<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
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)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[KENTUCKY ELECTRIC STEEL LOGO]
KENTUCKY ELECTRIC STEEL, INC.
POST OFFICE BOX 3500
ASHLAND, KENTUCKY 41105-3500
(606) 929-1222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, FEBRUARY 2, 1999
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 Tuesday, February 2, 1999 at 10:00 a.m. (EST), for
the following purposes:
1. To elect two members of the Board of Directors to hold office
until the 2002 Annual Meeting of Stockholders and until their
successors are elected and qualified;
2. To consider and vote upon approval of the adoption of the 1998
Employee Stock Option/Restricted Stock Plan;
3. To ratify the appointment of Arthur Andersen LLP as
independent public accountants for the fiscal year ending
September 25, 1999; and
4. 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 11, 1998 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 29, 1998
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> 3
[KENTUCKY ELECTRIC STEEL LOGO]
KENTUCKY ELECTRIC STEEL, INC.
POST OFFICE BOX 3500
ASHLAND, KENTUCKY 41105-3500
(606) 929-1222
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON TUESDAY, FEBRUARY 2, 1999
APPROXIMATE DATE OF MAILING: DECEMBER 29, 1998
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 Tuesday, February 2, 1999, 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 two nominees for director proposed by the Board of Directors in
Proposal I, in favor of approval of the adoption of the 1998 Employee Stock
Option/Restricted Stock Plan, 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 25, 1999, all 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 26, 1998 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 approval of the
1998 Employee Stock Option/Restricted Stock Plan and 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
these matters 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
approval and such ratification. Broker "non-votes" will be treated as not
represented at the meeting as to the approval of the 1998 Employee Stock
Option/Restricted Stock Plan and the ratification of Arthur Andersen LLP for
purposes of determining the number of votes needed for approval for such
proposals.
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> 4
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The close of business on December 11, 1998 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 11, 1998, there
were outstanding and entitled to vote 4,059,531 shares of the Common Stock.
OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth information regarding the amount of the
Common Stock beneficially owned, as of December 11, 1998, by each director of
the Company, the nominees for election as directors of the Company, the
executive officers named in the Summary Compensation Table and all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
NAME SHARES
BENEFICIALLY OWNED(1) PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles C. Hanebuth............................................. 188,630 (2) 4.5%
Clifford R. Borland............................................. 3,469 (3)
Carl E. Edwards, Jr. ........................................... 4,844 (3)
J. Marvin Quin II............................................... 9,706 (3)
David C. Struve................................................. 9,764 (3)
William J. Jessie............................................... 100,752 (4) 2.5%
Joseph E. Harrison.............................................. 69,370 (5) 1.7%
William H. Gerak................................................ 47,761 (6) 1.2%
Directors and Executive Officers as a Group (8 persons)......... 434,296 (7) 10.1% (8)
</TABLE>
(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 120,824 shares which Mr. Hanebuth had the right to acquire
upon the exercise of stock options exercisable on December 11, 1998 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 39,707 shares which Mr. Jessie had the right to acquire upon
the exercise of stock options exercisable on December 11, 1998 or
within 60 days thereafter.
(5) Includes 37,372 shares which Mr. Harrison had the right to acquire upon
the exercise of stock options exercisable on December 11, 1998 or
within 60 days thereafter.
(6) Includes 22,478 shares which Mr. Gerak had the right to acquire upon
the exercise of stock options exercisable on December 11, 1998 or
within 60 days thereafter.
(7) Includes 220,381 shares subject to option as described in the foregoing
notes.
(8) The shares subject to options were deemed outstanding for purposes of
this calculation.
2
<PAGE> 5
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On December 11, 1998, the following persons were known to the Company
to be the beneficial owners of more than five percent of the Common Stock:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Heartland Advisors, Inc............................... 764,000(1) 18.8%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
State of Wisconsin Investment Board................... 450,000(2) 11.1%
P.O. Box 7842
Madison, Wisconsin 53707
Franklin Resources, Inc............................... 450,000(3) 11.1%
777 Mariners Island Boulevard
San Mateo, California 94404
NS Group, Inc......................................... 400,000(4) 9.9%
Ninth and Lowell Streets
Newport, Kentucky 41072
Tontine Partners, L.P................................. 298,500(5) 7.4%
200 Park Avenue
New York, NY 10166
</TABLE>
(1) Based on written information received by the Company from Heartland
Advisors, Inc. Heartland Advisors, Inc., an investment adviser, has
sole voting power as to 276,000 shares and sole dispositive power as to
764,000 shares.
(2) Based on Amendment No. 4 to Schedule 13G dated January 20, 1998 filed
with the SEC. The State of Wisconsin Investment Board has sole voting
and dispositive power as to 450,000 shares.
(3) Based on Schedule 13G dated January 30, 1998 filed with the SEC by
Franklin Resources, Inc. ("Franklin Resources"). Franklin Resources, an
institutional investment manager, has sole voting power and shared
dispositive power as to 450,000 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 partial consideration for the transfer of all
of the assets and liabilities of a subsidiary of NS Group to the
Company. 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 April 7, 1998 filed with the SEC by Tontine
Partners, L.P., a Delaware limited partnership ("TP"), Tontine
Management, L.L.C., a Delaware limited liability company ("TM"),
Tontine Overseas Associates, L.L.C., a Delaware limited liability
company and investment advisor ("TOA"), and Jeffrey L. Gendell, an
individual. TP, TM, TOA and Mr. Gendell have shared voting power and
shared dispositive power as to 298,500 shares.
3
<PAGE> 6
PROPOSAL I: ELECTION OF DIRECTORS
In accordance with the Bylaws 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 Clifford R. Borland and
David C. Struve, whose current terms as directors expire at the 1999 Annual
Meeting, for election as directors to hold office until the 2002 Annual Meeting
of Stockholders, and until their successors are elected and qualified in the
class to which such directors are assigned or until their earlier deaths,
resignations or removals.
Shares represented by your proxy will be voted in accordance with your
direction as to the election as directors of the persons listed below as
nominees. In the absence of direction, the shares represented by your proxy will
be voted FOR such election. In the event that either 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 nominees and each of the
continuing directors is set forth below, including any positions they hold with
the Company.
<TABLE>
<CAPTION>
POSITIONS OR OFFICES SERVED AS DIRECTOR
NAME AGE WITH THE COMPANY CONTINUOUSLY SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOMINEES FOR TERMS ENDING IN 2002
Clifford R. Borland 61 None 1993
David C. Struve 58 None 1993
DIRECTOR WITH TERM ENDING IN 2000
Charles C. Hanebuth 54 President and Chief 1993
Executive Officer
DIRECTORS WITH TERMS ENDING IN 2001
Carl E. Edwards, Jr. 57 None 1993
J. Marvin Quin II 51 None 1993
</TABLE>
The following are brief summaries of the business experience of the
nominees for election as directors 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.
NOMINEES
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.
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.
The Board of Directors recommends a vote FOR the election of the
nominees for director of the Company.
CONTINUING DIRECTORS
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
4
<PAGE> 7
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.
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. Mr. Hanebuth
has 19 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.
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 and road construction services, since 1992. Prior
thereto, Mr. Quin was treasurer of Ashland, Inc. Mr. Quin also serves on the
board of directors of Arch Coal, Inc.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held four meetings during the
fiscal year ended September 26, 1998. 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 nominees for election as directors of the Company
are chosen by the full Board of Directors, and there is no standing committee
entrusted with this function.
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 26, 1998.
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 two times
during the fiscal year ended September 26, 1998.
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. Beginning with the April 23, 1997 quarterly
Board meeting, at least sixty percent (60%) of all such fees are paid to such
directors in the form of Common Stock subject to the terms of the Kentucky
Electric Steel, Inc. Share Plan for Non-Employee Directors. Directors who are
employees do not receive any compensation for service as directors, but the
Company pays their expenses for attendance at Board meetings.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table presents summary information for the 1996, 1997 and
1998 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 26, 1998 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation(1)
------------------- -------------------------
Name and LTIP All Other
Principal Position Year Salary Bonus(2) Options(3) Payouts Compensation(4)
------------------ ---- ------ -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth 1998 $270,360 $15,429 -- -- $113,215
President and Chief Executive 1997 270,360 -- 34,521 -- 85,813
Officer 1996 270,360 -- 34,521 -- 82,278
William J. Jessie 1998 $132,720 $6,909 -- -- $33,338
Vice President, Secretary, 1997 126,384 -- 10,340 -- 26,190
Treasurer and Chief 1996 126,384 -- 10,340 -- 24,933
Financial Officer
Joseph E. Harrison 1998 $126,384 $6,579 -- -- $54,548
Vice President, 1997 126,384 -- 10,340 -- 49,621
Sales and Marketing 1996 126,384 -- 10,340 -- 46,628
William H. Gerak 1998 $109,896 $5,721 -- -- $46,148
Vice President, 1997 109,896 -- 8,991 -- 38,443
Administration 1996 109,896 -- 8,991 -- 36,066
</TABLE>
(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.
(3) Information represents stock options awarded under the Company's 1993
and 1994 Employee Stock Option/Restricted Stock Plans.
(4) Amounts included as "All Other Compensation" for the named executive
officers consist of charges associated with the Company's salary
continuation program, imputed interest on loans made under the Key
Employee Stock/Loan Plan, the dollar value of premiums paid by the
Company in connection with split dollar life insurance policies for the
benefit of the named executive officers, contributions to the Company's
Profit Sharing Plan on behalf of the named executive officers, and
charges in connection with certain disability insurance premiums for
Mr. Hanebuth. Charges associated with the salary continuation program
during fiscal 1996, 1997 and 1998, respectively, were: $70,597, $74,852
and $101,128 for Mr. Hanebuth; $22,288, $24,071 and $30,002 for Mr.
Jessie; $43,982, $47,502 and $51,302 for Mr. Harrison; and $33,766,
$36,467 and $43,284 for Mr. Gerak. Imputed interest under the Key
Employee Stock/Loan Plan for fiscal 1996, 1997 and 1998, respectively,
was $5,658, $4,938 and $4,018 for Mr. Hanebuth; $2,645, $2,119 and
$1,715 for Mr. Jessie; $2,645, $2,119 and $1,715 for Mr. Harrison; and
$2,300, $1,976 and $1,491 for Mr. Gerak. The value of the benefit to
the named individuals of the remainder of premiums paid by the Company
on behalf of named individuals pursuant to the Company's split dollar
insurance arrangements during fiscal 1998 was $292
6
<PAGE> 9
for Mr. Hanebuth, $95 for Mr. Jessie, $77 for Mr. Harrison and $109 for
Mr. Gerak. The Company made the following contributions to the Profit
Sharing Plan in fiscal 1998: $1,754 on behalf of Mr. Hanebuth; $1,526
on behalf of Mr. Jessie; $1,454 on behalf of Mr. Harrison; and $1,264
on behalf of Mr. Gerak. 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 $6,023 in each of fiscal 1996, 1997
and 1998.
The following table presents certain additional information concerning
stock options granted to the named executive officers. No stock options were
granted to or exercised by the named executive officers during fiscal 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options Options at
at September 26, 1998(#) September 26, 1998($) (1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles C. Hanebuth 120,824 51,781 0 0
William J. Jessie 39,707 15,510 0 0
Joseph E. Harrison 37,372 15,510 0 0
William H. Gerak 22,478 13,486 0 0
</TABLE>
(1) Based on the market value of the Company's Common Stock on September
26, 1998.
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 to the Company.
Pursuant to the Employment Agreements, each 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
7
<PAGE> 10
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.
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.
The Compensation Committee approved a Key Employee Stock/Loan Plan in
February 1995, under which the Company may grant certain key employees rights to
apply to the Company for a loan. The proceeds of any such loan must be used to
purchase Kentucky Electric Steel Common Stock at that time, applied to 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 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. No loans were made under the Key Employee
Stock/Loan Plan in fiscal 1996, 1997 or 1998.
Under the Company's salary continuation program, executive officers,
upon retirement at age 62, will be paid an amount ranging from 55% to 60% of
base salary to age 85 (10 years certain). At age 85, Mr. Hanebuth would continue
to receive a benefit of 28% of his base salary. As of September 26, 1998, the
salary continuation benefits reported for each named executive officer have been
vested at various levels ranging from 60% to 75% by the Board of Directors.
The Company has established a split dollar life insurance program for
its executive officers and key employees. In September, 1998, the Company
entered into split dollar insurance agreements with each of Mr. Hanebuth, Mr.
Jessie, Mr. Harrison and Mr. Gerak. The Company pays the premium on any policies
purchased under the terms of the agreements. Upon the employee's death, the
beneficiaries designated by the employee will receive $2,040,000 in the case of
Mr. Hanebuth, $1,000,000 in the case of Mr. Jessie, $860,000 in the case of Mr.
Harrison and $830,000 in the case of Mr. Gerak. The Company will receive any
proceeds in excess of such amounts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for fiscal 1998:
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 1998 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 1998 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
8
<PAGE> 11
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
1998 equity targets and incentive percentage levels were reviewed and approved
by the Compensation Committee. 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.
The long-term incentive component of the chief executive officer and
the executive officers' compensation has in the past included stock options as
well as stock loan rights. Stock options and stock loan rights are designed to
align the long-term interests of the Company's executives and its stockholders
and assist in the retention of executives. Due to an insufficient number of
stock options available for grant, no stock options were awarded in fiscal 1998.
The Company will likely consider additional stock option grants to such
executives in fiscal 1999, subject to approval of the 1998 Employee Stock
Option/Restricted Stock Plan by the Company's stockholders.
COMPENSATION COMMITTEE
David C. Struve (Chairman)
Clifford R. Borland
Carl E. Edwards, Jr.
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<PAGE> 12
PERFORMANCE GRAPH
The following graph sets forth a comparison of the Company's cumulative
total stockholder return from September 30, 1993 through September 30, 1998 with
the cumulative total return for the same period of the Standard & Poor's 500
Index and 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.
[PERFORMANCE CHART]
PROPOSAL II: APPROVAL OF
ADOPTION OF 1998 EMPLOYEE STOCK
OPTION/RESTRICTED STOCK PLAN
GENERAL
The 1998 Employee Stock Option/Restricted Stock Plan (the "1998 Plan")
was initially adopted by the Board of Directors of the Company on December 11,
1998, subject to approval by the stockholders of the Company. The purposes of
the 1998 Plan are: (i) to establish a means for providing incentives to officers
and other key employees of the Company upon whose judgment, initiative and
efforts the long-term growth and success of the Company are largely dependent;
(ii) to assist the Company in attracting and retaining employees of proven
ability; and (iii) to increase the identity of interest of such key employees
with those of the Company's stockholders by providing such employees with the
opportunity to acquire stock of the Company.
A copy of the 1998 Plan is attached as ANNEX A to this Proxy Statement.
The following summary of the terms of the 1998 Plan is qualified in its entirety
by reference thereto. Stockholders are urged to refer to the 1998 Plan document
and to read it carefully for a complete statement of provisions summarized
therein.
The 1998 Plan makes available up to 245,000 shares of Common Stock for
awards of eligible employees of the Company in the form of stock options and
restricted stock (collectively, "Awards"). Awards under the Plan may be made to
any officer or other key employee of the Company. As of December 29, 1998, there
were approximately 17 employees that would have been eligible to participate in
the 1998 Plan. As of the date hereof, no Awards have been made under the 1998
Plan.
10
<PAGE> 13
The 1998 Plan is administered by the Compensation Committee of the
Board of Directors which has the power to determine the key employees to whom
Awards will be made and to determine the terms and conditions upon which Awards
may be made and exercised. These will include matters such as: (i) vesting
schedules for stock options and restricted stock awards; (ii) the exercise price
of stock options; (iii) the duration of the stock options (which, in the case of
incentive stock options, cannot exceed ten years); and (iv) the duration of
restrictions and conditions of forfeiture applicable to restricted stock awards.
The exercise price of stock options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code ("incentive stock options") cannot be
less than 100% of the fair market value on the date of grant and the exercise
price of stock options not qualifying as an incentive stock options
("non-qualified stock options") cannot be less than the 85% of the fair market
value on the date of grant; provided, however, that a non-qualified option may
only be granted at an option price which is less than the fair market value on
the date of grant if such option is expressly granted in lieu of a reasonable
amount of salary or cash bonus, as determined by the Compensation Committee of
the Board of Directors.
No incentive stock option may be granted to an officer or other
employee who possesses directly or indirectly at the time of the grant more than
ten percent of the voting power of all classes of capital shares of the Company,
unless (i) the option price is at least 110% of the fair market value of the
shares subject to the incentive stock option on the date the incentive stock
option is granted, and (ii) the incentive stock option is not exercisable after
the expiration of five years from the date of grant.
Stock options may not be sold, pledged, assigned, hypothecated or
transferred by the holders, other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. Stock options
may be exercised during the lifetime of the holder only by the holder or the
holder's legal representative. Notwithstanding the foregoing, the Committee may,
in its sole discretion, permit an optionee to transfer a non-qualified stock
option, or cause the Company to grant a non-qualified stock option that would
otherwise be granted to an eligible optionee hereunder, to any one or more of
the following: such person's descendant, spouse, dependent of a spouse, spouse
of any of the foregoing, a trust established primarily for the benefit of any of
the foregoing, or of such person, or to an entity which is a corporation,
partnership, or limited liability company (or any other similar entity) the
owners of which are primarily the aforementioned persons or trusts, or an
individual taking pursuant to a decree of divorce, child support or separate
maintenance. The Compensation Committee may amend any outstanding option;
provided, however, no such amendment may extend the maximum term during which an
option may be exercised. Restricted shares may not be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of during the restriction
period.
The recipient of an award of restricted shares is not entitled to
receive delivery of the certificate for such restricted shares until the
expiration of the restriction period established by the Compensation Committee
with respect to such restricted shares. The total restriction period with
respect to an Award of restricted shares may be not less than three years (with
one-third vesting after each year); provided, however, the Compensation
Committee may establish a restriction period of not less than one year if
restrictions lapse based on the attainment of performance goals. Restricted
shares may not be sold, transferred, pledged or otherwise encumbered during a
restriction period. All restricted shares will be forfeited without further
obligation on the part of the Company if the recipient ceases to be an employee
of the Company prior to the end of the applicable restriction period.
The 1998 Plan will expire on December 11, 2008, unless sooner
terminated by the Board of Directors of the Company.
The closing price per share of Company's Common Stock on December 11,
1998, was $3.0625.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the 1998
Plan), all outstanding stock options granted under the 1998 Plan will become
exercisable in full (whether or not then otherwise exercisable) and all
restricted shares will become vested and all restrictions with respect thereto
will lapse, effective on the date of the Change of Control.
11
<PAGE> 14
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of a change in outstanding shares by reason of a share
dividend, recapitalization, merger, consolidation, split-up, combination or
exchange of shares, or the like, the maximum number of shares subject to stock
option or award as restricted shares during the existence of the 1998 Plan, the
number of shares subject to each outstanding stock option, the number of
restricted shares outstanding and the option price of each outstanding stock
option will be adjusted approximately by the Compensation Committee, whose
determination in each case will be conclusive.
AMENDMENT TO 1998 PLAN
The Board may amend the 1998 Plan in such respects as the Board may
deem advisable; provided, however, that any such amendment must be approved by
the stockholders of the Company if required by applicable federal or state law.
FEDERAL INCOME TAX CONSEQUENCES
The grant of a stock option under the 1998 Plan will not result in
taxable income at the time of grant for the optionee or the Company. The
optionee will not have taxable income upon exercising an incentive stock option
(except that the alternative minimum tax may apply), and the Company will
receive no deduction when an incentive stock option is exercised. Upon
exercising a non-qualified stock option, the optionee will recognize ordinary
income in the amount by which the fair market value exceeds the option price;
the Company will be entitled to a deduction for the same amount. The tax
treatment to an optionee of a disposition of shares acquired through the
exercise of an option is dependent upon the length of time the shares have been
held and on whether such shares were acquired by exercising an incentive or
non-qualified stock option. Generally, there will be no tax consequence to the
Company in connection with the disposition of shares acquired under an option
except that the Company may be entitled to a deduction in the case of a
disposition of shares under an incentive stock option before the applicable
holding periods have been satisfied.
REQUIRED VOTE FOR APPROVAL
The Board of Directors recommends a vote FOR approval of the adoption
of the 1998 Plan. The affirmative vote of a majority of the shares of Common
Stock present or represented by proxy at the meeting will constitute approval of
the adoption of the 1998 Plan.
PROPOSAL III: 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 25, 1999. 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 25, 1999.
12
<PAGE> 15
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 1998, 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.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders scheduled to be held on February 1, 2000, must be
received by the Company by August 31, 1999, 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 generally require that notice be given to the Company not
less than 60 days nor more than 90 days before the meeting; provided that if
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, then the stockholder must give such notice to
the Company within 10 days after notice of the stockholder meeting is mailed or
other public disclosure of the meeting is made. Accordingly, in order to
nominate a candidate for director or bring a proposal before the 2000 Annual
Meeting, the Company must receive notice from the stockholder between November
4, 1999 and December 4, 1999. 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. In addition, the time
limits discussed in this paragraph also apply in determining whether notice is
timely for purposes of rules adopted by the Securities and Exchange Commission
relating to the exercise of discretionary voting authority. If the date for the
2000 Annual Meeting is delayed or advanced by more than 30 calendar days, the
Company will inform stockholders of such change, and the new dates referred to
in this section, in accordance with the rules governing the solicitation of
proxies. 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.
---------------
13
<PAGE> 16
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 29, 1998
Ashland, Kentucky
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<PAGE> 17
ANNEX A
KENTUCKY ELECTRIC STEEL, INC.
1998 EMPLOYEE STOCK OPTION/RESTRICTED STOCK PLAN
SECTION 1. PURPOSES. The purposes of this 1998 Stock Option/Restricted
Stock Plan (the "Plan") are (i) to establish a means for providing incentives to
officers and other key employees of the Company (as hereinafter defined) upon
whose judgment, initiative and efforts the long-term growth and success of the
Company are largely dependent; (ii) to assist the Company in attracting and
retaining key employees of proven ability; and (iii) to increase the identity of
interests of such key employees with those of the Company's stockholders by
providing such employees with the opportunity to acquire stock of the Company.
SECTION 2. DEFINITIONS. For purposes of the Plan, the following terms
shall have the following meanings:
"Affiliate" of any specified Person means (i) any other Person
which, directly or indirectly, is in control of, is controlled by or is
under common control with such specified Person, (ii) any other Person
who is a director or officer (A) of such specified Person, (B) of any
subsidiary of such specified Person, or (C) of any Person described in
clause (i) above, or (iii) any Person in which such Person has,
directly or indirectly, a five percent or greater voting or economic
interest or the power to control. For the purposes of this definition,
"control" of a Person means the power, direct or indirect, to direct or
cause the direction of the management or policies of such Person
whether through the ownership of voting securities, or by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" means the Board of Directors of the Company.
"Change of Control" shall mean:
(i) the direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the assets of
the Company to any Person or entity or group of Persons or
entities acting in concert as a partnership or other group (a
"Group of Persons") other than a Person described in clause
(i) of the definition of Affiliate;
(ii) the consummation of any consolidation or merger
of the Company with or into another corporation with the
effect that the stockholders of the Company immediately prior
to the date of the consolidation or merger hold less than 51%
of the combined voting power of the outstanding voting
securities of the surviving entity of such merger or the
corporation resulting from such consolidation ordinarily
having the right to vote in the election of directors (apart
from rights accruing under special circumstances) immediately
after such merger or consolidation;
(iii) the stockholders of the Company shall approve
any plan or proposal for the liquidation or dissolution of the
Company;
(iv) a Person or Group of Persons acting in concert as
a partnership, limited partnership, syndicate or other group
shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have
become the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) ("Beneficial Owner") of
securities of the
<PAGE> 18
Company representing 30% or more of the combined voting power
of the then outstanding securities of the Company ordinarily
(and apart from rights accruing under special circumstances)
having the right to vote in the election of directors; or
(v) a Person or Group of Persons, together with any
Affiliates thereof, shall succeed in having a sufficient
number of its nominees elected to the Board of Directors of
the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the
Company after such election who is an Affiliate of such Person
or Group of Persons, will constitute a majority of the Board
of Directors of the Company;
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a committee of directors established by the
Board in accordance with Delaware law and the Company's By-laws to
administer the Plan, or in the absence of such a Committee, the Board.
"Company" means Kentucky Electric Steel, Inc., a Delaware
corporation; when used in the Plan with reference to employment,
"Company" includes any Subsidiary of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the average of the highest sale
price and the lowest sale price of a Share on the date the value of a
Share is to be determined, as reported on the NASDAQ System, and
published in the Wall Street Journal, or if no sale is reported for
such date, then on the next preceding date for which a sale is reported
or, if the Shares are no longer traded on the NASDAQ System, the
determination of such value shall be made by the Committee in
accordance with applicable provisions of the Code and any regulations
promulgated under the Code.
"Incentive Stock Option" means an Option granted under the
Plan or any other plan of the Company which qualifies as an incentive
stock option under Section 422 of the Code.
"Nonqualified Option" means an Option granted under the Plan
which by its terms does not qualify as an Incentive Stock Option.
"Option" means a right granted under the Plan to purchase
Shares during a specified period at a specified price.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof
or any other entity within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act.
"Restriction Period" means the period of time selected by the
Committee during which the restrictions as to Restricted Shares are to
be in effect pursuant to Section 11.
"Restricted Shares" means Shares awarded by the Committee
pursuant to Section 11 which, during the Restriction Period, are
nontransferable and subject to a substantial risk of forfeiture until
the specified conditions are satisfied.
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<PAGE> 19
"Share" or "Shares" means shares of the Company's Common
Stock, par value $.01 per share.
"Subsidiary" means any company more than 50% of the voting
stock of which is owned or controlled, directly or indirectly, by the
Company
"Tax Date" means the date as of which the amount of a
withholding tax payment with respect to the exercise of an Option or
with respect to Restricted Shares is calculated.
SECTION 3. SHARES SUBJECT TO THE PLAN. The maximum number of Shares
that may be issued and/or delivered under the Plan upon the exercise of Options
granted under the Plan or awarded under the Plan as Restricted Shares is
245,000, subject to adjustment as provided in Section 13. Such Shares may be
either authorized and unissued Shares or treasury Shares. Any Shares subject to
an Option which for any reason has terminated or expired or has been canceled
prior to being fully exercised may again be subject to option or may be awarded
as Restricted Shares under the Plan. Shares which have been surrendered to, or
withheld by, the Company to satisfy all or a portion of the option price of an
Option or a tax withholding obligation and Restricted Shares which are forfeited
prior to vesting (to the extent the recipient received any dividends or other
similar benefit with respect thereto) may not again be subject to option or be
awarded as Restricted Shares under the Plan.
SECTION 4. ADMINISTRATION. The Plan shall be administered by the
Committee, which shall have and exercise all the power and authority granted to
it under the Plan. No director shall serve as a member of the Committee if he
does not qualify as a disinterested person with respect to the Plan under Rule
16b-3 (or any successor provision) promulgated under the Exchange Act. Subject
to the provisions of the Plan, the Committee in its sole discretion, shall
determine the persons to whom, and the times at which, Options are granted and
Restricted Shares are awarded; the number of Shares to be subject to each
Option; the option price per Share; the term of each Option; and the Restriction
Period and restrictions applicable to each Restricted Share award. Subject to
the express terms of the Plan, both the Board and the Committee also may
interpret the Plan, reconcile inconsistencies in the Plan, prescribe, amend and
rescind any rules and regulations relating to the Plan either deems appropriate
and make all other determinations necessary or advisable for the administration
of the Plan, and such determinations (to the extent not revised or modified by
the Board) shall be conclusive. A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at a meeting at which
a quorum is present, or acts reduced to or approved in writing by all members of
the Committee shall be acts of the Committee.
SECTION 5. ELIGIBILITY. From time to time during the term of the Plan,
the Committee may grant one or more Options and may award Restricted Shares to
any officer or other key employee of the Company.
SECTION 6. OPTION AGREEMENTS; TERMS OF OPTIONS.
(a) The terms of each Option granted under the Plan shall be
set forth in a written stock option agreement, the form of which shall be
approved by the Committee.
(b) Unless waived or modified pursuant to Section 6(c), the
following terms and provisions shall apply to all Options granted under the
Plan:
(1) No Option may be granted at an option price which
is less than 85% of the Fair Market Value of a Share on the
date of grant; provided, however, that no Option may be
granted at an option price which is less than the Fair Market
Value of a Share on the date of grant unless such Option is
expressly granted in lieu of a reasonable amount of salary or
cash bonus, as determined by the Committee.
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<PAGE> 20
(2) No Option may be exercised more than ten years
after the date of grant.
(3) At the time an Option is granted, the Committee
may provide that the Option may be exercised in full or in
part only after the passage of a specified period or periods
of time following the date of grant or only if specified
conditions have been satisfied.
(4) Except as set forth in Sections 6(b)(5) and
6(b)(6), an Option may be exercised only if the holder thereof
has been continuously employed by the Company since the date
of grant. Whether authorized leave of absence or absence for
military or governmental service shall constitute a
termination of employment shall be determined by the
Committee, after consideration of any applicable regulations
issued under the Code.
(5) At the time an Option is granted, or at such
other time as the Committee may determine, the Committee may
provide that, if the holder of the Option ceases to be
employed by the Company for any reason (including retirement
or disability) other than death, the Option will continue to
be exercisable by the holder (to the extent it was exercisable
on the date the holder ceased to be employed) for such
additional period (not to exceed the remaining term of such
Option) after such termination of employment as the Committee
may provide.
(6) At the time an Option is granted, or at such
other time as the Committee may determine, the Committee may
provide that, if the holder of the Option dies while employed
by the Company or while entitled to the benefits of any
additional exercise period established by the Committee with
respect to such Option in accordance with Section 6(b)(5),
then the Option will continue to be exercisable (to the extent
it was exercisable on the date of death) by the person or
persons (including the holder's estate) to whom the holder's
rights with respect to such Option have passed by will or by
the laws of descent and distribution or, if permitted by
Section 10, the holder's designated beneficiary, for such
additional period after death (not to exceed the remaining
term of such Option) as the Committee may provide.
(7) At the time an Option is granted, the Committee
may provide for any restrictions or limitations on the
exercise of the Option and/or on the transferability of the
Shares issuable upon the exercise of such Option as it may
deem appropriate.
(8) At the time an Option is granted, the Committee
may specify other terms, conditions and restrictions in
addition to those set forth herein.
(c) Subject to the ten-year limitation set forth in Section
6(b)(2), the Committee may waive or modify at any time, either before or after
the granting of an Option, any condition, limitation or restriction with respect
to the exercise of such Option imposed by or pursuant to this Section 6 or in
Section 7 in such circumstances as the Committee may, in its discretion, deem
appropriate (including, without limitation, in the event of a proposed Change of
Control or other similar transaction involving the Company); provided, however,
that any such waiver or modification with respect to an outstanding Option shall
be subject to the same limitations applicable to amendments to outstanding
Options, as set forth in Section 6(e).
(d) In the event any Change of Control is authorized or
approved by either the Board or the stockholders of the Company, the Committee
may, in its sole discretion, cancel (effective upon not less than 30 days'
notice) any Option granted under the Plan. Promptly after such cancellation, the
Company
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<PAGE> 21
shall pay in cash to the holder of each canceled Option an amount equal to the
excess of the aggregate Fair Market Value on the effective date of such
cancellation of the Shares then subject to the Option (whether or not the Option
is then fully exercisable) over the aggregate option price of such Option. In
addition, the Committee shall have the authority, in its sole discretion, to
authorize the payment to the holder of an Option at any time, with the consent
of the holder, in exchange for the cancellation of all or a part of an Option,
of cash in an amount not to exceed the difference between the aggregate Fair
Market Value on the effective date of such cancellation of the Shares with
respect to which the Option is being canceled and the aggregate option price of
such Shares.
(e) Subject to the terms and provisions of the Plan, the
Committee may amend any outstanding Option; provided, however, that (i) no such
amendment may extend the maximum term during which the Option, if fully vested,
may be exercised or reduce the option price of the Option (other than to set
forth an adjustment in the option price made pursuant to Section 13) except that
the option price may be reduced or option exchanged with respect to not more
than 12,250 Shares but only for special circumstances, as determined by the
Committee, and (ii) if the amendment would adversely affect the rights of the
holder of the Option, the consent of such holder to such amendment must be
obtained.
SECTION 7. ADDITIONAL PROVISIONS APPLICABLE TO INCENTIVE STOCK
OPTIONS.
(a) The following additional terms and provisions shall apply
to all Incentive Stock Options granted under the Plan, notwithstanding any
provision of Section 6(b) to the contrary:
(1) No Incentive Stock Option may be granted at an
option price per Share which is less than the Fair Market
Value of a Share on the date of grant.
(2) No Incentive Stock Option shall be granted to an
officer or other employee who possesses directly or indirectly
(as provided in Section 425(d) of the Code) at the time of
grant more than 10% of the voting power of all classes of
capital shares of the Company, any Subsidiary or any parent of
the Company unless (i) the option price is at least 110% of
the Fair Market Value of the Shares subject to the Incentive
Stock Option on the date the Incentive Stock Option is
granted, and (ii) the Incentive Stock Option is not
exercisable after the expiration of five years from the date
of grant.
(3) The aggregate Fair Market Value (determined as of
the time an Incentive Stock Option is granted) of Shares with
respect to which Incentive Stock Options granted under the
Plan and all other plans of the Company, any Subsidiary and
any parent corporation are exercisable for the first time by
any individual in any calendar year shall not exceed $100,000,
or such other maximum amount permitted by the Code.
(4) No Incentive Stock Option may be granted after
December 11, 2008.
(b) The Committee may grant Incentive Stock Options from time
to time to employees of the Company who formerly were employed by a corporation
with which the Company or a subsidiary entered into a transaction described in
Section 424(a) of the Code in substitution for incentive stock options held by
such persons. Any Incentive Stock Options so granted shall be on such terms and
conditions as may be necessary for the grant to be treated as a substitution
under Section 424(a) of the Code. To the extent contemplated by Section 424(a)
of the Code, any Incentive Stock Options so granted need not comply with the
restrictions set forth in Section 7(a)(1) and (2) above.
SECTION 8. PROCEDURE FOR EXERCISE OF OPTIONS AND PAYMENT. The holder of
an Option granted under the Plan may exercise the Option in full or in part (but
for full Shares only) by giving written notice of
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<PAGE> 22
the exercise to the Company. The option price for the Shares purchased must be
paid in full at the time such notice is given either in cash or, if the
Committee approves, by delivery of Shares owned by the Option holder, or any
combination of cash and such already-owned Shares. An Option shall be deemed
exercised on the date the Company receives written notice of the exercise,
together with full payment for the Shares purchased. In the event already-owned
Shares are used to pay all or a portion of the option price, the amount credited
to payment of the option price shall be the Fair Market Value of the
already-owned Shares on the date the Option is exercised.
SECTION 9. TAX WITHHOLDING. With the approval of the Committee, the
holder of an Option may elect to have the Company retain from the Shares to be
issued upon the exercise of such Option a number of Shares, or may deliver to
the Company a number of other Shares, having a Fair Market Value on the Tax Date
equal to all or any part of the federal, state and local withholding tax
payments (whether mandatory or permissive) to be made on behalf of the holder
with respect to the exercise of the Option (up to a maximum amount determined by
the holder's top marginal tax rate) in lieu of making such payments in cash. The
Committee may establish from time to time rules or limitations with respect to
the exercise of the rights described in this paragraph; provided, however, that,
in any event, any such election made by a person subject to Section 16 of the
Exchange Act must be made in accordance with any applicable rules established
thereunder.
SECTION 10. NON-TRANSFERABILITY. Options may not be sold, pledged,
assigned, hypothecated or transferred by the holders other than by will or the
laws of descent and distribution (or, if permitted by applicable law and the
Code, by designation of beneficiary effective on death) or pursuant to a
qualified domestic relations order (to the extent permitted by the Code).
Options may be exercised during the lifetime of the holder only by the holder or
by the holder's legal representative. Notwithstanding the foregoing, the
Committee may, in its sole discretion, permit an optionee to transfer a
non-qualified stock option, or cause the Company to grant a non-qualified stock
option that would otherwise be granted to an eligible optionee hereunder, to any
one or more of the following: such person's descendant, spouse, dependent of a
spouse, spouse of any of the foregoing, a trust established primarily for the
benefit of any of the foregoing, or of such person, or to an entity which is a
corporation, partnership, or limited liability company (or any other similar
entity) the owners of which are primarily the aforementioned persons or trusts,
or an individual taking pursuant to a decree of divorce, child support or
separate maintenance.
SECTION 11. AWARD OF RESTRICTED SHARES.
(a) The Committee from time to time may award Restricted
Shares to any officer or other key employee of the Company. At the time
Restricted Shares are awarded, the Committee shall inform the recipient of the
making of the award and the Restriction Period and restrictions applicable
thereto, and a certificate representing the number of Restricted Shares awarded
shall be registered in the name of the recipient but shall be held by the
Company for the recipient's account. The recipient shall have the entire
beneficial ownership of, and all rights and privileges as a stockholder with
respect to, such Restricted Shares (including, without limitation, the right to
receive dividends and to vote), subject to the restrictions set forth in Section
11(b).
(b) Subject to the other provisions of this Section 11,
Restricted Shares awarded under the Plan shall be subject to all of the
following restrictions:
1. The recipient of an award of Restricted Shares
shall not be entitled to receive delivery of the certificate
for such Restricted Shares until the expiration of the
Restriction Period established by the Committee with respect
to such Restricted Shares.
2. The total Restriction Period shall be not less
than three years (with
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one-third vesting after each year); provided, however, the
Committee may establish a Restriction Period of not less than
one year if restrictions lapse based on the attainment of
performance goals.
3. Such Restricted Shares shall not be sold,
transferred, assigned, pledged or otherwise encumbered or
disposed of during the Restriction Period.
4. All such Restricted Shares shall be forfeited and
all rights of the holder to such Restricted Shares shall
terminate without further obligation on the part of the
Company if the recipient ceases to be an employee of the
Company prior to the end of the Restriction Period.
Restricted Shares may be awarded with such other restrictions and on such other
terms and conditions (including, without limitation, restrictions which lapse
based on the attainment of performance goals) as the Committee may determine.
(c) At the time Restricted Shares are awarded, the Committee
may provide that, if the holder of Restricted Shares dies or becomes disabled or
retires in accordance with the Company's normal retirement policies at the
normal retirement age prior to the expiration of the specified Restriction
Period, all restrictions imposed under Section 11(b) immediately will cease to
apply to (and all rights of the holder of the Restricted Shares immediately will
vest with respect to) all or such portion of the Restricted Shares held by such
person as the Committee determines.
(d) Notwithstanding any other provision of this Section 11,
the Committee may, if it finds that the circumstances in a particular case so
warrant, allow a holder of Restricted Shares who ceases to be employed by the
Company and who otherwise would forfeit such Restricted Shares to retain any or
all of such Restricted Shares and, thereupon, all restrictions imposed under
Section 11(b) immediately will cease to apply to (and all rights of the holder
of such Restricted Shares immediately will vest with respect to) all or such
portion of the Restricted Shares as the Committee determines.
(e) At the end of the Restriction Period with respect to
Restricted Shares awarded under the Plan, or at such earlier time as provided in
Section 6(c) or (d), all restrictions with respect to the Restricted Shares
shall lapse (and all rights of the holder of such Restricted Shares immediately
will vest), and the Company shall deliver to the holder (or the holder's
beneficiary or estate) a certificate representing the Shares that formerly were
Restricted Shares, free of all restrictions. The Company shall not be required
to deliver any fractional Share but shall pay to the holder (or his beneficiary
or estate), in lieu of delivering a fractional Share, the Fair Market Value of
such fractional Share as of the date the restrictions lapsed.
(f) With the approval of the Committee, upon the lapse of the
restrictions with respect to Restricted Shares, the holder of the Restricted
Shares may elect to have the Company retain a number of such Restricted Shares,
or may deliver other Shares to the Company, having a Fair Market Value on the
Tax Date equal to all or any part of the federal, state and local withholding
tax payments (whether mandatory or permissive) to be made on behalf of the
holder with respect to the lapse of such restrictions (up to a maximum amount
determined by the holder's top marginal tax rate) in lieu of making such
payments in cash. The Committee may establish from time to time rules or
limitations with respect to the exercise of the rights described in this
paragraph; provided, however, that, in any event, any such election made by a
person subject to Section 16 of the Exchange Act must be made in accordance with
any applicable rules established thereunder.
SECTION 12. CHANGE OF CONTROL. Unless otherwise provided in the option
agreement or in the restrictions applicable to an award of Restricted Shares,
upon the occurrence of a Change of Control, all
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<PAGE> 24
outstanding Options granted under the Plan shall become exercisable in full
(whether or not then otherwise exercisable) and all Restricted Shares shall
become vested and all restrictions with respect thereto shall lapse, effective
on the date of the Change of Control.
SECTION 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
a change in outstanding Shares by reason of a Share dividend, recapitalization,
merger, consolidation, split-up, combination or exchange of shares, or the like,
the maximum number of Shares subject to option or award as Restricted Shares
during the existence of the Plan, the number of Shares subject to each
outstanding Option, the number of Restricted Shares outstanding and the option
price of each outstanding Option shall be adjusted appropriately by the
Committee, whose determination in each case shall be conclusive. Any additional
Restricted Shares issued pursuant to an adjustment made under this Section 13
with respect to outstanding Restricted Shares shall be subject to the same
restrictions and Restriction Period as the Restricted Shares with respect to
which the additional Restricted Shares are issued.
SECTION 14. CONDITIONS UPON GRANTING OF OPTIONS AND ISSUANCE OF SHARES.
No Option shall be granted, no Shares shall be issued upon the exercise of an
Option and no Restricted Shares shall be awarded unless the grant of the Option,
the exercise of such Option, the issuance and delivery of Shares upon exercise
of the Option or the award of the Restricted Shares shall comply with or qualify
for exemption from all relevant provisions of state and federal law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated under such acts, and any requirements of
any stock exchange or other trading system upon which the Shares then may be
listed.
SECTION 15. AMENDMENT AND TERMINATION OF PLAN.
(a) The Board from time to time may amend the Plan in such
respects as the Board may deem advisable; provided, however, that any such
amendment must be approved by the holders of outstanding Shares by such vote (if
any) as may be required by, and otherwise in compliance with, applicable federal
or state law (including Rule 16b-3 (or any successor provision) under the
Exchange Act) and the requirements of any stock exchange or other trading system
upon which the Shares may then be listed.
(b) The Board may terminate the Plan at any time.
(c) Neither any amendment to the Plan nor the termination of
the Plan shall adversely affect any Option or Restricted Shares previously
granted, and all such Options shall remain in full force and effect and all such
Restricted Shares shall remain outstanding as if the Plan had not been adversely
amended or terminated.
SECTION 16. NOTICES. Each notice relating to the Plan shall be in
writing and delivered in person or by first class mail (which may, but need not,
be certified or registered mail) to the proper address. Each notice shall be
deemed to have been given on the date of actual receipt. Each notice to the
Company shall be addressed as follows: Kentucky Electric Steel, Inc., P.O. Box
3500, Ashland, Kentucky 41105. Each notice to a holder of an option or other
person then entitled to exercise an option shall be addressed to such holder or
other person at the holder's address set forth in the option. Anyone to whom a
notice may be given under this Plan may designate a new address by written
notice to the other party to that effect.
SECTION 17. PRONOUNS AND PLURALS. All pronouns shall be deemed to refer
to the masculine, feminine, singular or plural, as the identity of the person or
persons may require.
SECTION 18. BENEFITS OF PLAN. This Plan shall inure to the benefit of
and be binding upon each successor and assignee of the Company. All rights and
obligations imposed upon the holder of an Option or
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<PAGE> 25
Restricted Shares and all rights granted to the Company under this Plan shall be
binding upon such holder's heirs, legal representatives and successors.
Notwithstanding the foregoing, neither the Plan nor the grant or award of any
Option or Restricted Shares under the Plan shall confer upon any employee the
right to continued employment with the Company or affect in any way the right of
the Company to terminate the employment of an employee at any time and for any
reason.
SECTION 19. SAVING PROVISION. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or any successor rule
promulgated under the Exchange Act. To the extent any provision of the Plan or
action by the Board or the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Board or
the Committee.
SECTION 20. STOCKHOLDER APPROVAL AND TERM OF PLAN.
(a) The Plan shall become effective upon its approval by the
affirmative vote of the holders of a majority of the Shares entitled to vote
thereon held by stockholders present in person or by proxy at a stockholders'
meeting at which a quorum is present. Prior to the time such approval is
obtained, the Committee may grant Options and award Restricted Shares under the
Plan so long as: (i) no such Option will become exercisable, and the Restriction
Period with respect to no such Restricted Shares will lapse, prior to the date
of such stockholder approval, and (ii) all such Options and Restricted Shares
will terminate if such stockholder approval is not obtained within one year
after the date of the grant or award.
(b) The Plan shall expire on December 11, 2008, unless sooner
terminated in accordance with Section 15.
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<TABLE>
<S><C>
[PROXY CARD]
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
KENTUCKY ELECTRIC STEEL, INC.
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. / /
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date:
Stockholder sign here Co-owner sign here
1. Election of Directors.
CLIFFORD R. BORLAND
DAVID C. STRUVE
/ / For All Nominees / / Withhold / / For All Except
(to elect the above nominees as Directors)
NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK THE
"FOR BOTH NOMINEES EXCEPT" BOX AND STRIKE A LINE THROUGH THE NAME OF THE
NOMINEE. YOUR SHARES WILL BE VOTED FOR THE REMAINING NOMINEE.
2. To consider and vote upon approval of the adoption of the 1998 Employee Stock Option/Restricted Stock
Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratify the appointment of Arthur Andersen LLP, as independent public
accountants for fiscal 1999.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, on any other matter that may properly come before
the meeting or any adjournment thereof.
DETACH CARD DETACH CARD
</TABLE>
<PAGE> 27
KENTUCKY ELECTRIC STEEL, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 2, 1999
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 Tuesday, February 2, 1999 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, 2 AND 3.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN 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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