<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
[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 WEDNESDAY, FEBRUARY 4, 1998
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 Wednesday, February 4, 1998 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 2001 Annual Meeting of Stockholders and until their
successors are elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as
independent public accountants for the fiscal year ending
September 26, 1998; 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, 1997 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
January 2, 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
[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 WEDNESDAY, FEBRUARY 4, 1998
APPROXIMATE DATE OF MAILING: JANUARY 2, 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 Wednesday, February 4, 1998, 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, 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 26, 1998, 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 27, 1997 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> 4
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The close of business on December 12, 1997 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, 1997, there
were outstanding and entitled to vote 4,625,361 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 12, 1997, 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 ................................... 154,758 3.3%
Clifford R. Borland ................................... 1,272 (3)
Carl E. Edwards, Jr ................................... 2,419 (3)
J. Marvin Quin II ..................................... 7,409 (3)
David C. Struve ....................................... 6,276 (3)
William J. Jessie ..................................... 88,672(4) 1.9%
Joseph E. Harrison .................................... 56,942(5) 1.2%
William H. Gerak ...................................... 39,712(6) (3)
Directors and Executive Officers as a Group (8 persons) 357,460(7) 7.5% (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 11,692 restricted shares as to which Mr. Hanebuth possesses
sole voting power, but no investment power. Includes 86,303 shares
which Mr. Hanebuth had the right to acquire upon the exercise of stock
options exercisable on December 12, 1997 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 3,373 restricted shares as to which Mr. Jessie possesses sole
voting power, but no investment power. Includes 28,488 shares which Mr.
Jessie had the right to acquire upon the exercise of stock options
exercisable on December 12, 1997 or within 60 days thereafter.
(5) Includes 3,373 restricted shares as to which Mr. Harrison possesses
sole voting power, but no investment power. Includes 26,737 shares
which Mr. Harrison had the right to acquire upon the exercise of stock
options exercisable on December 12, 1997 or within 60 days thereafter.
(6) Includes 2,913 restricted shares as to which Mr. Gerak possesses sole
voting power, but no investment power. Includes 13,487 shares which Mr.
Gerak had the right to acquire upon the exercise of stock options
exercisable on December 12, 1997 or within 60 days thereafter.
(7) Includes 21,351 restricted shares and 155,015 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 12, 1997, 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. ........................ 827,000(1) 17.9%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
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
Franklin Resources, Inc. ........................ 450,000(4) 9.7%
777 Mariners Island Boulevard
San Mateo, California 94404
NS Group, Inc. .................................. 400,000(5) 8.7%
Ninth and Lowell Streets
Newport, Kentucky 41072
FMR Corp. ....................................... 277,500(6) 6.0%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
(1) Based on Amendment No. 1 to Schedule 13G dated February 12, 1997 filed
with the SEC. Heartland Advisors, Inc., an investment adviser, has sole
voting power as to 679,000 shares and sole dispositive power as to
827,000 shares.
(2) Based on Amendment No. 4 to Schedule 13G dated January 15, 1997 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. 3 to Schedule 13G dated January 21, 1997 filed
with the SEC. The State of Wisconsin Investment Board has sole voting
and dispositive power as to 450,000 shares.
(4) Based on Schedule 13F dated September 30, 1997 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.
(5) 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. 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.
(6) Based on Amendment No. 1 to Schedule 13G dated February 14, 1997 filed
with the SEC by FMR Corp. ("FMR"). Fidelity Management & Research
Company ("Fidelity"), a wholly-owned
3
<PAGE> 6
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, FMR, through its control of Fidelity, and the
Fidelity Funds, each have 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.
PROPOSAL I: ELECTION OF DIRECTORS
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 Carl E. Edwards, Jr. and
J. Marvin Quin II, whose current terms as directors expire at the 1998 Annual
Meeting, for election as directors to hold office until the 2001 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> <C>
NOMINEES FOR TERMS ENDING IN 2001
Carl E. Edwards, Jr. 56 None 1993
J. Marvin Quin II 50 None 1993
DIRECTORS WITH TERMS ENDING IN 1999
Clifford R. Borland 60 None 1993
David C. Struve 57 None 1993
DIRECTOR WITH TERM ENDING IN 2000 President and Chief
Charles C. Hanebuth 53 Executive Officer 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.
4
<PAGE> 7
NOMINEES
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 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.
The Board of Directors recommends a vote FOR the election of the
nominees 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.
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 18 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.
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 four meetings during the
fiscal year ended September 27, 1997. 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 27, 1997.
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
5
<PAGE> 8
the Company. The Compensation Committee met two times during the fiscal year
ended September 27, 1997.
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.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table presents summary information for the 1995, 1996 and
1997 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 $100,000 for the fiscal year ended September 27, 1997 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation(1)
Name and Bonus Options LTIP Payouts All Other
Principal Position Year Salary ($) ($)(2) (#) (3) ($) (4) Compensation ($)
------------------ ---- ---------- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth ......... 1997 $270,360 -- 34,521 -- $85,813(5)
President and Chief Executive 1996 270,360 -- 34,521 -- 82,278(5)
Officer ..................... 1995 246,000 $132,522 34,521 $96,646 79,975(5)
William J. Jessie ........... 1997 $126,384 -- 10,340 -- $26,190(5)
Vice President, Secretary, .. 1996 126,384 -- 10,340 -- 24,933(5)
Treasurer and Chief ......... 1995 115,000 $ 62,757 10,340 $42,084 26,518(5)
Financial Officer ...........
Joseph E. Harrison .......... 1997 $126,384 -- 10,340 -- $49,621(5)
Vice President, ............. 1996 126,384 -- 10,340 -- 46,628(5)
Sales and Marketing ......... 1995 115,000 $ 62,757 10,340 $42,084 46,606(5)
William H. Gerak ............ 1997 $109,896 -- 8,991 -- $38,443(5)
Vice President, ............. 1996 109,896 -- 8,991 -- 36,066(5)
Administration .............. 1995 100,000 $ 54,185 8,991 $36,591 36,383(5)
</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. The Compensation Committee determined
that half of bonus earnings be awarded in restricted stock in fiscal
1995, fiscal 1996 and fiscal 1997. 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 1995, were: 11,192 shares for Mr. Hanebuth; 3,373
shares for Mr. Jessie; 3,373 shares for Mr. Harrison, and 2,913 shares
for Mr. Gerak. 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 27, 1997, the value of the unvested portion of such
restricted stock grants for Messrs. Hanebuth, Jessie, Harrison and
Gerak, respectively, was $81,844, $23,611, $23,611 and $20,391. There
were no bonuses awarded in fiscal 1996 or in fiscal 1997.
(3) Information represents stock options awarded under the Company's 1993
and 1994 Employee Stock Option/Restricted Stock Plans. The options
reflected for fiscal 1997 were granted March 4, 1997, 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.
(4) Amounts listed under "LTIP Payouts" 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
7
<PAGE> 10
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. There were no loans granted in fiscal 1996 or in
fiscal 1997.
(5) 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. Charges associated with the salary continuation
benefit during fiscal 1995, 1996 and 1997, respectively, for Mr.
Hanebuth, Mr. Jessie, Mr. Harrison and Mr. Gerak were: $66,656, $70,597
and $74,852 for Mr. Hanebuth; $20,637, $22,288 and $24,071 for Mr.
Jessie; $40,725, $43,982 and $47,502 for Mr. Harrison; and $31,265,
$33,766 and $36,467 for Mr. Gerak. As of September 27, 1997, Mr.
Hanebuth's salary continuation benefits, payable at age 62, have been
vested by the Board of Directors as follows: 68% of his pre-age 85
benefit and 75% of his post-age 85 benefit. As of September 27, 1997,
salary continuation benefits for other officers, payable at age 62,
have been 60% 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
1995, 1996 and 1997. The Company made the following contributions to
the profit sharing plan in fiscal 1995: $4,920 on behalf of 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, 1996 and
1997, respectively, was $2,376, $5,658 and $4,938 for Mr. Hanebuth;
$1,099, $2,645 and $2,119 for Mr. Jessie; $1,099, $2,645 and $2,119 for
Mr. Harrison; and $966, $2,300 and $1,976 for Mr. Gerak.
8
<PAGE> 11
The following tables present certain additional information concerning
stock options granted to the named executive officers during fiscal 1997. No
stock options were exercised by the named executive officers during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
Individual Grants at Assumed Annual Rates
---------------------------------------------------------- of Stock Price Appreciation
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%
------------ -------------- ------------ -------------- --------------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth 34,521 38.7% $5.5625 3/4/07 $120,737 $306,115
William J. Jessie 10,340 11.6% $5.5625 3/4/07 $36,164 $91,690
Joseph E. Harrison 10,340 11.6% $5.5625 3/4/07 $36,164 $91,690
William H. Gerak 8,991 10.1% $5.5625 3/4/07 $31,446 $79,728
</TABLE>
(1) The amounts shown under these columns are the result of calculations at
5% and 10% rates over the ten year term of the options as required by
the Securities and Exchange Commission and are not intended to forecast
future appreciation of the stock price of the Company's Common Stock.
The actual value, if any, an executive officer may realize will depend
on the excess of the stock price over the exercise price on the date
the option is exercised.
(2) These options were granted as of March 4, 1997 in connection with the
Compensation Committee's review of compensation for fiscal 1997 and one
fourth of each option becomes exercisable each year beginning March 4,
1998.
(3) The exercise price for these options is equal to the market price of
the Company's Common Stock on March 4, 1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options Options at
at September 27, 1997(#) September 27, 1997($) (1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles C. Hanebuth 86,303 86,302 0 $49,624
William J. Jessie 28,488 26,729 0 $14,864
Joseph E. Harrison 26,737 26,145 0 $14,864
William H. Gerak 13,487 22,477 0 $12,925
</TABLE>
(1) Based on the market value of the Company's Common Stock on September 27,
1997.
9
<PAGE> 12
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.
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 1997:
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 1997 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 1997 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
10
<PAGE> 13
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
1997 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 1997 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 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' 1997 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 March, 1997, 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, 1997 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.
[GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
------- ------- ------- ------- -------
S&P 500 Index 100 104 135 162 227
S&P 500 Steel Index 100 129 91 90 105
Kentucky Electric Steel, Inc. 100 93 77 59 59
</TABLE>
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 26, 1998. 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 26, 1998.
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<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 1997, 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 1999 Annual
Meeting of Stockholders scheduled to be held on February 3, 1999, must be
received by the Company by September 3, 1998, 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
January 2, 1998
Ashland, Kentucky
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<PAGE> 16
KENTUCKY ELECTRIC STEEL, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 4, 1998
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 Wednesday, February 4, 1998 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 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.
<TABLE>
<CAPTION>
<S> <C>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
PLEASE MARK VOTES
[X] AS IN THIS EXAMPLE
================================== 1. Election of Directors
KENTUCKY ELECTRIC STEEL, INC. FOR ALL WITH- FOR ALL
================================== CARL E. EDWARDS, JR. NOMINEES HOLD EXCEPT
J. MARVIN QUIN, II [ ] [ ] [ ]
(to elect the above nominees as Directors)
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name of the nominee.
FOR AGAINST ABSTAIN
RECORD DATE SHARES: 2. Ratify the appointment of Arthur Andersen [ ] [ ] [ ]
LLP, as independent public accountants for
fiscal 1998.
3. In their discrection, 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. [ ]
Please be sure to sign and date this Proxy. Date
- ----------------------------------------------------- Mark box at right if an address change or comment has been noted on [ ]
the reverse side of this card.
- ----Stockholder sign here------Co-owner sign here----
</TABLE>
