriting discounts and commissions) will be paid by
the Company. The registration rights expire October 6, 1998.
PROPOSAL II: RATIFICATION
OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee,
has determined to appoint Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending September 27, 1997. A resolution
will be presented at the meeting to ratify the appointment of Arthur Andersen
LLP. If the stockholders do not ratify the selection of Arthur Andersen LLP, the
selection of independent public accountants will be reconsidered by the Board.
The Company has been advised that a representative of Arthur Andersen
LLP will be present at the meeting with an opportunity to make a statement if
such representative desires and will be available to respond to questions of the
stockholders.
The Board of Directors recommends a vote FOR ratification of the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending September 27, 1997.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors, and persons who own more than ten percent of
the Company's outstanding stock, file reports of ownership and changes in
ownership with the Securities and Exchange Commission. For fiscal 1996, to the
knowledge of the Company, all Section 16(a) filing requirements applicable to
its officers and directors with respect to the most recent fiscal year were
complied with.
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STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders scheduled to be held on February 5, 1998, must be
received by the Company by September 4, 1997, for inclusion in the Company's
Proxy Statement and proxy relating to that meeting. Upon receipt of any such
proposal, the Company will determine whether or not to include such proposal in
the Proxy Statement and proxy in accordance with regulations governing the
solicitation of proxies.
The Company's bylaws also set forth certain advance notice or
information requirements and time limitations on any director nomination or any
new business which a stockholder wishes to propose for consideration at an
annual or special meeting of stockholders. In order for a stockholder to
nominate a candidate for director or bring a proposal before a stockholder
meeting, the Bylaws require that timely notice be given to the Company in
advance of the meeting. Ordinarily, such notice must be given not less than 60
days nor more than 90 days before the meeting (but if the Company gives less
than 70 days notice of the meeting, then the stockholder must give such notice
within 10 days after notice of the meeting is mailed or other public disclosure
of the meeting is made). The notice must contain certain information relating to
the nominee for director or new business proposal. The Board of Directors of the
Company may reject any nomination or new business proposal not timely made or
supported by insufficient information. These requirements are separate from the
rules of the Securities and Exchange Commission which provide for the inclusion
of proposals of shareholders in the Company's proxy statement.
MISCELLANEOUS
The Company will bear the cost of solicitation of proxies. Proxies will
be solicited by mail. They may also be solicited by officers and regular
employees of the Company personally or by telephone, but such persons will not
be specifically compensated for such services. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the soliciting material to
the beneficial owners of stock held of record by such persons and will be
reimbursed for their reasonable expenses incurred in connection therewith.
Management knows of no business to be brought before the Annual Meeting
of Stockholders other than that set forth herein. However, if any other matters
properly come before the meeting, it is the intention of the persons named in
the proxy to vote such proxy in accordance with their judgment on such matters.
Even if you plan to attend the meeting in person, please execute, date and
return the enclosed proxy promptly. Should you attend the meeting, you may
revoke the proxy by delivering to the Company another proxy bearing a later date
or by submitting written notice of such revocation to the Secretary of the
Company. A postage-paid, return-addressed envelope is enclosed for your
convenience. Your cooperation in giving this your prompt attention will be
appreciated.
By Order of the Board of Directors,
WILLIAM J. JESSIE, Secretary
December 12, 1996
Ashland, Kentucky
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ANNEX A
FORM OF PROXY
[FRONT]
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
KENTUCKY ELECTRIC STEEL, INC.
- --------------------------------------------------------------------------------
RECORD DATE SHARES:
|-----------------------------|
Please be sure to sign and date this Proxy. | Date |
|------------------------------------------------------------------------------|
| |
|-------- Shareholder sign here ----------------- Co-owner sign here ----------|
1.) Election of Director:
Charles C. Hanebuth [ ] For [ ] Withhold
(to elect the above nomineeas a Director)
2.) Ratify the appointment of Arthur Andersen LLP, as independent public
accountants for fiscal 1997. [ ] For [ ] Against [ ] Abstain
3.) In their discretion, on any other matter that may properly come before the
meeting or any adjournment thereof.
Mark box at right if you plan to attend the Meeting of Stockholders. [ ]
Mark box at right if an address change or comment has been noted on the reverse
side of this card. [ ]
<PAGE>
[BACK]
KENTUCKY ELECTRIC STEEL, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 6, 1997
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints William J. Jessie and William H. Gerak or either
of them, with full power to act alone, the true and lawful attorneys-in-fact and
proxies of the undersigned, with full power of substitution and revocation, to
vote all shares of common stock of Kentucky Electric Steel, Inc., a Delaware
corporation, which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Ashland Plaza Hotel, Ashland,
Kentucky, on Thursday, February 6, 1997, at 10:00 a.m., Eastern Standard Time,
and at any adjournments thereof, with all powers the undersigned would possess
if personally present.
THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDERS. IF
NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND 2.
|----------|--------------------------------------------------------|----------|
| | PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY | |
| | USING THE ENCLOSED ENVELOPE. | |
| |--------------------------------------------------------| |
|PLEASE DATE THIS PROXY AND SIGN NAME OR NAMES EXACTLY AS PRINTED HEREON, WHERE|
| THERE IS MORE THAN ONE OWNER, EACH MUST SIGN. WHEN SIGNING IN FIDUCIARY OR |
| REPRESENTATIVE CAPACITY, PLEASE GIVE FULL TITLE AS SUCH. |
|------------------------------------------------------------------------------|
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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