FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to
_____________________.
Commission File No. 0-22416
KENTUCKY ELECTRIC STEEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 61-1244541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
P. O. Box 3500, Ashland, Kentucky 41105-3500
(Address of principal executive office, Zip Code)
(606) 929-1222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES x NO
The number of shares outstanding of each of the issuer's classes of
common stock, as of August 6, 1999, is as follows:
4,067,143 shares of voting common stock, par value $.01 per
share.
<PAGE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets ............ 3
Condensed Consolidated Statements of Operations .. 4
Condensed Consolidated Statements of Cash Flows .. 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 9-13
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ................. 14
SIGNATURES ...................................... 15
<PAGE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 26, Sept. 26,
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 141 $ 150
Accounts receivable, less allowance for doubtful
accounts and claims of $442 at June 26, 1999
and $460 at September 26, 1998 13,578 12,037
Inventories 20,151 20,363
Operating supplies and other current assets 5,523 5,206
Deferred tax assets 796 648
Total current assets 40,189 38,404
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 4,607 4,532
Machinery and equipment 43,078 42,004
Construction in progress 4,252 3,031
Less - accumulated depreciation (17,384) (14,772)
Net property, plant and equipment 34,553 34,795
DEFERRED TAX ASSETS 5,418 5,990
OTHER ASSETS 1,204 1,062
Total assets $ 81,364 $ 80,251
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Advances on line of credit $ 12,326 $ 11,397
Accounts payable 8,618 7,056
Capital expenditures payable 375 857
Accrued liabilities 3,722 3,834
Environmental liabilities - 982
Current portion of long-term debt 125 125
---- --
Total current liabilities 25,166 24,251
LONG-TERM DEBT 20,000 20,000
OTHER LIABILITIES 1,093 808
Total liabilities 46,259 45,059
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued - -
Common stock, $.01 par value, 15,000,000
shares authorized, 4,999,724 and 4,985,937
share issued, respectively 50 50
Additional paid-in capital 15,715 15,671
Less treasury stock - 932,581 and 526,996
shares at cost, respectively (4,272) (3,254)
Deferred compensation (40) (73)
Retained earnings 23,652 22,798
Total shareholders' equity 35,105 35,192
Total liabilities and shareholders' equity $ 81,364 $ 80,251
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES $ 27,421 $ 27,751 $ 78,997 $ 83,381
COST OF GOODS SOLD 23,710 24,294 71,250 74,161
Gross profit 3,711 3,457 7,747 9,220
SELLING AND ADMINISTRATIVE
EXPENSES 2,229 1,832 5,862 5,421
Operating income 1,482 1,625 1,885 3,799
INTEREST INCOME AND OTHER 1,147 20 1,197 44
INTEREST EXPENSE (584) (594) (1,704) (1,816)
Income before income taxes 2,045 1,051 1,378 2,027
PROVISION FOR INCOME
TAXES 776 399 524 771
Net income $ 1,269 $ 652 $ 854 $ 1,256
NET INCOME PER COMMON SHARE
- BASIC AND DILUTED $ .31 $ .14 $ .21 $ .27
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 4,064,920 4,626,375 4,090,817 4,626,264
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 4,064,920 4,630,192 4,092,949 4,632,513
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
June 26, June 27,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 854 $ 1,256
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 2,688 2,741
Change in deferred taxes 572 1,023
Change in other 100 (114)
Change in current assets and current
liabilities:
Accounts receivable (1,541) (2,035)
Insurance claim receivable - 900
Inventories 212 (5,067)
Operating supplies and other
current assets (317) (179)
Refundable income taxes - 900
Deferred tax assets (148) (82)
Accounts payable 1,562 1,623
Accrued liabilities (112) (323)
Environmental liabilities (982) -
Net cash flows from operating activities 2,888 643
Cash Flows From Investing Activities:
Capital expenditures (2,370) (2,042)
Change in capital expenditures payable (482) 282
Net cash flows from investing activities (2,852) (1,760)
Cash Flows From Financing Activities:
Net advances on line of credit 929 1,128
Purchases of treasury stock (1,018) (37)
Issuance of common stock 44 35
Net cash flows from financing activities (45) 1,126
Net increase (decrease) in cash
and cash equivalents (9) 9
Cash and Cash Equivalents at Beginning of Period 150 127
Cash and Cash Equivalents at End of Period $ 141 $ 136
Interest Paid, net of amount capitalized $ 2,082 $ 2,181
Income Taxes Paid $ 100 $ 50
<FN>
See notes to condensed consolidated financial statements
</TABLE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements represent Kentucky Electric Steel, Inc. and its
wholly-owned subsidiary, KESI Finance Company, (collectively the
Company). All significant intercompany accounts and transactions
have been eliminated. These statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results
for the three-month and nine-month periods ended June 26, 1999,
are not necessarily indicative of the results that may be
expected for the year ending September 25, 1999. For further
information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for
the year ended September 26, 1998.
(2) Accounting Policies
Fiscal Year End
The Company's fiscal year ends on the last Saturday of
September.
Property, Plant, Equipment and Depreciation
Property, plant and equipment is recorded at cost, less
accumulated depreciation. For financial reporting purposes,
depreciation is provided on the straight-line method over the
estimated useful lives of the assets, generally 3 to 12 years for
machinery and equipment and 15 to 30 years for buildings and
improvements. Depreciation for income tax purposes is computed
using accelerated methods. Expenditures for maintenance and
repairs are charged to expense as incurred. Expenditures for
equipment renewals which extend the useful life of any asset are
capitalized.
Comprehensive Income
In June 1997, the Financial accounting Standards Board
issued Statement of Financial Accounting Standards No. 130 (SFAS
No. 130), "Reporting Comprehensive Income", which established
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. The Company adopted
SFAS No. 130 in the quarter ended December 26, 1998. For the
periods disclosed, comprehensive income is equal to net income
reported.
(3) Inventories
Inventories at June 26, 1999 and September 26, 1998 consist
of the following ($000's):
<TABLE> June 26, Sept. 26,
1999 1998
<S> <C> <C>
Raw materials $ 2,133 $ 1,984
Semi-finished and finished goods 18,018 18,379
Total inventories $ 20,151 $ 20,363
</TABLE>
(4) Earnings Per Share
Statement of Financial Accounting Standards No. 128 (SFAS
No. 128) related to earnings per share requires dual presentation
of basic and diluted E.P.S. on the face of the income statement
for all entities with complex capital structures. The Company
adopted SFAS No. 128 during the first quarter of fiscal 1998. The
following is the reconciliation of the numerators and
denominators of the basic and diluted earnings per share
computations.
<TABLE>
For the Three For the Three
Months Ended Months Ended
June 26, 1999 June 27, 1998
Per Per
Share Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Amounts for Basic
Earnings Per Share $1,269 4,064,920 $.31 $ 652 4,626,375 $ .14
Effect of Dilutive
Securities Options - - - - 3,817 -
Amounts for Diluted
Earnings Per Share $1,269 4,064,920 $.31 $ 652 4,630,192 $ .14
For the Nine For the Nine
Months Ended Months Ended
June 26, 1999 June 27, 1998
Per Per
Share Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Amounts for Basic
Earnings Per Share $ 854 4,090,817 $.21 $ 1,256 4,626,264 $ .27
Effect of Dilutive
Securities Options - 2,132 - - 6,249 -
Amounts for Diluted
Earnings Per Share $ 854 4,092,949 $.21 $ 1,256 4,632,513 $ .27
</TABLE>
The following options, outstanding at the end of the
respective periods, were not included in the computation of
diluted earnings per share because to do so would have been
antidilutive for the applicable period:
<TABLE>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
Options June 26, 1999 June 27, 1998 June 26, 1999 June 27, 1998
<S> <C> <C> <C> <C>
Transition stock 57,524 137,016 57,524 137,016
Employee stock 469,860 301,976 378,668 301,976
</TABLE>
(5) Environmental Liabilities
The Company's melt shop operations were shut down for twelve
days during the third quarter of fiscal 1997 in order to
decontaminate its baghouse facilities after detection of a
radioactive substance in the baghouse dust, a by-product of the
melting process.
The $1.0 million in environmental liabilities recorded as a
current liability on the balance sheet at September 26, 1998,
represents final payment due an environmental services company
for treatment and disposal of the contaminated baghouse dust.
Payment for the disposal occurred during the third quarter of
fiscal 1999.
(6) Commitments and Contingencies
The Company has various commitments for the purchase of
materials, supplies and energy arising in the ordinary course of
business.
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of
business with respect to commercial, product liability and other
matters, which seek remedies or damages. The Company believes
that any liability that may ultimately be determined will not
have a material effect on its financial position or results of
operations.
The Company generates both hazardous wastes and non-
hazardous wastes which are subject to various governmental
regulations. Estimated costs to be incurred in connection with
environmental matters are accrued when the prospect of incurring
costs for testing or remedial action is deemed probable. The
Company is not aware of any material asserted or unasserted
environmental claims against the Company and no accruals for such
matters have been recorded in the accompanying balance sheets
except as disclosed in Note 5. However, discovery of unknown
conditions could result in the recording of accruals in the
periods in which they become known.
(7) Claim Settlement
The fiscal 1999 third quarter and nine month periods include
other income of $1.1 million for a claim settlement pertaining to
the Company's purchase of electrodes during the years 1992 to
1997.
<PAGE>
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. The Company manufactures special bar quality alloy
and carbon steel bar flats to precise customer specifications for
sale in a variety of niche markets. Its primary markets are
manufacturers of leaf-spring suspensions and flat bed truck
trailers, cold drawn bar converters, and steel service centers.
Net Sales. Net sales decreased $.4 million (1.2%) in the
third quarter of fiscal 1999 to $27.4 million as compared to
$27.8 million for the third quarter of fiscal 1998. The decrease
in sales for the third quarter is due to a decrease in the
average selling price offset by higher shipments. The average
selling price per ton was down 7.5% for the third quarter of
fiscal 1999 as compared to the third quarter of fiscal 1998.
Tons shipped increased 6.8%, from 60,400 in the third quarter of
fiscal 1998 to 64,500 in the third quarter of fiscal 1999.
Net sales for the nine months ended June 26, 1999 decreased
$4.4 million (5.3%) to $79.0 million, as compared to $83.4
million for the nine months ended June 27, 1998. The decrease in
sales is attributed to a decrease in the average selling price
and a decrease in shipments. The average selling price per ton
decreased 4.3% for the first nine months of fiscal 1999 from the
comparable period of fiscal 1998. Shipments for the first nine
months of fiscal 1999 were 181,800 tons down 1.0% from the
comparable period of fiscal 1998. The decrease in average
selling price for the third quarter and the first nine months of
fiscal 1999 is primarily attributable to market price reductions.
Cost of Goods Sold. Cost of goods sold decreased $.6
million (2.4%) in the third quarter of fiscal 1999 to $23.7
million, as compared to $24.3 million for the third quarter of
fiscal 1998. As a percentage of net sales, cost of goods sold
decreased from 87.5% for the third quarter of fiscal 1998 to
86.5% for the third quarter of fiscal 1999. The decrease in cost
of goods sold is primarily due to lower manufacturing costs
offset by a 6.8% increase in tons shipped. The per ton cost of
shipments in the third quarter of fiscal 1999 was significantly
lower than in the third quarter of fiscal 1998 reflecting lower
scrap prices.
Cost of goods sold for the nine months ended June 26, 1999
decreased $2.9 million (3.9%) to $71.3 million as compared to
$74.2 million for the nine months ended June 26, 1998. As a
percentage of net sales, cost of goods sold increased from 88.9%
for the nine months ended June 26, 1998 to 90.2% for the nine
months ended June 26, 1999. The decrease in cost of goods sold
reflects the decrease in shipments and a decrease in the per ton
cost of tons shipped. The decrease in the per ton cost of tons
shipped during the first nine months of fiscal 1999 as compared
to the first nine months of fiscal 1998 resulted from lower scrap
prices offset by higher conversion costs due to lower production
in the first two quarters of fiscal 1999.
Gross Profit. As a result of the above, gross profit for the
third quarter of fiscal 1999 increased by $.2 million (7.3%) to
$3.7 million from $3.5 million for the third fiscal quarter of
1998. As a percentage of net sales, gross profit increased from
12.5% for the third quarter of fiscal 1998 to 13.5% for the third
quarter of fiscal 1999.
As a result of the above, gross profit for the nine months
ended June 26, 1999 decreased by $1.5 million (16.0%) to $7.7
million as compared to $9.2 million for the nine months ended
June 27, 1998. As a percentage of net sales, gross profit
decreased from 11.1% for the first nine months of fiscal 1998 to
9.8% for the first nine months of fiscal 1999.
Selling and Administrative Expenses. Selling and
administrative expenses include salaries and benefits, corporate
overhead, insurance, sales commissions and other expenses
incurred in the executive, sales and marketing, shipping,
personnel, and other administrative departments. Selling and
administrative expenses increased by approximately $397,000 and
$441,000 for the three months and nine months ended June 26,
1999, as compared to the same periods in fiscal 1998. As a
percentage of net sales, such expenses increased from 6.6% for
the third quarter of fiscal 1998 to 8.1% for the third quarter of
fiscal 1999, and from 6.5% for the nine months ended June 27,
1998 to 7.4% for the nine months ended June 26, 1999. The
increase in selling and administrative expenses is due primarily
to an increase in legal and professional fees and self-insured
health care costs incurred during the third fiscal quarter of
1999. The increase in legal and professional fees is primarily
due to legal and consulting fees related to the Company's
electric service contract and a pending trade case with the
Department of Commerce.
Operating Income. For the reasons described above,
operating income decreased $143,000 from $1.6 million in the
third quarter of fiscal 1998 to $1.5 million in the third quarter
of fiscal 1999. As a percentage of net sales, operating income
decreased from 5.9% in the third quarter of 1998 to 5.4% in the
third quarter of 1999.
Similarly, operating income decreased $1.9 million from $3.8
million for the first nine months of fiscal 1998 to $1.9 million
for the nine months ended June 26, 1999. As a percentage of net
sales, operating income decreased from 4.6% for the nine months
ended June 27, 1998 to 2.4% for the nine months ended June 26,
1999.
Interest Income and Other. Interest and other income
increased by $1.1 million for the three months ended June 26,
1999 from $20,000 for the third quarter of fiscal 1998 to
$1,147,000 for the third quarter of fiscal 1999. Interest and
other income increased by $1.2 million for the nine months ended
June 26, 1999 from $44,000 for the nine months ended June 27,
1998 to $1.2 million for the nine months ended June 26, 1999.
The fiscal 1999 third quarter and nine month periods include
other income of $1.1 million for a claim settlement pertaining to
the Company's purchase of electrodes during the years 1992 to
1997.
Interest Expense. Interest expense decreased by $10,000 for
the three months ended June 26, 1999 from $594,000 for the third
quarter of fiscal 1998 to $584,000 for the third quarter of
fiscal 1999. Interest expense decreased by $112,000 for the nine
months ended June 26, 1999 from $1.8 million for the nine months
ended June 27, 1998 to $1.7 million for the nine months ended
June 26, 1999. The decrease in interest expense for the third
quarter is primarily due to a decrease in the interest rate on
the Company's line of credit. The decrease in interest expense
for the first nine months of fiscal 1999 is due to a decrease in
the average amount outstanding as well as a decrease in the
interest rate on the Company's line of credit.
Net Income. As a result of the above, net income increased
$617,000 from $652,000 for the third quarter of fiscal 1998 to
$1,269,000 for the third quarter of fiscal 1999.
As a result of the above, net income decreased $402,000 from
$1,256,000 for the first nine months of fiscal 1998 to $854,000
for the first nine months of fiscal 1999.
Liquidity and Capital Resources
The cash flows provided by operating activities were $2.9
million for the first nine months of fiscal 1999 as compared to
$.6 million for the first nine months of fiscal 1998. The first
nine months of fiscal 1999 reflect the profitable operations of
$.9 million, $2.7 million in depreciation and amortization, an
increase of $1.5 million in accounts receivable, an increase of
$1.6 million in accounts payable and a decrease of $1.0 in
environmental liabilities. The first nine months of fiscal 1998
reflect the profitable operations of $1.3 million, $2.7 million
in depreciation and amortization, an increase in accounts
receivable of $2.0 million, an increase in inventories of $5.1
million and an increase of $1.6 million in accounts payable.
The cash flows used by investing activities were $2.9
million for the first nine months of fiscal 1999 as compared to
$1.8 million for the first nine months of fiscal 1998. The cash
flows used by investing activities for the first nine months of
fiscal 1999 consist of $2.4 million in capital expenditures and a
reduction in capital expenditures payable of $.5 million. The
cash flows used by investing activities for the first nine months
of fiscal 1998 consist of capital expenditures of $2.1 million
offset somewhat by an increase in capital expenditures payable of
$.3 million.
The cash flows used in financing activities were $45,000 for
the first nine months of fiscal 1999 as compared to cash flows
provided of $1.1 million for the first nine months of fiscal
1998. The cash flows used in financing activities for the first
nine months of fiscal 1999 reflect net advances of $.9 million on
the Company's line of credit which were used primarily for
capital expenditures as discussed above and $1.0 million used for
the purchase of treasury stock. The cash flows provided from
financing activities for the first nine months of fiscal 1998
reflect net advances of $1.1 million on the Company's line of
credit, which were used primarily for capital expenditures.
Working capital at June 26, 1999 was $15.0 million as
compared to $14.2 million at June 27, 1998, and the current ratio
was 1.6 to 1.0 at the end of both periods.
The Company's primary ongoing cash requirements are for
current capital expenditures. The two sources for the Company's
liquidity are internally generated funds and its bank credit
facility. The Company has $12.3 million in borrowings
outstanding on its line of credit as of June 26, 1999. The
Company believes that the unused portion of its $24.5 million
bank credit facility and internally generated funds will be
sufficient to fund its ongoing cash needs.
Year 2000 Compliance
The following Year 2000 discussion is provided in response
to the Securities and Exchange Commission's recent interpretative
statement expressing its view that public companies should
include detailed discussion of Year 2000 issues in their MD&A.
The Company is currently assessing the issues confronting it
related to the "Year 2000 problem", which is the result of the
inability of many computer systems and electronic equipment to
distinguish the year 2000 from the year 1900. The Company is
following an organized program to assure the Company's
information technology systems and related infrastructure will be
Year 2000 compliant. The Company has divided its Year 2000
issues into three areas including: computer hardware and
software business systems, manufacturing process control devices
and related systems, and facility support systems. The Company's
Year 2000 program includes three phases: (1) an audit and
assessment phase designed to identify Year 2000 issues; (2) a
modification phase designed to correct Year 2000 issues (this
phase includes testing of individual modifications as they are
installed); and (3) a testing phase to test entire systems for
Year 2000 compliance after individual modifications have been
installed and tested.
The Company has completed the audit and assessment phase for
all areas of its Year 2000 program. The Company has completed the
modification and testing phases for its computer hardware and
software business systems, and has substantially completed these
phases for the facility support systems and the manufacturing
process control devices and related systems. After all
modifications have been made, final testing of the system will
continue throughout 1999.
Management has estimated that the cost for correction of
Year 2000 issues, including any software and hardware changes and
the cost of personnel involved in working on the project, will be
approximately $260,000. The Company estimates that 80% of the
total cost has been spent to date. The Year 2000 updates are
being funded out of funds generated from operations and account
for less than 30% of the Company's information technology budget.
The Company's Year 2000 program includes investigation of
the Year 2000 readiness status of our major vendors and
customers. The Company is using letters, questionnaires and
protocols to determine its vendors' and customers' Year 2000
readiness. The Company has contacted all major vendors including
energy and scrap suppliers and external service providers
including banks, insurance companies, and phone service providers
to determine their Year 2000 status. If any such vendor
indicates that they will not be Year 2000 compliant, the Company
will develop contingency plans to address the issue, which may
include identifying and developing other vendors. The readiness
of these third parties will continue to be evaluated throughout
1999.
Although management does not believe that it will be
necessary, the Company has begun efforts to develop a contingency
plan in the event it experiences Year 2000 related problems. The
plan will rely on manual processes and low technology to operate
the Company's facilities until the affected systems are repaired.
Outlook
Management continues to believe that demand for our products
is strong in our major markets as exhibited by our current
bookings. Also, while the Company experienced price reductions in
the first half of fiscal 1999, current prices are stable in most
of our markets.
Quantitative and Qualitative Disclosure About Market Risk
Management does not believe that there is any material
market risk exposure with respect to derivative or other
financial instruments that would require disclosure under this
item.
Forward-Looking Statements
The matters discussed or incorporated by reference in this
Report on Form 10-Q that are forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995)
involve risks and uncertainities. These risks and uncertainities
include, but are not limited to, reliance on the truck and
utility vehicle industry; excess industry capacity; product
demand and industry pricing; volatility of raw material costs,
especially steel scrap; intense foreign and domestic competition;
management's estimate of niche market data; the cyclical and
capital intensive nature of the industry; and cost of compliance
with environmental regulations. These risks and uncertainities
could cause actual results of the Company to differ materially
from those projected or implied by such forward-looking
statements.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A) Exhibits
3.1 Certificate of Incorporation of Kentucky
Electric Steel, Inc., filed as Exhibit 3.1
to Registrant's Registration Statements on
Form S-1 (No. 33-67140), and incorporated
by reference herein.
3.2 By-Laws of Kentucky Electric Steel, Inc.,
filed as Exhibit 3.2 to Registrant's
Registration Statement on Form S-1 (No. 33-
67140), and incorporated by reference
herein.
10.8 The Kentucky Electric Steel, Inc. Salary
Continuation Plan, effective June 7, 1994,
for the benefit of the Company's eligible
salaried employees, as amended, filed
herewith.
10.9 The Kentucky Electric Steel, Inc. Executive
Severance Plan, effective June 7, 1994, for
the benefit of the Company's eligible
Executive Officers, as amended, filed
herewith.
10.10 Employment agreements dated June 7, 1994,
between Kentucky Electric Steel, Inc. and
its four Executive Officers, as amended,
filed herewith.
10.18 The Kentucky Electric Steel, Inc. 1999
Share Plan for Non-Employee Directors dated
May 6, 1999, filed herewith.
27 Financial Data Schedule
B) Reports on Form 8-K - None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DATED: August 6, 1999 KENTUCKY ELECTRIC STEEL, INC.
(Registrant)
William J. Jessie
William J. Jessie, Vice President,
Secretary, Treasurer, and
Principal Financial Officer
<PAGE>
KENTUCKY ELECTRIC STEEL, INC.
SALARY CONTINUATION PLAN
The Kentucky Electric Steel, Inc. Salary Continuation Plan
(the "Plan"), effective June 7, 1994, is an employee benefit plan which
provides eligible salaried employees of Kentucky Electric Steel, Inc.
and its majority-owned subsidiaries (collectively referred to herein as
the "Company") with certain severance benefits if the individual's
employment with the Company is terminated under defined circumstances
after a "change in control of the Company." The details and purpose of
the Plan are more fully explained below.
SECTION 1. PURPOSE
The purpose of the Plan is to reduce employee concerns
about the possibility of a "change in control of the Company." It is
important that each employee is able to focus his or her full attention
and energy toward the goals and objectives of the Company. The Plan is
also designed to permit the Company to retain its high quality work
force by increasing stability and improving morale and productivity.
In addition, the Plan will allow the Company to attract and retain new
qualified employees.
SECTION 2. ADMINISTRATION
Kentucky Electric Steel, Inc. ("KESI") shall be the Plan
administrator and shall administer the Plan. Any determinations by the
Vice President, Administration in carrying out, administering, or
interpreting this Plan shall be final and binding for all purposes and
upon all interested persons and their heirs, successors, and personal
representatives. All costs associated with the Plan shall be borne by
the Company.
SECTION 3. ELIGIBILITY
An employee who is classified on the records of the Company
as a regular, full-time salaried employee, whether exempt or nonexempt
as specified in the Fair Labor Standards Act, as from time to time
amended, (excluding hourly employees; employees covered by collective
bargaining agreements; employees of subsidiaries, entities, or
partnerships in which the Company has a 50% or less ownership interest;
and international employees, except foreign nationals who are located
in Canada or those who are U.S. expatriates) will be entitled to
participate in the Plan, regardless of length of service. Employees
who have entered into employment contracts with the Company will not be
eligible to participate in the Plan.
At any time prior to a "change in control of the Company"
as defined in Section 4(b), KESI reserves, in its complete discretion,
the right to amend the eligible classes of employees.
SECTION 4. CONDITIONS FOR BENEFIT PAYMENTS
(a) A participant shall not be entitled to receive
benefits under this Plan prior to a "change in control of the Company,"
as hereinafter defined. Participation in the Plan does not create a
contract of employment between the Company and its employees. The
Company reserves the right to terminate employees at any time for any
reason, just as employees have the right to terminate their employment
at any time for any reason.
(b) The term "change in control of the Company" shall
mean (i) the consummation of (A) any consolidation or merger of the
Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock
would be converted into cash, securities or other property, other than
a merger of the Company in which the holders of the Company's Common
Stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease, exchange or
transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company, or (ii) the
approval by the shareholders of the Company of any plan or proposal for
the liquidation or dissolution of the Company, other than in connection
with a bankruptcy or reorganization proceeding of the Company under
applicable federal or state bankruptcy laws, or (iii) any "person" (as
such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the
Company or a subsidiary thereof or any employee benefit plan sponsored
by the Company or a subsidiary thereof, becoming the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities
of the Company representing 20% or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote in
the election of directors, as a result of a tender or exchange offer,
open market purchases, privately-negotiated purchases or otherwise, or
(iv) at any time during a period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Company ceasing for any reason to constitute at
least a majority thereof, unless the election or the nomination for
election by the Company's shareholders of each new director during such
two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such two-year period.
(c) Benefits shall be payable to a participant under the
Plan after a "change in control of the Company" has occurred if a
participant's employment is terminated by the Company without "cause"
within two (2) years from the date of the "change in control of the
Company." For purposes of the Plan, "cause" shall mean (i) the wilful
and continued failure of an employee to substantially perform his or
her duties with the Company (other than such failure resulting from the
employee's incapacity due to physical or mental illness), or (ii)
wilful engaging by an employee in gross misconduct materially injurious
to the Company.
SECTION 5. AMOUNT OF BENEFITS
Following a "change in control of the Company" and a
participant's termination of employment within two (2) years thereafter
without "cause," a participant shall be entitled to receive benefits
under the Plan as described below:
(a) A participant shall be entitled to be paid in an
undiscounted lump sum, within ten (10) business days after such
participant's termination of employment without "cause," an amount
equal to a specified portion of his or her current base compensation
(excluding any bonus compensation) based upon such participant's
aggregate years and months of service (whether or not continuous) with
the Company as follows:
Length of Service Payment
Up to 5 full years 3 months' base compensation
More than 5 and up to 10 full years 6 months' base compensation
More than 10 and up to 15 full years 1 year's base compensation
More than 15 and up to 20 full years 1-1/2 year's base compensation
More than 20 full years 2 years' base compensation
For the purpose of this Plan a participant's years and
months of service shall include all periods of employment at the
Company's plant in Boyd County, Kentucky, regardless of whether the
Company was the owner of the plant during the period of employment.
(b) At the sole expense of the Company, a participant
shall be entitled to the continuation of his or her medical, dental,
and group life benefits in effect at the time of such participant's
termination of employment without "cause" for a period of six (6)
months following such participant's termination of employment.
(c) A participant shall be reimbursed for any legal fees
or expenses incurred by the participant to enforce the payment of Plan
benefits within (10) business days of providing copies of applicable
invoices to the Company.
(d) A participant shall be entitled to interest on the
amount of any payments due under the Plan (but not timely paid) in an
amount equivalent to the prime rate of interest (quoted by Citibank,
N.A. as its prime commercial lending rate) on the latest date
practicable prior to the date such payments should have been made, to
and including the date it is made.
(e) Within ten (10) business days of the participant's
termination of employment following a "change in control of the
Company," the Company shall provide, at no cost to the participant,
individual outside assistance in finding other employment. Such
obligation may be fulfilled by the Company through the retention of an
outplacement service for use by individual participants.
(f) Participants shall be entitled to receive any
pension, disability, workers' compensation, other Company benefit plan
distribution, payment for vacation accrued but not taken, statutory
employment termination benefit, or any other compensation plan payment
otherwise independently due; however, in no event shall a participant
who receives benefit under this Plan be entitled to additional
severance payment pursuant to any other existing severance policy of
the Company.
SECTION 6. ACCEPTANCE OF BENEFITS
If a participant receives and accepts all of the benefits
provided under Section 5 of the Plan, he or she shall be deemed
thereby to have waived any right or cause of action against the Company
and its directors, officers, or employees arising from the termination
of the participant's employment.
SECTION 7. CLAIMS PROCEDURE
(a) Following a "change in control of the Company" and a
participant's termination of employment, the benefits described in
Section 5 of the Plan shall be paid as described therein without any
required action on the part of such participant.
(b) If any participant believes that he or she is
entitled to benefits provided under the Plan and has not received such
benefits within the time prescribed by the Plan, such participant may
submit a written claim for payment of such benefits to the Company. If
such claim for benefits is wholly or partially denied, the Company,
shall, within thirty (30) business days after receipt of the claim,
notify the participant of the denial of the claim. Such notice of
denial (i) shall be in writing, (ii) shall be written in a manner
calculated to be understood by the participant, and (iii) shall contain
(A) the specific reason or reasons for denial of the claim, (B) a
specific reference to the pertinent Plan provisions upon which the
denial is based, (C) a description of any additional material or
information necessary to perfect the claim, along with an explanation
of why such material or information is necessary, and (D) an
explanation of the claim review procedure, in accordance with the
provisions of this Section 7.
(c) Within sixty (60) business days after the receipt by
the participant of a written notice of denial of the claim, or such
later time as shall be deemed reasonable taking into account the nature
of the benefit subject to the claim and any other attendant
circumstances, the participant may file a written request with the
Company that it conduct a full and fair review of the denial of the
claim for benefits. As a part of such full and fair review, the
participant (or such participant's duly authorized representative) may
review and photocopy pertinent documents (including but not limited to
the participant's personal history file) and subject issues and
comments to the Company in writing. The Company shall make its
determination in accordance with the documents governing the Plan
insofar as such documents are consistent with the provisions of the
Employee Retirement Income Security Act of 1974.
The Company shall promptly deliver to the participant its
written decision on the claim (in no event later than thirty (30)
business days after the receipt of the aforesaid request for review,
except that if there are special circumstances (such as a conference
with the participant or his or her representative) which require an
extension of time, the aforesaid thirty (30) business day period shall
be extended to a reasonable period of time not to exceed sixty (60)
business days). Such decision shall (i) be written in a manner
calculated to be understood by the participant, (ii) include the
specific reason or reasons for the decision, and (iii) contain a
specific reference to the pertinent Plan provisions upon which the
decision is based. If the decision on review is not furnished within
the time prescribed by this Section 7(c), the claim shall be deemed
granted on review.
SECTION 8. AMENDMENTS AND TERMINATIONS
KESI's Board of Directors shall have plenary authority to
terminate, modify, or amend this Plan in such respects as it shall deem
advisable at any time prior to a "change in control of the Company" as
defined in Section 4(b).
SECTION 9. SUCCESSORS BINDING AGREEMENT
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
by agreement in form and substance satisfactory to eligible
participants, expressly to assume and agree to provide benefits
pursuant to this Plan in the same manner and to the same extent that
the Company would be required to perform its obligations under the Plan
if no such succession had taken place. Failure of the Company to
obtain such agreement prior to the effectiveness of any such succession
shall be a violation of this Plan and shall entitle eligible
participants to compensation from the Company in the same amount and on
the same terms as the participant would be entitled pursuant to Section
5, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date of
the participant's termination of employment without "cause." As used
in this Plan, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 9 or
which otherwise becomes bound by all the terms and provision of this
Plan by operation of law.
(ii) This Plan shall inure to the benefit of and be
enforceable by a participant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees,
and legatees. If a participant should die while any amounts would
still be payable to him or her hereunder if he or she had continued to
live, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Plan to such participant's
devisee, legatee, or other designee or, if there be no such designee,
to his or her estate.
SECTION 10. WITHHOLDING TAXES
The Company is authorized to withhold any tax required to
be withheld from the amounts payable to a participant pursuant to this
Plan which are considered taxable compensation to the participant.
SECTION 11. GOVERNING LAW
The Plan shall be governed by the laws of the Commonwealth
of Kentucky.
IN WITNESS WHEREOF, the Plan is adopted and effective
immediately on the day and year first above written.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth 6/7/94
AMENDMENT TO KENTUCKY ELECTRIC
STEEL, INC. SALARY CONTINUATION PLAN
WHEREAS, Kentucky Electric Steel, Inc. ("Company") adopted
the Kentucky Electric Steel, Inc. Salary Continuation Plan ("Plan") for
the benefit of eligible employees; and
WHEREAS, the Company retained the right to amend the Plan
pursuant to Section 8 thereof; and
WHEREAS, the Company desires to amend the Plan to change the
definition of the term "Change of Control":
NOW, THEREFORE, effective as of May 6, 1999, the Plan is amended
as follows:
1. Section 4(b) is deleted and replace with the following:
(b) The term "change in control of the Company" shall
mean (i) the consummation of (A) any consolidation or merger of the
Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock
would be converted into cash, securities or other property, other than
a merger of the Company in which the holders of the Company's Common
Stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease, exchange or
transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company, or (ii) the
approval by the shareholders of the Company of any plan or proposal for
the liquidation or dissolution of the Company, other than in connection
with a bankruptcy or reorganization proceeding of the Company under
applicable federal or state bankruptcy laws, or (iii) any "person" (as
such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the
Company or a subsidiary thereof or any employee benefit plan sponsored
by the Company or a subsidiary thereof, becoming the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities
of the Company representing 25% or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote in
the election of directors, as a result of a tender or exchange offer,
open market purchases, privately-negotiated purchases or otherwise, or
(iv) at any time during a period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Company ceasing for any reason to constitute at
least a majority thereof, unless the election or the nomination for
election by the Company's shareholders of each new director during such
two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such two-year period.
IN WITNESS WHEREOF, this Amendment is adopted and
effective immediately on the day and year first above written.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth 5/19/99
KENTUCKY ELECTRIC STEEL, INC.
EXECUTIVE SEVERANCE PLAN
The Kentucky Electric Steel, Inc. Executive Severance Plan
(the "Plan"), effective June 7, 1994, is a Plan which provides eligible
Executives of Kentucky Electric Steel, Inc. (the "Company") with
certain benefits if the individual's employment with the Company is
terminated under defined circumstances. The details and purpose of the
Plan are more fully explained below.
Section 1. PURPOSE
The purpose of the Plan is to reduce an Executive's
concerns about the disruption of income and certain benefits due to the
possibility of unexpected job loss in the event of a termination of
employment, without cause (as defined as any termination of employment
other than for death, disability, retirement or for "Cause"), by the
Company. It is important that each Executive be able to focus his or
her full attention and energy toward the goals and objectives of the
Company at all times without such concern.
Section 2. ADMINISTRATION
Kentucky Electric Steel, Inc. shall be the Plan
Administrator. Any determinations made by the President and CEO and/or
the Board of Directors of the Company in carrying out, administering,
or interpreting this Plan shall be final and binding for all purposes
and upon all interested persons and their heirs, successors, and
personal representatives. All costs associated with the Plan shall be
borne by the Company.
Section 3. ELIGIBILITY
Executives in the following positions are eligible for
coverage under the Plan:
President and Chief Executive Officer
Vice President, Administration
Vice President, Secretary, Treasurer and Chief
Financial Officer
Vice President, Sales and Marketing
Section 4. CONDITIONS FOR BENEFIT PAYMENTS
An Executive shall be eligible for benefits under this Plan
if his or her employment is terminated by the Company for any reason
other than for death, disability, retirement, resignation or for
"Cause," but only as long as the Executive complies with the covenants
under Sections 6 and 7. For the purpose of this Plan, "Cause" shall
mean (i) an act or acts of dishonesty on the Executive's part which are
intended to result in the Executive's substantial personal enrichment
at the expense of the Company or (ii) any material violation by the
Elective and his duties or responsibilities which is demonstrably
willful and deliberate on the Executive's part and which results in
material injury to the Company.
Section 5. AMOUNT OF BENEFITS
A. In return for the Executive's covenants under
Sections 6 and 7, he shall be entitled to be paid on a continuing
basis, at the intervals already established by the Company, an amount
equal to his or her regular base salary at the time of severance from
the Company, for the Relevant Number of Years (as defined in Section 6)
following his or her termination of employment.
B. The Executive shall be eligible to receive a Prorata
Share of any incentive bonus plan compensation earned but not yet paid.
"Prorata Share" shall be equal to a fraction, the numerator of which is
the number of days of the bonus period in question the Executive worked
as an active employee of the Company and in denominator of which is the
actual number of days in the bonus period in question. The payment of
any Prorata Share will be made after the end of the bonus period when
the incentive bonus payment would normally be made to Executive had his
or her employment continued.
C. At the sole expense of the Company, the Executive
shall be entitled to the continuation of his or her medical, dental,
group life insurance and Long Term Disability insurance benefits for
the earlier of (i) twelve (12) months following participant's
termination of employment of (ii) until receipt of equivalent benefits
from a new employer.
D. Pay an amount equal to the value of all vacation
earned but not used by the Executive.
E. The Executive shall be reimbursed for reasonable
legal fees or expense incurred by the Executive to successfully enforce
the payment of Plan benefits within ten (10) business days of providing
copies of applicable invoices to the Company.
F. Within ten (10) business days of the Executive's
termination of employment, without "Cause," the Company shall provide,
at no cost to the participant, individual outside assistance in finding
other employment. Such obligation may be fulfilled by the Company
through the retention of an executive outplacement service for use by
the participant.
Section 6. COVENANT NOT TO COMPETE AND CONSULTATION
A. For the Relevant Number of Years (as defined below)
after the termination of the Executive's employment hereunder for any
reason, the Executive shall not engage or attempt to engage on his own
behalf or on behalf of a third party, in any "Competitive Activity" and
shall make himself available for reasonable consultation services with
the Company. The term "Competitive Activity" shall mean participation
by the Executive, without the written consent of the Board of Directors
of the Company, in the management of any business operation of any
enterprise if such operation (a "Competitive Operation") engages in
substantial and direct competition with any business operation activity
conducted by the Company or its subsidiaries at the time of the
termination of the Executive's employment. A business operation shall
be considered a Competitive Operation if such business operation's
sales of any product or service competitive with any product or service
of the Company amounts to thirty percent (30%) of that business
operation's total sales and if the Company's sales of said product or
service of its comparable business operation amounts to thirty percent
(30%) of the Company's total sales. "Competitive Activity" shall not
include (i) the mere ownership of securities in any enterprise, or (ii)
participation in the management of any enterprise or any business
operation thereof other than in connection with a Competitive Operation
of such enterprise. Without limiting the generality of the foregoing,
Competitive Activity shall include becoming employed by or associated
with, Stelco-McMaster Ltd., Slater Steels or Atlantic Steel Industries,
Inc.
The term "Relevant Number of Years" shall be determined as
follows:
For the: Relevant Number of Years
President and 3
Chief Executive Officer
Vice President, Administration 2
Vice President, Secretary,
Treasury and Chief Financial Officer 2
Vice President, Sales and Marketing 2
B. If the restrictions set forth in the preceding
paragraph or any part thereof should, for any reason whatsoever, be
declared invalid by a court of competent jurisdiction, the validity or
enforceability of the remainder of such restriction shall not thereby
be adversely affected. By accepting severance payment, the Executive
agrees that the foregoing territorial and time limitations are
reasonable and properly required for the adequate protection of the
business of the Company and that in the event that any such territorial
or time limitation is deemed to be unreasonable by a court of competent
jurisdiction, then the Executive also agrees and submits to the
reduction of either said territorial or time limitation to such an area
or period as said court shall deem reasonable. In the event that the
Executive shall be in violation of the aforementioned restrictive
covenants, then the time limitation thereof shall be extended for a
period of time equal to the period of time during which such breach or
breaches should occur.
Section 7. CONFIDENTIAL INFORMATION
The Executive agrees, by acceptance of the benefits
provided in Section 5 hereof, to protect all confidential information
concerning the business activities of the Company which were acquired
in connection with or as a result of the performance of service for the
Company.
Section 8. CLAIMS PROCEDURE
A. If any participant believes that he or she is
entitled to benefits provided under the Plan and has not received such
benefits within the time prescribed by the Plan, such participant may
submit a written claim for payment of such benefits to the Company. If
such claim for benefits is wholly or partially denied, the Company
shall within thirty (30) business days after receipt of the claim,
notify the participant of the denial of the claim. Such notice of
denial (i) shall be in writing, (ii) shall be written in a manner
calculated to be understood by the participant, and (iii) shall contain
(a) the specific reason or reasons for denial of the claim, (b) a
specific reference to the pertinent Plan provisions upon which the
denial is based, (c) a description of any additional material or
information necessary to perfect the claim, along with an explanation
of why such material or information is necessary, and (d) an
explanation of the claim review procedure, in accordance with the
provisions of this Section 8.
B. Within sixty (60) business days after the receipt by
the participant of a written notice of denial of the claim, or such
later time as shall be deemed reasonable taking into account the nature
of the benefit subject to the claim and any other attendant
circumstances, the participant may file a written request with the
Company that it conduct a full and fair review of the denial of the
claim for benefits. As a part of such full and fair review, the
participant (or such participant's duly authorized representative) may
review and photocopy pertinent documents (including but not limited to
the participant's personal history file) and submit issues and comments
to the Company in writing. The Company shall make its determination in
accordance with the documents governing the Plan insofar as such
documents are consistent with the provisions of the Employee Retirement
Income Security Act of 1974 (herein "ERISA").
The Company shall promptly deliver to the participant its
written decision on the claim (in no event later than thirty (30)
business days after the receipt of the aforementioned request for
review, except that if there are special circumstances (such as a
conference with the participant or his or her representative) which
require an extension of time, the aforementioned thirty (30) business
day period shall be extended to a reasonable period of time not to
exceed sixty (60) business days). Such decision shall (i) be written
in a manner calculated to be understood by the participant, (ii)
include the specific reason or reasons for the decision, and (iii)
contain a specific reference to the pertinent Plan provisions upon
which the decision is based. If the decision on review is not
furnished within the time prescribed by this Section 8, the claim shall
be deemed granted on review.
Section 9. AMENDMENTS AND TERMINATION
The right is reserved by the Board of Directors of the
Company to amend or terminate the Plan; however, no such amendment or
termination shall be made after a Change of Control or in connection
with negotiations with a third party resulting in a Change of Control.
The term "Change of Control" shall mean (i) the consummation of (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders
of the Company's Common Stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, or
(ii) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, other than
in connection with a bankruptcy or reorganization proceeding of the
Company under applicable federal or state bankruptcy laws, or (iii) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than the Company or a subsidiary thereof or any employee benefit plan
sponsored by the Company or a subsidiary thereof, becoming the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities
ordinarily (and apart from rights accruing in special circumstances)
having the right to vote in the election of directors, as a result of a
tender or exchange offer, open market purchases, privately-negotiated
purchases or otherwise, or (iv) at any time during a period of two (2)
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company ceasing for any
reason to constitute at least a majority thereof, unless the election
or the nomination for election by the Company's shareholders of each
new director during such two-year period was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of such two-year period. Unless there has
been a Change of Control or unless there are negotiations relating to a
possible Change of Control, the Plan shall terminate one (1) year after
its adoption unless the Board of Directors of the Company extends it
prior thereto.
Section 10. RIGHTS UNDER OTHER PLANS AND POLICIES
The benefits payable hereunder are in addition to any other
benefits to which the participant may be entitled to under any other
plan or contract with the Company.
Section 11. NO MITIGATION REQUIRED
Executive shall not be required to mitigate the amount
provided for in Section 5 hereof by seeking other employment or
otherwise, nor shall the amount of any payment provided for in Section
5 hereof be reduced by any compensation earned by Executive as the
result of employment by another employer after the date of Termination,
or otherwise.
Section 12. SUCCESSORS BINDING AGREEMENT
A. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
by agreement in form and substance satisfactory to eligible
participants, expressly to assume and agree to provide benefits
pursuant to this Plan in the same manner and to the same extent that
the Company would be required to perform its obligations under the Plan
if no such succession had taken place. Failure of the Company to
obtain such an agreement prior to the effectiveness of any such
succession shall be a violation of this Plan and shall entitle eligible
participants to compensation from the company in the same amount and on
the same terms as the participant would be entitled pursuant to Section
5, except that for the purpose of implementing the foregoing, the date
on which any succession becomes effective shall be deemed the date of
the participant's termination of employment without "Cause."
B. This Plan shall inure to the benefits of and be
enforceable by a participant's personal or legal representatives,
executors, successors, administrators, heirs, distributees, devisees,
and legatees. If a participant should die while any amounts would
still be payable to him or her hereunder if he or she had continued to
live, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Plan to such participant's
devisee, legatee, or other designee or, if there be so such designee,
to his or her estate.
Section 13. WITHHOLDING TAXES
The Company is authorized to withhold any tax required to
be withheld from the amounts payable to a participant pursuant to this
Plan which are considered taxable compensation to the participant.
Section 14. LAWS
This Plan shall be governed by the laws of the State of
Kentucky.
Section 15. NOTICE
All notices under this Agreement shall be made in writing
and shall be duly sent if sent by registered mail or certified mail to
the respective parties' address shown hereinabove or such other address
as the parties may hereafter designate in writing for such purpose.
Section 16. CAPTIONS AND TITLES
Captions and titles have been used in this Agreement only
for convenience, and in no way define, limit or describe the meaning of
this Agreement or any part thereof.
IN WITNESS WHEREOF, the Plan is adopted and effective
immediately on the day and year first above written.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth 6/7/94
AMENDMENT TO KENTUCKY ELECTRIC
STEEL, INC. EXECUTIVE SEVERANCE PLAN
WHEREAS, Kentucky Electric Steel, Inc. ("Company") adopted the
Kentucky Electric Steel, Inc. Executive Severance Plan ("Plan) for the
benefit of eligible employees; and
WHEREAS, the Company retained the right to amend the Plan
pursuant to Section 9 thereof; and
WHEREAS, the Company desires to amend the Plan to change the
definition of the term "Change of Control":
NOW, THEREFORE, effective as of May 6, 1999, the Plan is amended
as follows:
1. Section 9 is deleted and replace with the following:
The right is reserved by the Board of Directors of the
Company to amend or terminate the Plan; however, no such amendment or
termination shall be made after a Change of Control or in connection
with negotiations with a third party resulting in a Change of Control.
The term "Change of Control" shall mean (i) the consummation of (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders
of the Company's Common Stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, or
(ii) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, other than
in connection with a bankruptcy or reorganization proceeding of the
Company under applicable federal or state bankruptcy laws, or (iii) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than the Company or a subsidiary thereof or any employee benefit plan
sponsored by the Company or a subsidiary thereof, becoming the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities
ordinarily (and apart from rights accruing in special circumstances)
having the right to vote in the election of directors, as a result of a
tender or exchange offer, open market purchases, privately-negotiated
purchases or otherwise, or (iv) at any time during a period of two (2)
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company ceasing for any
reason to constitute at least a majority thereof, unless the election
or the nomination for election by the Company's shareholders of each
new director during such two-year period was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of such two-year period. Unless there has
been a Change of Control or unless there are negotiations relating to a
possible Change of Control, the Plan shall terminate one (1) year after
its adoption unless the Board of Directors of the Company extends it
prior thereto.
IN WITNESS WHEREOF, this Amendment is adopted and
effective immediately on the day and year first above written.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth 5/19/97
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of September, 1998 by
and between Kentucky Electric Steel, Inc., with its principal office in
Ashland, Kentucky (the "Company"), and Charles C. Hanebuth, residing at
4720 Southern Hills Drive, Ashland, Kentucky 41102 (hereinafter called
the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive executed an
Employment Agreement effective as of June 7, 1994 ("Agreement"); and
WHEREAS, the parties desire to amend and restate the
Agreement to define the term "Change of Control" as if included in the
original Agreement;
NOW, THEREFORE, the Agreement is amended and restated in
its entirety to read as follows:
I. Employment Duties and Term
A. Beginning on the Commencement Date (as
hereinafter defined) the Company agrees to employ the Executive at not
lower than the office held on the Commencement Date and the Executive
agrees to faithfully and to the best of his ability discharge the
responsibilities of said office and perform such duties and services of
an executive, administrative and managerial nature as shall be
specified and designated from time to time by the Board of Directors of
the Company in connection with the business and activities of the
Company. The Executive's duties and responsibilities shall be those
normally associated modified from time to time following the
Commencement Date by the Board of Directors, but there shall be no
significant change in his duties, position, title, job responsibility
and authority, office facilities, support staff, growth potential and
opportunity, or job location without his specific written agreement.
The Executive agrees that during the Employment Period (as
defined in Section I, B hereof), he shall devote substantially all his
professional time and effort to the performance of his duties hereunder
except for (i) time spent in managing his personal investments and
services on corporate, civic or charitable boards or committees, in
each case not significantly interfering with the performance of such
duties, and (ii) periods of vacation and sick leave to which he is
entitled. Furthermore, the Executive agrees that during the Employment
Period, he shall refrain from engaging on his own behalf or on behalf
of a third party, including without limitation, any customer or
supplier of the Company, in any line of activities or business in which
he knows or has reason to know that the Company is or is considering
becoming engaged during the Employment Period or in any related
activities or business without the express written consent of the Board
of Directors of the Company.
B. The term of the Executive's employment under this
Agreement (the "Employment Period") shall commence on the effective
date of a Change of Control (as hereinafter defined) ("Commencement
Date") and shall be for an initial period commencing on the
Commencement Date and ending on the third anniversary hereof (the
"Initial Term"), plus all Renewal Periods, if applicable. After the
Initial Term, this Agreement shall be automatically renewed for
subsequent three (3) year periods (each such three (3) year period
being referred to herein as a "Renewal Period") unless, no later than
(i) one (1) year prior to the expiration of the Initial Term, or, (ii)
if during a Renewal Period, one (1) year prior to the expiration of
such Renewal Period, either party gives written notice of cancellation
to the other party. After timely notice of cancellation has been given
as required above, the Employment Period shall continue until the
expiration of the Initial Term or the then current Renewal Period, as
applicable, and the term "Termination Date," as used herein, shall be
the last day of the Initial Term, or such Renewal Period, as
applicable.
The provisions of this Agreement shall not apply if, for
any reason (other than as set forth in the following sentence), the
Executive is not employed by the Company on the Commencement Date. The
provisions of this Agreement shall apply in the event the Executive's
employment is terminated prior to, but in connection with, a Change of
Control, by the Company's Board of Directors in the exercise of its
fiduciary duties as part of a negotiation with a third party that
requires such termination of employment as a condition of consummating
a transaction resulting in a Change of Control.
II. Compensation and Termination
A. During the Employment Period, the Company shall
pay to the Executive, and the Executive agrees to accept as
compensation for his services hereunder, a base annual salary in the
amount of not less than the level in effect on the Commencement Date,
payable in the manner and at the times the Company pays its senior
executives. Such base annual salary shall be increased on each
anniversary of the Commencement Date by an amount not less than that
which is substantially similar, on a percentage basis, to the average
percentage increase in base salary for all corporate officers of the
Company during the preceding twelve (12) months. "Base Salary" at any
time shall mean the Executive's base annual salary as adjusted by the
Board of Directors and as in effect at the time in question.
In addition to his Base Salary, the Executive shall be
entitled to participate in and receive compensation pursuant to the
Company's Incentive Bonus Plan, the Company's 1993 Incentive Stock
Option Plan and all other benefit, bonus and stock plans that now exist
or as may exist in the future (collectively, the "Benefit Plans").
B. In the event the Company terminates Executive's
employment Without Cause (as defined in this Section II B below), the
Company's obligation to pay Executive the compensation set forth herein
shall nevertheless continue until the Termination Date. For the
purposes of this Agreement, a termination "Without Cause" shall mean a
termination by the Company for any reason other than for Cause (as
defined in Section II C hereof) or Disability, and the Executive's
employment with the Company shall be deemed terminated Without Cause by
the Company in the event of a termination resulting from a change in
duties, position, title, job responsibility and authority, office
facilities, support staff, growth potential and opportunity,
compensation, job location, or senior management of the Company which,
in the reasonable judgement of the Executive, would have a material
adverse impact on the Executive or the nature of work performed by the
Executive, or which would require him to change the location of his
residence to avoid a commuting distance greater than the greater of (i)
his commuting distance prior to the change and (ii) thirty (30) miles.
C. In the event that the Company terminates the
Executive's employment under this Agreement for "Cause" (as hereinafter
defined), except as provided in Section III, the Executive shall cease
to receive compensation as of the date of termination of his
employment. For the purpose of this Agreement, "Cause" shall mean (i)
an act or acts of dishonesty on the Executive's part which are intended
to result in the Executive's substantial personal enrichment at the
expense of the Company or (ii) any gross misconduct by the Executive in
the performance of his duties or responsibilities set forth in
Section I hereof which is demonstrably willful and deliberate on the
Executive's part and which results in material injury to the Company
after written demand to cease such misconduct by the Board of Directors
of the Company is delivered to the Executive. "Cause" shall not
include any mistake of fact or opinion made in good faith with respect
to the Company's business.
III. Change of Control
A. 1. In the event of a Change of Control (as
hereinafter defined) which causes this Agreement to commence, Executive
may terminate his employment hereunder at any time during the period
commencing six (6) months following the Change of Control and ending
thirty-six (36) months following the Change of Control. If (a) the
Executive shall terminate his employment during such period for any
reason other than death or Disability, (b) the Company shall terminate
the Executive's employment during the Change of Control Period (as
hereinafter defined) for any reason, or (c) the Executive terminates
his employment during the first six (6) months of the Change of Control
Period for Good Reason as hereinafter defined, the Company shall pay to
the Executive upon such termination of employment, in a single lump
cash sum, an amount equal to One Dollar ($1.00) less than 300% of
Employee's Base Amount as hereinafter defined. Such payment shall be
in lieu of further Base Salary payments under Section II except as
otherwise provided in Section II-B. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement shall relieve the
Company of its obligation of providing the Executive with all benefits
in accordance with the terms of the Benefit Plans in which the
Executive participates.
2. In addition to the foregoing, if requested by
the Executive, the Company will purchase the Executive's principal
residence at any time requested by the Executive within a period of two
(2) years following termination of employment; provided, however, that
the purchase price of the residence shall be the fair market value of
such residence as established by the average of appraisals submitted by
three (3) independent appraisers mutually selected by the Executive and
the Company.
B. 1. The term "Good Reason" shall mean the failure
of the Company to comply with the following requirement: During the
Change of Control Period, (i) the Executive's Base Salary, position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held or
exercised by or assigned to the Executive at any time during the 90-day
period immediately preceding the date of the Change of Control and (ii)
Executive's services shall be performed at the location where Executive
was employed immediately preceding the date of the Change of Control.
2. The term "Base Amount" shall mean Executive's average
annual compensation from the Company (as reported on Form W-2) for the
five consecutive calendar years (or such lesser period as constitutes
Executive's total years of employment with the Company) ending with the
calendar year immediately preceding the Change of Control.
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
4. The term "Change of Control Period" shall mean the
period beginning on the date of the Change of Control and ending
thirty-six (36) months thereafter.
C. Notwithstanding anything else contained herein, if
the aggregate of the payments to be made under this Agreement as a
result of a Change of Control, either alone or together with other
payments to which the Executive is entitled from the Company, would
constitute an "excess parachute payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code")), such total
payments shall be reduced to the largest amount as will result in no
portion of the payments made hereunder being subject to the excise tax
imposed by Section 4999 of the Code or being disallowed as a deduction
by the Company under Section 280G of the Code. The determination of
any reduction in payments hereunder pursuant to the foregoing
provisions shall be made by the Executive in good faith after
consultation with the Company, and such determination shall be
conclusive and binding on the Company. The Company shall cooperate in
good faith with the Executive in making such determination and
providing the necessary information for this purpose.
IV. Executive's Rights Under Certain Plans and Policies
The Company agrees that the benefits provided to the
Executive herein are not in lieu of any rights and privileges to which
the Executive may be entitled as an employee of the Company under
retirement, pension, special salary continuation plan, disability, life
insurance, hospitalization, vacation, business expense reimbursement or
other plan or policy which may now or hereafter be in effect, it being
understood that the Executive shall have no less than the same rights
and privileges to participate in such plans, policies or benefits as
any other employee of the Company.
V. Covenant Not to Compete and Consultation
A. For the period of two (2) years after the termination
of the Executive's employment hereunder for any reason, the Executive
shall not engage or attempt to engage on his own behalf or on behalf of
a third party, in any "Competitive Activity". The term "Competitive
Activity" shall mean participation by the Executive, without the
written consent of the Board of Directors of the Company, in the
management of any business operation of any enterprise if such
operation (a "Competitive Operation") engages in substantial and direct
competition with any business operation activity conducted by the
Company or its subsidiaries at the time of the termination of the
Executive's employment. A business operation shall be considered a
Competitive Operation if such business operation's sales of any product
or service competitive with any product or service of the Company
amounts to thirty percent (30%) of that business operation's total
sales and if the Company's sales of said product or service of its
comparable business operation amounts to thirty percent (30%) of the
Company's total sales. "Competitive Activity" shall not include (i)
the mere ownership of securities in any enterprise, or (ii)
participation in the management of any enterprise or any business
operation thereof other than in connection with a Competitive Operation
of such enterprise. Without limiting the generality of the foregoing,
Competitive Activity shall include becoming employed by or associated
with, Stelco-McMaster Ltd., Slater Steels or Atlantic Steel Industries,
Inc. In addition, the Executive shall make himself available for
reasonable consultation services with the Company for three (3) years
after termination of employment.
B. If the restrictions set forth in the preceding
paragraph or any part thereof should, for any reason whatsoever, be
declared invalid by a court of competent jurisdiction, the validity or
enforceability of the remainder of such restriction shall not thereby
be adversely affected. The Executive agrees that the foregoing
territorial and time limitations are reasonable and properly required
for the adequate protection of the business of the Company and that in
the event that any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, then the Executive
agrees and submits to the reduction of either said territorial or time
limitation to such an area or period as said court shall deem
reasonable. In the event that the Executive shall be in violation of
the aforementioned restrictive covenants, then the time limitation
thereof shall be extended for a period of time equal to the period of
time during which such breach or breaches should occur.
VI. Confidential Information
The Executive agrees to receive Confidential Information
(as defined in this Section VI below) of the Company in confidence, and
not to disclose to others, assist others in the application of, or use
for his own gain, such information, or any part thereof, unless and
until it has become public knowledge or has come into the possession of
such other or others by legal and equitable means, except in the
ordinary course of the Company's business, without the express written
consent of the Board of Directors of the Company. The Executive
further agrees that, upon termination of his employment with the
Company, all documents, records, notebooks and similar repositories
containing Confidential Information, including copies thereof, then in
the Executive's possession, whether prepared by him or others, shall be
left with the Company. For the purpose of this Agreement,
"Confidential Information" means information disclosed to the Executive
or known by the Company, not generally known in the industry in which
the Company is or may become engaged, about the Company's products,
processes or services.
VII. Remedy for Violation of Noncompetition and
Confidential Information Agreements
The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed were the Executive to
breach or threaten to breach the provisions of Section V or VI hereof,
and, therefore, agrees that the Company shall be entitled to injunctive
relief to prevent any breach or threatened breach of Section V or VI
hereof, and to specific performance of the terms of each such sections
in addition to any other legal or equitable remedy it may have. The
Executive further agrees that he shall not, in any equity proceeding
involving him relating to the enforcement of Section V or VI hereof,
raise the defense that the Company has an adequate remedy at law.
Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have
or any other rights that it may have under any other agreement.
VIII. Indemnification for Expense
If litigation or other judicial or arbitrative proceedings
shall be brought to enforce or interpret any provision contained
herein, the Company, to the extent permitted by applicable law and the
Company's Certificate of Incorporation and By-laws as in effect on the
date hereof, hereby indemnifies the Executive for his reasonable
expenses (including without limitation, attorneys' fees and
disbursements) incurred in connection with such proceeding. If so
requested by the Executive, the Company shall pay to the Executive an
amount equal to any and all such expenses within five (5) business days
after the Executive's written request, which request shall be supported
by reasonably adequate documentation.
IX. Successors
A. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon
the Company, its successors and assigns, including without limitation,
any person, partnership or corporation which may acquire all or
substantially all of the Company's assets and business, or with or into
which the Company may be consolidated or merged. Any and all
references to the Company in this Agreement shall be deemed to mean and
include any successor or assignee.
B. This Agreement shall also inure to the benefit
of and be binding on the Executive and his legal representatives, but
being a contract for personal services, cannot be assigned by
Executive.
X. Severability
In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement
shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.
XI. Applicable Law
The construction and interpretation of this Agreement
shall be governed by the laws of the State of Kentucky applicable to
agreements made and to be performed within Kentucky, without regard to
Kentucky's conflict of laws rules.
XII. No Mitigation Required
The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made
under any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the
Company's obligations to make the payments and arrangements required to
be made under this Agreement.
XIII. Notice
All notices under this Agreement shall be made in
writing and shall be duly sent if sent by registered mail or certified
mail to the respective parties' address shown hereinabove or such other
address as the parties may hereafter designate in writing for such
purpose.
XIV. Captions and Titles
Captions and titles have been used in this Agreement
only for convenience, and in no way define, limit or describe the
meaning of this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties have signed this Agreement
on this 1st day of September, 1998 effective as if adopted on
June 7, 1994.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ William J. Jessie
/s/ Charles C. Hanebuth
/s/ William H. Gerak
WITNESS
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of September, 1998 by
and between Kentucky Electric Steel, Inc., with its principal office in
Ashland, Kentucky (the "Company"), and William J. Jessie, residing at
2150 Hilton Ave., Ashland, Kentucky 41101 (hereinafter called the
"Executive").
WITNESSETH
WHEREAS, the Company and the Executive executed an
Employment Agreement effective as of June 7, 1994 ("Agreement"); and
WHEREAS, the parties desire to amend and restate the
Agreement to define the term "Change of Control" as if included in the
original Agreement;
NOW, THEREFORE, the Agreement is amended and restated in
its entirety to read as follows:
I. Employment Duties and Term
A. Beginning on the Commencement Date (as
hereinafter defined) the Company agrees to employ the Executive at not
lower than the office held on the Commencement Date and the Executive
agrees to faithfully and to the best of his ability discharge the
responsibilities of said office and perform such duties and services of
an executive, administrative and managerial nature as shall be
specified and designated from time to time by the Board of Directors of
the Company in connection with the business and activities of the
Company. The Executive's duties and responsibilities shall be those
normally associated modified from time to time following the
Commencement Date by the Board of Directors, but there shall be no
significant change in his duties, position, title, job responsibility
and authority, office facilities, support staff, growth potential and
opportunity, or job location without his specific written agreement.
The Executive agrees that during the Employment Period (as
defined in Section I, B hereof), he shall devote substantially all his
professional time and effort to the performance of his duties hereunder
except for (i) time spent in managing his personal investments and
services on corporate, civic or charitable boards or committees, in
each case not significantly interfering with the performance of such
duties, and (ii) periods of vacation and sick leave to which he is
entitled. Furthermore, the Executive agrees that during the Employment
Period, he shall refrain from engaging on his own behalf or on behalf
of a third party, including without limitation, any customer or
supplier of the Company, in any line of activities or business in which
he knows or has reason to know that the Company is or is considering
becoming engaged during the Employment Period or in any related
activities or business without the express written consent of the Board
of Directors of the Company.
B. The term of the Executive's employment under this
Agreement (the "Employment Period") shall commence on the effective
date of a Change of Control (as hereinafter defined) ("Commencement
Date") and shall be for an initial period commencing on the
Commencement Date and ending on the third anniversary hereof (the
"Initial Term"), plus all Renewal Periods, if applicable. After the
Initial Term, this Agreement shall be automatically renewed for
subsequent three (3) year periods (each such three (3) year period
being referred to herein as a "Renewal Period") unless, no later than
(i) one (1) year prior to the expiration of the Initial Term, or, (ii)
if during a Renewal Period, one (1) year prior to the expiration of
such Renewal Period, either party gives written notice of cancellation
to the other party. After timely notice of cancellation has been given
as required above, the Employment Period shall continue until the
expiration of the Initial Term or the then current Renewal Period, as
applicable, and the term "Termination Date," as used herein, shall be
the last day of the Initial Term, or such Renewal Period, as
applicable.
The provisions of this Agreement shall not apply if, for
any reason (other than as set forth in the following sentence), the
Executive is not employed by the Company on the Commencement Date. The
provisions of this Agreement shall apply in the event the Executive's
employment is terminated prior to, but in connection with, a Change of
Control, by the Company's Board of Directors in the exercise of its
fiduciary duties as part of a negotiation with a third party that
requires such termination of employment as a condition of consummating
a transaction resulting in a Change of Control.
II. Compensation and Termination
A. During the Employment Period, the Company shall
pay to the Executive, and the Executive agrees to accept as
compensation for his services hereunder, a base annual salary in the
amount of not less than the level in effect on the Commencement Date,
payable in the manner and at the times the Company pays its senior
executives. Such base annual salary shall be increased on each
anniversary of the Commencement Date by an amount not less than that
which is substantially similar, on a percentage basis, to the average
percentage increase in base salary for all corporate officers of the
Company during the preceding twelve (12) months. "Base Salary" at any
time shall mean the Executive's base annual salary as adjusted by the
Board of Directors and as in effect at the time in question.
In addition to his Base Salary, the Executive shall be
entitled to participate in and receive compensation pursuant to the
Company's Incentive Bonus Plan, the Company's 1993 Incentive Stock
Option Plan and all other benefit, bonus and stock plans that now exist
or as may exist in the future (collectively, the "Benefit Plans").
B. In the event the Company terminates Executive's
employment Without Cause (as defined in this Section II B below), the
Company's obligation to pay Executive the compensation set forth herein
shall nevertheless continue until the Termination Date. For the
purposes of this Agreement, a termination "Without Cause" shall mean a
termination by the Company for any reason other than for Cause (as
defined in Section II C hereof) or Disability, and the Executive's
employment with the Company shall be deemed terminated Without Cause by
the Company in the event of a termination resulting from a change in
duties, position, title, job responsibility and authority, office
facilities, support staff, growth potential and opportunity,
compensation, job location, or senior management of the Company which,
in the reasonable judgement of the Executive, would have a material
adverse impact on the Executive or the nature of work performed by the
Executive, or which would require him to change the location of his
residence to avoid a commuting distance greater than the greater of (i)
his commuting distance prior to the change and (ii) thirty (30) miles.
C. In the event that the Company terminates the
Executive's employment under this Agreement for "Cause" (as hereinafter
defined), except as provided in Section III, the Executive shall cease
to receive compensation as of the date of termination of his
employment. For the purpose of this Agreement, "Cause" shall mean (i)
an act or acts of dishonesty on the Executive's part which are intended
to result in the Executive's substantial personal enrichment at the
expense of the Company or (ii) any gross misconduct by the Executive in
the performance of his duties or responsibilities set forth in
Section I hereof which is demonstrably willful and deliberate on the
Executive's part and which results in material injury to the Company
after written demand to cease such misconduct by the Board of Directors
of the Company is delivered to the Executive. "Cause" shall not
include any mistake of fact or opinion made in good faith with respect
to the Company's business.
III. Change of Control
A. 1. In the event of a Change of Control (as
hereinafter defined) which causes this Agreement to commence, Executive
may terminate his employment hereunder at any time during the period
commencing six (6) months following the Change of Control and ending
thirty-six (36) months following the Change of Control. If (a) the
Executive shall terminate his employment during such period for any
reason other than death or Disability, (b) the Company shall terminate
the Executive's employment during the Change of Control Period (as
hereinafter defined) for any reason, or (c) the Executive terminates
his employment during the first six (6) months of the Change of Control
Period for Good Reason as hereinafter defined, the Company shall pay to
the Executive upon such termination of employment, in a single lump
cash sum, an amount equal to One Dollar ($1.00) less than 300% of
Employee's Base Amount as hereinafter defined. Such payment shall be
in lieu of further Base Salary payments under Section II except as
otherwise provided in Section II-B. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement shall relieve the
Company of its obligation of providing the Executive with all benefits
in accordance with the terms of the Benefit Plans in which the
Executive participates.
2. In addition to the foregoing, if requested by
the Executive, the Company will purchase the Executive's principal
residence at any time requested by the Executive within a period of two
(2) years following termination of employment; provided, however, that
the purchase price of the residence shall be the fair market value of
such residence as established by the average of appraisals submitted by
three (3) independent appraisers mutually selected by the Executive and
the Company.
B. 1. The term "Good Reason" shall mean the failure
of the Company to comply with the following requirement: During the
Change of Control Period, (i) the Executive's Base Salary, position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held or
exercised by or assigned to the Executive at any time during the 90-day
period immediately preceding the date of the Change of Control and (ii)
Executive's services shall be performed at the location where Executive
was employed immediately preceding the date of the Change of Control.
2. The term "Base Amount" shall mean Executive's average
annual compensation from the Company (as reported on Form W-2) for the
five consecutive calendar years (or such lesser period as constitutes
Executive's total years of employment with the Company) ending with the
calendar year immediately preceding the Change of Control.
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
4. The term "Change of Control Period" shall mean the
period beginning on the date of the Change of Control and ending
thirty-six (36) months thereafter.
C. Notwithstanding anything else contained herein, if
the aggregate of the payments to be made under this Agreement as a
result of a Change of Control, either alone or together with other
payments to which the Executive is entitled from the Company, would
constitute an "excess parachute payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code")), such total
payments shall be reduced to the largest amount as will result in no
portion of the payments made hereunder being subject to the excise tax
imposed by Section 4999 of the Code or being disallowed as a deduction
by the Company under Section 280G of the Code. The determination of
any reduction in payments hereunder pursuant to the foregoing
provisions shall be made by the Executive in good faith after
consultation with the Company, and such determination shall be
conclusive and binding on the Company. The Company shall cooperate in
good faith with the Executive in making such determination and
providing the necessary information for this purpose.
IV. Executive's Rights Under Certain Plans and Policies
The Company agrees that the benefits provided to the
Executive herein are not in lieu of any rights and privileges to which
the Executive may be entitled as an employee of the Company under
retirement, pension, special salary continuation plan, disability, life
insurance, hospitalization, vacation, business expense reimbursement or
other plan or policy which may now or hereafter be in effect, it being
understood that the Executive shall have no less than the same rights
and privileges to participate in such plans, policies or benefits as
any other employee of the Company.
V. Covenant Not to Compete and Consultation
A. For the period of two (2) years after the termination
of the Executive's employment hereunder for any reason, the Executive
shall not engage or attempt to engage on his own behalf or on behalf of
a third party, in any "Competitive Activity". The term "Competitive
Activity" shall mean participation by the Executive, without the
written consent of the Board of Directors of the Company, in the
management of any business operation of any enterprise if such
operation (a "Competitive Operation") engages in substantial and direct
competition with any business operation activity conducted by the
Company or its subsidiaries at the time of the termination of the
Executive's employment. A business operation shall be considered a
Competitive Operation if such business operation's sales of any product
or service competitive with any product or service of the Company
amounts to thirty percent (30%) of that business operation's total
sales and if the Company's sales of said product or service of its
comparable business operation amounts to thirty percent (30%) of the
Company's total sales. "Competitive Activity" shall not include (i)
the mere ownership of securities in any enterprise, or (ii)
participation in the management of any enterprise or any business
operation thereof other than in connection with a Competitive Operation
of such enterprise. Without limiting the generality of the foregoing,
Competitive Activity shall include becoming employed by or associated
with, Stelco-McMaster Ltd., Slater Steels or Atlantic Steel Industries,
Inc. In addition, the Executive shall make himself available for
reasonable consultation services with the Company for two (2) years
after termination of employment.
B. If the restrictions set forth in the preceding
paragraph or any part thereof should, for any reason whatsoever, be
declared invalid by a court of competent jurisdiction, the validity or
enforceability of the remainder of such restriction shall not thereby
be adversely affected. The Executive agrees that the foregoing
territorial and time limitations are reasonable and properly required
for the adequate protection of the business of the Company and that in
the event that any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, then the Executive
agrees and submits to the reduction of either said territorial or time
limitation to such an area or period as said court shall deem
reasonable. In the event that the Executive shall be in violation of
the aforementioned restrictive covenants, then the time limitation
thereof shall be extended for a period of time equal to the period of
time during which such breach or breaches should occur.
VI. Confidential Information
The Executive agrees to receive Confidential Information
(as defined in this Section VI below) of the Company in confidence, and
not to disclose to others, assist others in the application of, or use
for his own gain, such information, or any part thereof, unless and
until it has become public knowledge or has come into the possession of
such other or others by legal and equitable means, except in the
ordinary course of the Company's business, without the express written
consent of the Board of Directors of the Company. The Executive
further agrees that, upon termination of his employment with the
Company, all documents, records, notebooks and similar repositories
containing Confidential Information, including copies thereof, then in
the Executive's possession, whether prepared by him or others, shall be
left with the Company. For the purpose of this Agreement,
"Confidential Information" means information disclosed to the Executive
or known by the Company, not generally known in the industry in which
the Company is or may become engaged, about the Company's products,
processes or services.
VII. Remedy for Violation of Noncompetition and
Confidential Information Agreements
The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed were the Executive to
breach or threaten to breach the provisions of Section V or VI hereof,
and, therefore, agrees that the Company shall be entitled to injunctive
relief to prevent any breach or threatened breach of Section V or VI
hereof, and to specific performance of the terms of each such sections
in addition to any other legal or equitable remedy it may have. The
Executive further agrees that he shall not, in any equity proceeding
involving him relating to the enforcement of Section V or VI hereof,
raise the defense that the Company has an adequate remedy at law.
Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have
or any other rights that it may have under any other agreement.
VIII. Indemnification for Expense
If litigation or other judicial or arbitrative proceedings
shall be brought to enforce or interpret any provision contained
herein, the Company, to the extent permitted by applicable law and the
Company's Certificate of Incorporation and By-laws as in effect on the
date hereof, hereby indemnifies the Executive for his reasonable
expenses (including without limitation, attorneys' fees and
disbursements) incurred in connection with such proceeding. If so
requested by the Executive, the Company shall pay to the Executive an
amount equal to any and all such expenses within five (5) business days
after the Executive's written request, which request shall be supported
by reasonably adequate documentation.
IX. Successors
A. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon
the Company, its successors and assigns, including without limitation,
any person, partnership or corporation which may acquire all or
substantially all of the Company's assets and business, or with or into
which the Company may be consolidated or merged. Any and all
references to the Company in this Agreement shall be deemed to mean and
include any successor or assignee.
B. This Agreement shall also inure to the benefit
of and be binding on the Executive and his legal representatives, but
being a contract for personal services, cannot be assigned by
Executive.
X. Severability
In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement
shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.
XI. Applicable Law
The construction and interpretation of this Agreement
shall be governed by the laws of the State of Kentucky applicable to
agreements made and to be performed within Kentucky, without regard to
Kentucky's conflict of laws rules.
XII. No Mitigation Required
The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made
under any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the
Company's obligations to make the payments and arrangements required to
be made under this Agreement.
XIII. Notice
All notices under this Agreement shall be made in
writing and shall be duly sent if sent by registered mail or certified
mail to the respective parties' address shown hereinabove or such other
address as the parties may hereafter designate in writing for such
purpose.
XIV. Captions and Titles
Captions and titles have been used in this Agreement
only for convenience, and in no way define, limit or describe the
meaning of this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties have signed this Agreement
on this 1st day of September, 1998 effective as if adopted on
June 7, 1994.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
/s/ William J. Jessie
/s/ William H. Gerak
WITNESS
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of September, 1998 by
and between Kentucky Electric Steel, Inc., with its principal office in
Ashland, Kentucky (the "Company"), and Joseph E. Harrison, residing
at70 Cheshire Lane, Ashland, Kentucky 41102 (hereinafter called the
"Executive").
WITNESSETH
WHEREAS, the Company and the Executive executed an
Employment Agreement effective as of June 7, 1994 ("Agreement"); and
WHEREAS, the parties desire to amend and restate the
Agreement to define the term "Change of Control" as if included in the
original Agreement;
NOW, THEREFORE, the Agreement is amended and restated in
its entirety to read as follows:
I. Employment Duties and Term
A. Beginning on the Commencement Date (as
hereinafter defined) the Company agrees to employ the Executive at not
lower than the office held on the Commencement Date and the Executive
agrees to faithfully and to the best of his ability discharge the
responsibilities of said office and perform such duties and services of
an executive, administrative and managerial nature as shall be
specified and designated from time to time by the Board of Directors of
the Company in connection with the business and activities of the
Company. The Executive's duties and responsibilities shall be those
normally associated modified from time to time following the
Commencement Date by the Board of Directors, but there shall be no
significant change in his duties, position, title, job responsibility
and authority, office facilities, support staff, growth potential and
opportunity, or job location without his specific written agreement.
The Executive agrees that during the Employment Period (as
defined in Section I, B hereof), he shall devote substantially all his
professional time and effort to the performance of his duties hereunder
except for (i) time spent in managing his personal investments and
services on corporate, civic or charitable boards or committees, in
each case not significantly interfering with the performance of such
duties, and (ii) periods of vacation and sick leave to which he is
entitled. Furthermore, the Executive agrees that during the Employment
Period, he shall refrain from engaging on his own behalf or on behalf
of a third party, including without limitation, any customer or
supplier of the Company, in any line of activities or business in which
he knows or has reason to know that the Company is or is considering
becoming engaged during the Employment Period or in any related
activities or business without the express written consent of the Board
of Directors of the Company.
B. The term of the Executive's employment under this
Agreement (the "Employment Period") shall commence on the effective
date of a Change of Control (as hereinafter defined) ("Commencement
Date") and shall be for an initial period commencing on the
Commencement Date and ending on the third anniversary hereof (the
"Initial Term"), plus all Renewal Periods, if applicable. After the
Initial Term, this Agreement shall be automatically renewed for
subsequent three (3) year periods (each such three (3) year period
being referred to herein as a "Renewal Period") unless, no later than
(i) one (1) year prior to the expiration of the Initial Term, or, (ii)
if during a Renewal Period, one (1) year prior to the expiration of
such Renewal Period, either party gives written notice of cancellation
to the other party. After timely notice of cancellation has been given
as required above, the Employment Period shall continue until the
expiration of the Initial Term or the then current Renewal Period, as
applicable, and the term "Termination Date," as used herein, shall be
the last day of the Initial Term, or such Renewal Period, as
applicable.
The provisions of this Agreement shall not apply if, for
any reason (other than as set forth in the following sentence), the
Executive is not employed by the Company on the Commencement Date. The
provisions of this Agreement shall apply in the event the Executive's
employment is terminated prior to, but in connection with, a Change of
Control, by the Company's Board of Directors in the exercise of its
fiduciary duties as part of a negotiation with a third party that
requires such termination of employment as a condition of consummating
a transaction resulting in a Change of Control.
II. Compensation and Termination
A. During the Employment Period, the Company shall
pay to the Executive, and the Executive agrees to accept as
compensation for his services hereunder, a base annual salary in the
amount of not less than the level in effect on the Commencement Date,
payable in the manner and at the times the Company pays its senior
executives. Such base annual salary shall be increased on each
anniversary of the Commencement Date by an amount not less than that
which is substantially similar, on a percentage basis, to the average
percentage increase in base salary for all corporate officers of the
Company during the preceding twelve (12) months. "Base Salary" at any
time shall mean the Executive's base annual salary as adjusted by the
Board of Directors and as in effect at the time in question.
In addition to his Base Salary, the Executive shall be
entitled to participate in and receive compensation pursuant to the
Company's Incentive Bonus Plan, the Company's 1993 Incentive Stock
Option Plan and all other benefit, bonus and stock plans that now exist
or as may exist in the future (collectively, the "Benefit Plans").
B. In the event the Company terminates Executive's
employment Without Cause (as defined in this Section II B below), the
Company's obligation to pay Executive the compensation set forth herein
shall nevertheless continue until the Termination Date. For the
purposes of this Agreement, a termination "Without Cause" shall mean a
termination by the Company for any reason other than for Cause (as
defined in Section II C hereof) or Disability, and the Executive's
employment with the Company shall be deemed terminated Without Cause by
the Company in the event of a termination resulting from a change in
duties, position, title, job responsibility and authority, office
facilities, support staff, growth potential and opportunity,
compensation, job location, or senior management of the Company which,
in the reasonable judgement of the Executive, would have a material
adverse impact on the Executive or the nature of work performed by the
Executive, or which would require him to change the location of his
residence to avoid a commuting distance greater than the greater of (i)
his commuting distance prior to the change and (ii) thirty (30) miles.
C. In the event that the Company terminates the
Executive's employment under this Agreement for "Cause" (as hereinafter
defined), except as provided in Section III, the Executive shall cease
to receive compensation as of the date of termination of his
employment. For the purpose of this Agreement, "Cause" shall mean (i)
an act or acts of dishonesty on the Executive's part which are intended
to result in the Executive's substantial personal enrichment at the
expense of the Company or (ii) any gross misconduct by the Executive in
the performance of his duties or responsibilities set forth in
Section I hereof which is demonstrably willful and deliberate on the
Executive's part and which results in material injury to the Company
after written demand to cease such misconduct by the Board of Directors
of the Company is delivered to the Executive. "Cause" shall not
include any mistake of fact or opinion made in good faith with respect
to the Company's business.
III. Change of Control
A. 1. In the event of a Change of Control (as
hereinafter defined) which causes this Agreement to commence, Executive
may terminate his employment hereunder at any time during the period
commencing six (6) months following the Change of Control and ending
thirty-six (36) months following the Change of Control. If (a) the
Executive shall terminate his employment during such period for any
reason other than death or Disability, (b) the Company shall terminate
the Executive's employment during the Change of Control Period (as
hereinafter defined) for any reason, or (c) the Executive terminates
his employment during the first six (6) months of the Change of Control
Period for Good Reason as hereinafter defined, the Company shall pay to
the Executive upon such termination of employment, in a single lump
cash sum, an amount equal to One Dollar ($1.00) less than 300% of
Employee's Base Amount as hereinafter defined. Such payment shall be
in lieu of further Base Salary payments under Section II except as
otherwise provided in Section II-B. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement shall relieve the
Company of its obligation of providing the Executive with all benefits
in accordance with the terms of the Benefit Plans in which the
Executive participates.
2. In addition to the foregoing, if requested by
the Executive, the Company will purchase the Executive's principal
residence at any time requested by the Executive within a period of two
(2) years following termination of employment; provided, however, that
the purchase price of the residence shall be the fair market value of
such residence as established by the average of appraisals submitted by
three (3) independent appraisers mutually selected by the Executive and
the Company.
B. 1. The term "Good Reason" shall mean the failure
of the Company to comply with the following requirement: During the
Change of Control Period, (i) the Executive's Base Salary, position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held or
exercised by or assigned to the Executive at any time during the 90-day
period immediately preceding the date of the Change of Control and (ii)
Executive's services shall be performed at the location where Executive
was employed immediately preceding the date of the Change of Control.
2. The term "Base Amount" shall mean Executive's average
annual compensation from the Company (as reported on Form W-2) for the
five consecutive calendar years (or such lesser period as constitutes
Executive's total years of employment with the Company) ending with the
calendar year immediately preceding the Change of Control.
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
4. The term "Change of Control Period" shall mean the
period beginning on the date of the Change of Control and ending
thirty-six (36) months thereafter.
C. Notwithstanding anything else contained herein, if
the aggregate of the payments to be made under this Agreement as a
result of a Change of Control, either alone or together with other
payments to which the Executive is entitled from the Company, would
constitute an "excess parachute payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code")), such total
payments shall be reduced to the largest amount as will result in no
portion of the payments made hereunder being subject to the excise tax
imposed by Section 4999 of the Code or being disallowed as a deduction
by the Company under Section 280G of the Code. The determination of
any reduction in payments hereunder pursuant to the foregoing
provisions shall be made by the Executive in good faith after
consultation with the Company, and such determination shall be
conclusive and binding on the Company. The Company shall cooperate in
good faith with the Executive in making such determination and
providing the necessary information for this purpose.
IV. Executive's Rights Under Certain Plans and Policies
The Company agrees that the benefits provided to the
Executive herein are not in lieu of any rights and privileges to which
the Executive may be entitled as an employee of the Company under
retirement, pension, special salary continuation plan, disability, life
insurance, hospitalization, vacation, business expense reimbursement or
other plan or policy which may now or hereafter be in effect, it being
understood that the Executive shall have no less than the same rights
and privileges to participate in such plans, policies or benefits as
any other employee of the Company.
V. Covenant Not to Compete and Consultation
A. For the period of two (2) years after the termination
of the Executive's employment hereunder for any reason, the Executive
shall not engage or attempt to engage on his own behalf or on behalf of
a third party, in any "Competitive Activity". The term "Competitive
Activity" shall mean participation by the Executive, without the
written consent of the Board of Directors of the Company, in the
management of any business operation of any enterprise if such
operation (a "Competitive Operation") engages in substantial and direct
competition with any business operation activity conducted by the
Company or its subsidiaries at the time of the termination of the
Executive's employment. A business operation shall be considered a
Competitive Operation if such business operation's sales of any product
or service competitive with any product or service of the Company
amounts to thirty percent (30%) of that business operation's total
sales and if the Company's sales of said product or service of its
comparable business operation amounts to thirty percent (30%) of the
Company's total sales. "Competitive Activity" shall not include (i)
the mere ownership of securities in any enterprise, or (ii)
participation in the management of any enterprise or any business
operation thereof other than in connection with a Competitive Operation
of such enterprise. Without limiting the generality of the foregoing,
Competitive Activity shall include becoming employed by or associated
with, Stelco-McMaster Ltd., Slater Steels or Atlantic Steel Industries,
Inc. In addition, the Executive shall make himself available for
reasonable consultation services with the Company for two (2) years
after termination of employment.
B. If the restrictions set forth in the preceding
paragraph or any part thereof should, for any reason whatsoever, be
declared invalid by a court of competent jurisdiction, the validity or
enforceability of the remainder of such restriction shall not thereby
be adversely affected. The Executive agrees that the foregoing
territorial and time limitations are reasonable and properly required
for the adequate protection of the business of the Company and that in
the event that any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, then the Executive
agrees and submits to the reduction of either said territorial or time
limitation to such an area or period as said court shall deem
reasonable. In the event that the Executive shall be in violation of
the aforementioned restrictive covenants, then the time limitation
thereof shall be extended for a period of time equal to the period of
time during which such breach or breaches should occur.
VI. Confidential Information
The Executive agrees to receive Confidential Information
(as defined in this Section VI below) of the Company in confidence, and
not to disclose to others, assist others in the application of, or use
for his own gain, such information, or any part thereof, unless and
until it has become public knowledge or has come into the possession of
such other or others by legal and equitable means, except in the
ordinary course of the Company's business, without the express written
consent of the Board of Directors of the Company. The Executive
further agrees that, upon termination of his employment with the
Company, all documents, records, notebooks and similar repositories
containing Confidential Information, including copies thereof, then in
the Executive's possession, whether prepared by him or others, shall be
left with the Company. For the purpose of this Agreement,
"Confidential Information" means information disclosed to the Executive
or known by the Company, not generally known in the industry in which
the Company is or may become engaged, about the Company's products,
processes or services.
VII. Remedy for Violation of Noncompetition and
Confidential Information Agreements
The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed were the Executive to
breach or threaten to breach the provisions of Section V or VI hereof,
and, therefore, agrees that the Company shall be entitled to injunctive
relief to prevent any breach or threatened breach of Section V or VI
hereof, and to specific performance of the terms of each such sections
in addition to any other legal or equitable remedy it may have. The
Executive further agrees that he shall not, in any equity proceeding
involving him relating to the enforcement of Section V or VI hereof,
raise the defense that the Company has an adequate remedy at law.
Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have
or any other rights that it may have under any other agreement.
VIII. Indemnification for Expense
If litigation or other judicial or arbitrative proceedings
shall be brought to enforce or interpret any provision contained
herein, the Company, to the extent permitted by applicable law and the
Company's Certificate of Incorporation and By-laws as in effect on the
date hereof, hereby indemnifies the Executive for his reasonable
expenses (including without limitation, attorneys' fees and
disbursements) incurred in connection with such proceeding. If so
requested by the Executive, the Company shall pay to the Executive an
amount equal to any and all such expenses within five (5) business days
after the Executive's written request, which request shall be supported
by reasonably adequate documentation.
IX. Successors
A. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon
the Company, its successors and assigns, including without limitation,
any person, partnership or corporation which may acquire all or
substantially all of the Company's assets and business, or with or into
which the Company may be consolidated or merged. Any and all
references to the Company in this Agreement shall be deemed to mean and
include any successor or assignee.
B. This Agreement shall also inure to the benefit
of and be binding on the Executive and his legal representatives, but
being a contract for personal services, cannot be assigned by
Executive.
X. Severability
In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement
shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.
XI. Applicable Law
The construction and interpretation of this Agreement
shall be governed by the laws of the State of Kentucky applicable to
agreements made and to be performed within Kentucky, without regard to
Kentucky's conflict of laws rules.
XII. No Mitigation Required
The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made
under any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the
Company's obligations to make the payments and arrangements required to
be made under this Agreement.
XIII. Notice
All notices under this Agreement shall be made in
writing and shall be duly sent if sent by registered mail or certified
mail to the respective parties' address shown hereinabove or such other
address as the parties may hereafter designate in writing for such
purpose.
XIV. Captions and Titles
Captions and titles have been used in this Agreement
only for convenience, and in no way define, limit or describe the
meaning of this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties have signed this Agreement
on this 1st day of September, 1998 effective as if adopted on
June 7, 1994.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
/s/ Joseph E. Harrison
/s/ William H. Gerak
WITNESS
AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of September, 1998 by
and between Kentucky Electric Steel, Inc., with its principal office in
Ashland, Kentucky (the "Company"), and William H. Gerak, residing at
3424 Oakwood Circle, Ashland, Kentucky 41102 (hereinafter called the
"Executive").
WITNESSETH
WHEREAS, the Company and the Executive executed an
Employment Agreement effective as of June 7, 1994 ("Agreement"); and
WHEREAS, the parties desire to amend and restate the
Agreement to define the term "Change of Control" as if included in the
original Agreement;
NOW, THEREFORE, the Agreement is amended and restated in
its entirety to read as follows:
I. Employment Duties and Term
A. Beginning on the Commencement Date (as
hereinafter defined) the Company agrees to employ the Executive at not
lower than the office held on the Commencement Date and the Executive
agrees to faithfully and to the best of his ability discharge the
responsibilities of said office and perform such duties and services of
an executive, administrative and managerial nature as shall be
specified and designated from time to time by the Board of Directors of
the Company in connection with the business and activities of the
Company. The Executive's duties and responsibilities shall be those
normally associated modified from time to time following the
Commencement Date by the Board of Directors, but there shall be no
significant change in his duties, position, title, job responsibility
and authority, office facilities, support staff, growth potential and
opportunity, or job location without his specific written agreement.
The Executive agrees that during the Employment Period (as
defined in Section I, B hereof), he shall devote substantially all his
professional time and effort to the performance of his duties hereunder
except for (i) time spent in managing his personal investments and
services on corporate, civic or charitable boards or committees, in
each case not significantly interfering with the performance of such
duties, and (ii) periods of vacation and sick leave to which he is
entitled. Furthermore, the Executive agrees that during the Employment
Period, he shall refrain from engaging on his own behalf or on behalf
of a third party, including without limitation, any customer or
supplier of the Company, in any line of activities or business in which
he knows or has reason to know that the Company is or is considering
becoming engaged during the Employment Period or in any related
activities or business without the express written consent of the Board
of Directors of the Company.
B. The term of the Executive's employment under this
Agreement (the "Employment Period") shall commence on the effective
date of a Change of Control (as hereinafter defined) ("Commencement
Date") and shall be for an initial period commencing on the
Commencement Date and ending on the third anniversary hereof (the
"Initial Term"), plus all Renewal Periods, if applicable. After the
Initial Term, this Agreement shall be automatically renewed for
subsequent three (3) year periods (each such three (3) year period
being referred to herein as a "Renewal Period") unless, no later than
(i) one (1) year prior to the expiration of the Initial Term, or, (ii)
if during a Renewal Period, one (1) year prior to the expiration of
such Renewal Period, either party gives written notice of cancellation
to the other party. After timely notice of cancellation has been given
as required above, the Employment Period shall continue until the
expiration of the Initial Term or the then current Renewal Period, as
applicable, and the term "Termination Date," as used herein, shall be
the last day of the Initial Term, or such Renewal Period, as
applicable.
The provisions of this Agreement shall not apply if, for
any reason (other than as set forth in the following sentence), the
Executive is not employed by the Company on the Commencement Date. The
provisions of this Agreement shall apply in the event the Executive's
employment is terminated prior to, but in connection with, a Change of
Control, by the Company's Board of Directors in the exercise of its
fiduciary duties as part of a negotiation with a third party that
requires such termination of employment as a condition of consummating
a transaction resulting in a Change of Control.
II. Compensation and Termination
A. During the Employment Period, the Company shall
pay to the Executive, and the Executive agrees to accept as
compensation for his services hereunder, a base annual salary in the
amount of not less than the level in effect on the Commencement Date,
payable in the manner and at the times the Company pays its senior
executives. Such base annual salary shall be increased on each
anniversary of the Commencement Date by an amount not less than that
which is substantially similar, on a percentage basis, to the average
percentage increase in base salary for all corporate officers of the
Company during the preceding twelve (12) months. "Base Salary" at any
time shall mean the Executive's base annual salary as adjusted by the
Board of Directors and as in effect at the time in question.
In addition to his Base Salary, the Executive shall be
entitled to participate in and receive compensation pursuant to the
Company's Incentive Bonus Plan, the Company's 1993 Incentive Stock
Option Plan and all other benefit, bonus and stock plans that now exist
or as may exist in the future (collectively, the "Benefit Plans").
B. In the event the Company terminates Executive's
employment Without Cause (as defined in this Section II B below), the
Company's obligation to pay Executive the compensation set forth herein
shall nevertheless continue until the Termination Date. For the
purposes of this Agreement, a termination "Without Cause" shall mean a
termination by the Company for any reason other than for Cause (as
defined in Section II C hereof) or Disability, and the Executive's
employment with the Company shall be deemed terminated Without Cause by
the Company in the event of a termination resulting from a change in
duties, position, title, job responsibility and authority, office
facilities, support staff, growth potential and opportunity,
compensation, job location, or senior management of the Company which,
in the reasonable judgement of the Executive, would have a material
adverse impact on the Executive or the nature of work performed by the
Executive, or which would require him to change the location of his
residence to avoid a commuting distance greater than the greater of (i)
his commuting distance prior to the change and (ii) thirty (30) miles.
C. In the event that the Company terminates the
Executive's employment under this Agreement for "Cause" (as hereinafter
defined), except as provided in Section III, the Executive shall cease
to receive compensation as of the date of termination of his
employment. For the purpose of this Agreement, "Cause" shall mean (i)
an act or acts of dishonesty on the Executive's part which are intended
to result in the Executive's substantial personal enrichment at the
expense of the Company or (ii) any gross misconduct by the Executive in
the performance of his duties or responsibilities set forth in
Section I hereof which is demonstrably willful and deliberate on the
Executive's part and which results in material injury to the Company
after written demand to cease such misconduct by the Board of Directors
of the Company is delivered to the Executive. "Cause" shall not
include any mistake of fact or opinion made in good faith with respect
to the Company's business.
III. Change of Control
A. 1. In the event of a Change of Control (as
hereinafter defined) which causes this Agreement to commence, Executive
may terminate his employment hereunder at any time during the period
commencing six (6) months following the Change of Control and ending
thirty-six (36) months following the Change of Control. If (a) the
Executive shall terminate his employment during such period for any
reason other than death or Disability, (b) the Company shall terminate
the Executive's employment during the Change of Control Period (as
hereinafter defined) for any reason, or (c) the Executive terminates
his employment during the first six (6) months of the Change of Control
Period for Good Reason as hereinafter defined, the Company shall pay to
the Executive upon such termination of employment, in a single lump
cash sum, an amount equal to One Dollar ($1.00) less than 300% of
Employee's Base Amount as hereinafter defined. Such payment shall be
in lieu of further Base Salary payments under Section II except as
otherwise provided in Section II-B. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement shall relieve the
Company of its obligation of providing the Executive with all benefits
in accordance with the terms of the Benefit Plans in which the
Executive participates.
2. In addition to the foregoing, if requested by
the Executive, the Company will purchase the Executive's principal
residence at any time requested by the Executive within a period of two
(2) years following termination of employment; provided, however, that
the purchase price of the residence shall be the fair market value of
such residence as established by the average of appraisals submitted by
three (3) independent appraisers mutually selected by the Executive and
the Company.
B. 1. The term "Good Reason" shall mean the failure
of the Company to comply with the following requirement: During the
Change of Control Period, (i) the Executive's Base Salary, position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held or
exercised by or assigned to the Executive at any time during the 90-day
period immediately preceding the date of the Change of Control and (ii)
Executive's services shall be performed at the location where Executive
was employed immediately preceding the date of the Change of Control.
2. The term "Base Amount" shall mean Executive's average
annual compensation from the Company (as reported on Form W-2) for the
five consecutive calendar years (or such lesser period as constitutes
Executive's total years of employment with the Company) ending with the
calendar year immediately preceding the Change of Control.
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
4. The term "Change of Control Period" shall mean the
period beginning on the date of the Change of Control and ending
thirty-six (36) months thereafter.
C. Notwithstanding anything else contained herein, if
the aggregate of the payments to be made under this Agreement as a
result of a Change of Control, either alone or together with other
payments to which the Executive is entitled from the Company, would
constitute an "excess parachute payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code")), such total
payments shall be reduced to the largest amount as will result in no
portion of the payments made hereunder being subject to the excise tax
imposed by Section 4999 of the Code or being disallowed as a deduction
by the Company under Section 280G of the Code. The determination of
any reduction in payments hereunder pursuant to the foregoing
provisions shall be made by the Executive in good faith after
consultation with the Company, and such determination shall be
conclusive and binding on the Company. The Company shall cooperate in
good faith with the Executive in making such determination and
providing the necessary information for this purpose.
IV. Executive's Rights Under Certain Plans and Policies
The Company agrees that the benefits provided to the
Executive herein are not in lieu of any rights and privileges to which
the Executive may be entitled as an employee of the Company under
retirement, pension, special salary continuation plan, disability, life
insurance, hospitalization, vacation, business expense reimbursement or
other plan or policy which may now or hereafter be in effect, it being
understood that the Executive shall have no less than the same rights
and privileges to participate in such plans, policies or benefits as
any other employee of the Company.
V. Covenant Not to Compete and Consultation
A. For the period of two (2) years after the termination
of the Executive's employment hereunder for any reason, the Executive
shall not engage or attempt to engage on his own behalf or on behalf of
a third party, in any "Competitive Activity". The term "Competitive
Activity" shall mean participation by the Executive, without the
written consent of the Board of Directors of the Company, in the
management of any business operation of any enterprise if such
operation (a "Competitive Operation") engages in substantial and direct
competition with any business operation activity conducted by the
Company or its subsidiaries at the time of the termination of the
Executive's employment. A business operation shall be considered a
Competitive Operation if such business operation's sales of any product
or service competitive with any product or service of the Company
amounts to thirty percent (30%) of that business operation's total
sales and if the Company's sales of said product or service of its
comparable business operation amounts to thirty percent (30%) of the
Company's total sales. "Competitive Activity" shall not include (i)
the mere ownership of securities in any enterprise, or (ii)
participation in the management of any enterprise or any business
operation thereof other than in connection with a Competitive Operation
of such enterprise. Without limiting the generality of the foregoing,
Competitive Activity shall include becoming employed by or associated
with, Stelco-McMaster Ltd., Slater Steels or Atlantic Steel Industries,
Inc. In addition, the Executive shall make himself available for
reasonable consultation services with the Company for two (2) years
after termination of employment.
B. If the restrictions set forth in the preceding
paragraph or any part thereof should, for any reason whatsoever, be
declared invalid by a court of competent jurisdiction, the validity or
enforceability of the remainder of such restriction shall not thereby
be adversely affected. The Executive agrees that the foregoing
territorial and time limitations are reasonable and properly required
for the adequate protection of the business of the Company and that in
the event that any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, then the Executive
agrees and submits to the reduction of either said territorial or time
limitation to such an area or period as said court shall deem
reasonable. In the event that the Executive shall be in violation of
the aforementioned restrictive covenants, then the time limitation
thereof shall be extended for a period of time equal to the period of
time during which such breach or breaches should occur.
VI. Confidential Information
The Executive agrees to receive Confidential Information
(as defined in this Section VI below) of the Company in confidence, and
not to disclose to others, assist others in the application of, or use
for his own gain, such information, or any part thereof, unless and
until it has become public knowledge or has come into the possession of
such other or others by legal and equitable means, except in the
ordinary course of the Company's business, without the express written
consent of the Board of Directors of the Company. The Executive
further agrees that, upon termination of his employment with the
Company, all documents, records, notebooks and similar repositories
containing Confidential Information, including copies thereof, then in
the Executive's possession, whether prepared by him or others, shall be
left with the Company. For the purpose of this Agreement,
"Confidential Information" means information disclosed to the Executive
or known by the Company, not generally known in the industry in which
the Company is or may become engaged, about the Company's products,
processes or services.
VII. Remedy for Violation of Noncompetition and
Confidential Information Agreements
The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed were the Executive to
breach or threaten to breach the provisions of Section V or VI hereof,
and, therefore, agrees that the Company shall be entitled to injunctive
relief to prevent any breach or threatened breach of Section V or VI
hereof, and to specific performance of the terms of each such sections
in addition to any other legal or equitable remedy it may have. The
Executive further agrees that he shall not, in any equity proceeding
involving him relating to the enforcement of Section V or VI hereof,
raise the defense that the Company has an adequate remedy at law.
Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have
or any other rights that it may have under any other agreement.
VIII. Indemnification for Expense
If litigation or other judicial or arbitrative proceedings
shall be brought to enforce or interpret any provision contained
herein, the Company, to the extent permitted by applicable law and the
Company's Certificate of Incorporation and By-laws as in effect on the
date hereof, hereby indemnifies the Executive for his reasonable
expenses (including without limitation, attorneys' fees and
disbursements) incurred in connection with such proceeding. If so
requested by the Executive, the Company shall pay to the Executive an
amount equal to any and all such expenses within five (5) business days
after the Executive's written request, which request shall be supported
by reasonably adequate documentation.
IX. Successors
A. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding upon
the Company, its successors and assigns, including without limitation,
any person, partnership or corporation which may acquire all or
substantially all of the Company's assets and business, or with or into
which the Company may be consolidated or merged. Any and all
references to the Company in this Agreement shall be deemed to mean and
include any successor or assignee.
B. This Agreement shall also inure to the benefit
of and be binding on the Executive and his legal representatives, but
being a contract for personal services, cannot be assigned by
Executive.
X. Severability
In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement
shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.
XI. Applicable Law
The construction and interpretation of this Agreement
shall be governed by the laws of the State of Kentucky applicable to
agreements made and to be performed within Kentucky, without regard to
Kentucky's conflict of laws rules.
XII. No Mitigation Required
The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made
under any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the
Company's obligations to make the payments and arrangements required to
be made under this Agreement.
XIII. Notice
All notices under this Agreement shall be made in
writing and shall be duly sent if sent by registered mail or certified
mail to the respective parties' address shown hereinabove or such other
address as the parties may hereafter designate in writing for such
purpose.
XIV. Captions and Titles
Captions and titles have been used in this Agreement
only for convenience, and in no way define, limit or describe the
meaning of this Agreement or any part thereof.
IN WITNESS WHEREOF, the parties have signed this Agreement
on this 1st day of September, 1998 effective as if adopted on
June 7, 1994.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
/s/ William H. Gerak
/s/ William J. Jessie
WITNESS
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on the 12th day of February, 1999, by
and between Kentucky Electric Steel, Inc. (the "Company"), and Charles
C. Hanebuth (the "Executive").
WITNESSETH :
WHEREAS, the Company and the Executive executed an Employment
Agreement effective as of June 7, 1994 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement to change the
definition of the term "Change of Control":
NOW, THEREFORE, the Agreement is amended as follows:
1. Paragraph III.B.3 is revised to read as follows:
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
IN WITNESS WHEREOF, the parties have signed this Amendment on this 12th
day of February, 1999.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ William J. Jessie
/s/ Charles C. Hanebuth
/s/ William H. Gerak
WITNESS
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on the 12th day of February, 1999, by
and between Kentucky Electric Steel, Inc. (the "Company"), and William
J. Jessie (the "Executive").
WITNESSETH :
WHEREAS, the Company and the Executive executed an Employment
Agreement effective as of June 7, 1994 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement to change the
definition of the term "Change of Control":
NOW, THEREFORE, the Agreement is amended as follows:
1. Paragraph III.B.3 is revised to read as follows:
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
IN WITNESS WHEREOF, the parties have signed this Amendment on this 12th
day of February, 1999.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
/s/ William J. Jessie
/s/ Joseph E. Harrison
WITNESS
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on the 12th day of February, 1999, by
and between Kentucky Electric Steel, Inc. (the "Company"), and Joseph
E. Harrison (the "Executive").
WITNESSETH :
WHEREAS, the Company and the Executive executed an Employment
Agreement effective as of June 7, 1994 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement to change the
definition of the term "Change of Control":
NOW, THEREFORE, the Agreement is amended as follows:
1. Paragraph III.B.3 is revised to read as follows:
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
IN WITNESS WHEREOF, the parties have signed this Amendment on this 12th
day of February, 1999.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
/s/ Joseph E. Harrison
/s/ William J. Jessie
WITNESS
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on the 12th day of February, 1999, by
and between Kentucky Electric Steel, Inc. (the "Company"), and William
H. Gerak (the "Executive").
WITNESSETH :
WHEREAS, the Company and the Executive executed an Employment
Agreement effective as of June 7, 1994 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement to change the
definition of the term "Change of Control":
NOW, THEREFORE, the Agreement is amended as follows:
1. Paragraph III.B.3 is revised to read as follows:
3. The term "Change of Control" shall mean (i) the
consummation of (A) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company
in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger,
or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company, or (ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the
Company, other than in connection with a bankruptcy or reorganization
proceeding of the Company under applicable federal or state bankruptcy
laws, or (iii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a subsidiary thereof,
becoming the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors,
as a result of a tender or exchange offer, open market purchases,
privately-negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company
ceasing for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Company's
shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
IN WITNESS WHEREOF, the parties have signed this Amendment on this 12th
day of February, 1999.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
/s/ William H. Gerak
/s/ William J. Jessie
WITNESS
EXHIBIT A
KENTUCKY ELECTRIC STEEL, INC.
1999 SHARE PLAN FOR NON-EMPLOYEE DIRECTORS
I. Name and Purpose of Plan
1.1 Establishment. This plan created in accordance with the
terms hereof shall be known as the "Kentucky Electric Steel, Inc. 1999
Share Plan for Non-Employee Directors" (the "Plan").
1.2 Purposes. The purposes of this Plan are to encourage the
Non-Employee Directors of Kentucky Electric Steel, Inc. (the "Company")
to own shares of the Company's stock and thereby to align their
interests more closely with the interests of the other shareholders of
the Company, to encourage the highest level of director performance by
providing the Non-Employee Directors with a direct interest in the
Company's attainment of its financial goals, and to provide a financial
incentive that will help attract and retain the most qualified
directors.
II. Definitions
2.1 Definitions. The following terms shall have the meanings
set forth below:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Non-Employee Director" shall mean an individual duly
elected or chosen as a member of the Board who is not an employee of
the Company.
(c) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(d) "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 Board.
(e) "Fees" shall mean the amount of the fees to be paid to
each Non-Employee Director for services as a director (including all
meetings of the full Board and all committee meetings) for each fiscal
quarter, as determined by the Board from time to time.
(f) "Shares" shall mean the common stock, par value $.01
per share, of the Company.
2.2 Gender and Number. Except when otherwise indicated by the
context, the masculine gender shall also include the feminine gender,
and the definition of any term herein in the singular shall also
include the plural.
III. Stock Subject to the Plan
A total of 25,000 Shares are authorized for issuance under this
Plan in accordance with the provisions of this Plan. This
authorization may be increased from time to time by approval of the
Board and by the shareholders of the Company if, in the opinion of
counsel for the Company, such shareholder approval is required.
IV. Participation
Each Non-Employee Director of the Company may receive Shares
pursuant to this Plan on the terms and conditions set forth herein.
Each Non-Employee Director shall, if required by the Board, enter in an
agreement with the Company, in such form as the Board shall determine
and which is consistent with the provisions of this Plan. In the event
of any inconsistency between the provisions of this Plan and any such
agreement entered into hereunder, the provisions of this Plan shall
govern.
V. Stock Issuances
Promptly following each Board meeting or meeting of a committee
of the Board during a fiscal quarter commencing on or after March 28,
1999, the Company shall issue to each Non-Employee Director the number
of Shares (rounded to the nearest whole number) obtained by dividing
the "Applicable Portion" of such Non-Employee Director's Fees by the
Fair Market Value of a Share on the date of the applicable Board or
committee meeting. No fractional Share shall be issued by the Company
under this Plan. The "Applicable Portion" shall be 60% of the Fees
payable with respect to the applicable meeting for each Non-Employee
Director, or such higher percentage that any individual Non-Employee
Director elects for himself, such election to be filed in writing with
the Chief Financial Officer of the Company prior to the first day of
the fiscal quarter during which the applicable meeting occurs.
VI. General Provisions
6.1 Non-transferability. No rights to the issuance of Shares
pursuant to this Plan shall be assigned, pledged, hypothecated or
otherwise transferred by a Non-Employee Director or any other person,
voluntarily or involuntarily, other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order.
6.2 Investment Representations; Restricted Stock. The Company
may require any Non-Employee Director to whom Shares are to be issued
pursuant to this Plan, as a condition of receiving such Shares, to
given written assurances in substance and form satisfactory to the
Company and its counsel to the effect that such person is acquiring the
Shares for his own account for investment and not with any present
intention of selling or otherwise distributing the same, that the
Shares issued pursuant to this Plan have not been registered pursuant
to any applicable securities law and can only be transferred upon
compliance with such laws, and to such other effects as the Company
deems necessary or appropriate in order to comply with federal and
applicable state securities laws. The Shares issued pursuant to this
Plan will bear an appropriate legend.
6.3 Compliance with Laws. (a) Each issuance of Shares pursuant
to this Plan shall be subject to the requirement that, if at any time
counsel to the Company shall determine that the listing, registration
or qualification of the Shares upon any securities exchange or under
any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of, or in
connection with, the issuance of Shares thereunder, such Shares may not
be issued unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions acceptable
to the Board.
(b) This Plan and the issuance of Shares pursuant to this Plan
are intended to comply with Rule 16b-3 promulgated under the Exchange
Act; and the Board shall interpret and administer the provisions of
this Plan in a manner consistent therewith.
(c) The issuance of Shares and the payment of cash pursuant to
this Plan shall be subject to all applicable laws, rules and
regulations.
VII. Plan Amendment and Termination
The Board may at any time terminate, and from time to time amend
or modify this Plan; provided, however, that no amendment or
modification may become effective without approval of the amendment or
modification by the shareholders if shareholder approval is required to
enable this Plan to satisfy any applicable statutory or regulatory
requirements, or if the Company, on the advice of counsel, determines
that shareholder approval is otherwise necessary or desirable.
VIII. Miscellaneous
8.1 Retention as Director. Nothing contained in this Plan
shall interfere with or limit in any way the right of the shareholders
or the Directors of the Company to remove any Director from the Board
pursuant to the bylaws of the Company, nor confer upon any Director any
right to continue in the service of the Company.
8.2 Relationship to Other Plans. The adoption of this Plan
shall not affect any other compensation plan in effect for the Company.
Furthermore, this Plan shall not preclude the Company from establishing
any other form of incentive or other compensation arrangement for
Directors of the Company.
8.3 Plan Binding on Successors. This Plan shall be binding
upon the successors and assigns of the Company.
8.4 Governing Law. The provisions of this Plan shall be
governed by and construed in accordance with the laws of the State of
Delaware.
8.5 Headings. Headings are given to the sections of this Plan
solely as a convenience to facilitate reference. Such headings,
numberings and paragraphing shall not in any case be deemed in any way
material or relevant to the construction of this Plan or any provisions
thereof.
IX. Effective Date
The effective date of this Plan shall be the date of its adoption
by the Board.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Kentucky Electric Steel, Inc.'s condensed consolidated
financial statements as of and for the nine month period ended
June 26, 1999 included in this Company's quarterly report on Form
10-Q and is qualified in its entirety by reference to such
condensed consolidated financial statements.
</LEGEND>
<CIK> 0000910394
<NAME> KENTUCKY ELECTRIC STEEL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> JUN-26-1999
<EXCHANGE-RATE> 1
<CASH> 141
<SECURITIES> 0
<RECEIVABLES> 14,020
<ALLOWANCES> 442
<INVENTORY> 20,151
<CURRENT-ASSETS> 40,189
<PP&E> 51,937
<DEPRECIATION> 17,384
<TOTAL-ASSETS> 81,364
<CURRENT-LIABILITIES> 25,166
<BONDS> 20,000
<COMMON> 50
0
0
<OTHER-SE> 35,055
<TOTAL-LIABILITY-AND-EQUITY> 81,364
<SALES> 78,997
<TOTAL-REVENUES> 78,997
<CGS> 71,250
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,704
<INCOME-PRETAX> 1,378
<INCOME-TAX> 524
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
