<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
KENTUCKY ELECTRIC STEEL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
KENTUCKY ELECTRIC STEEL, INC.
POST OFFICE BOX 3500
ASHLAND, KENTUCKY 41105-3500
(606) 929-1222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, FEBRUARY 1, 2000
To the Holders of the Common Stock of
Kentucky Electric Steel, Inc.
The Annual Meeting of Stockholders of Kentucky Electric Steel, Inc., a
Delaware corporation (the "Company"), will be held in Ballroom B, Ashland Plaza
Hotel, Ashland, Kentucky, on Tuesday, February 1, 2000 at 10:00 a.m. (EST), for
the following purposes:
1. To elect one member of the Board of Directors to hold office
until the 2003 Annual Meeting of Stockholders and until his
successor is elected and qualified;
2. To ratify the appointment of Arthur Andersen LLP as
independent public accountants for the fiscal year ending
September 30, 2000; and
3. To consider and act upon such other business as may properly
come before the meeting and any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
December 10, 1999 as the record date for the determination of stockholders
entitled to receive notice of and to vote at the meeting and any adjournment
thereof.
By Order of the Board of Directors.
William J. Jessie, Secretary
December 29, 1999
Ashland, Kentucky
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE> 3
[LOGO] KENTUCKY ELECTRIC STEEL, INC.
POST OFFICE BOX 3500
ASHLAND, KENTUCKY 41105-3500
(606) 929-1222
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON TUESDAY, FEBRUARY 1, 2000
APPROXIMATE DATE OF MAILING: DECEMBER 29, 1999
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Kentucky Electric Steel, Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on Tuesday, February 1, 2000, at 10:00 a.m. (EST) in
Ballroom B, Ashland Plaza Hotel, Ashland, Kentucky, and any adjournment thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
All proxies will be voted in accordance with the instructions contained
in the proxy. If no choice is specified, proxies will be voted in favor of the
election of the nominee for director proposed by the Board of Directors in
Proposal I, and in favor of the ratification of the appointment of Arthur
Andersen LLP as the Company's independent public accountants for the fiscal year
ending September 30, 2000, all as recommended by the Board of Directors. A
stockholder who executes a proxy may revoke it at any time before it is
exercised by delivering to the Company another proxy bearing a later date or by
submitting written notice of such revocation to the Secretary of the Company.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended September 25, 1999 accompanies this proxy statement.
A plurality of the votes cast is required for the election of
directors. Votes withheld from a nominee for election as a director are not
included in the tabulation of the voting results on the election of directors
and, therefore, do not affect the election of directors. The ratification of the
appointment of Arthur Andersen LLP as the Company's independent public
accountants requires the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the proposals. Abstentions on
this matter will be counted for the purpose of determining the number of shares
represented by proxy at the meeting and voting upon such proposal, and shall
therefore have the same effect as if such shares were voted against such
ratification. Broker "non-votes" will be treated as not represented at the
meeting as to the ratification of Arthur Andersen LLP for purposes of
determining the number of votes needed for approval.
A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote upon a particular proposal because the nominee
does not have discretionary voting power with respect to that proposal and has
not received instructions from the beneficial owner. Broker "non-votes" and the
shares as to which stockholders abstain are included for purposes of determining
whether a quorum of shares is present at a meeting.
1
<PAGE> 4
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The close of business on December 10, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. Each outstanding share of the Company's common stock, $0.01
par value ("Common Stock"), is entitled to one vote. On December 10, 1999, there
were outstanding and entitled to vote 4,075,358 shares of the Common Stock.
OWNERSHIP OF DIRECTORS, NOMINEE AND EXECUTIVE OFFICERS
The following table sets forth information regarding the amount of the
Common Stock beneficially owned, as of December 10, 1999, by each director of
the Company, the nominees for election as directors of the Company, the
executive officers named in the Summary Compensation Table and all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES
NAME BENEFICIALLY OWNED(1) PERCENT(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles C. Hanebuth............................................. 217,517(3) 5.2%
Clifford R. Borland............................................. 6,820 (4)
Carl E. Edwards, Jr. ........................................... 8,492 (4)
J. Marvin Quin II............................................... 15,269 (4)
David C. Struve................................................. 14,829 (4)
William J. Jessie............................................... 109,697(5) 2.7%
Joseph E. Harrison.............................................. 78,793(6) 1.9%
William H. Gerak................................................ 55,118(7) 1.3%
Directors and Executive Officers as a Group (8 persons)......... 506,535(8) 11.7%
</TABLE>
(1) Under rules of the Securities and Exchange Commission ("SEC"), persons
who have power to vote or dispose of securities, either alone or
jointly with others, are deemed to be the beneficial owners of such
securities.
(2) The shares subject to options were deemed outstanding for purposes of
this calculation.
(3) Includes 146,715 shares which Mr. Hanebuth had the right to acquire
upon the exercise of stock options exercisable on December 10, 1999 or
within 60 days thereafter. Excludes 203 shares owned separately by Mr.
Hanebuth's spouse and children; Mr. Hanebuth disclaims that he is the
beneficial owner of such shares.
(4) Shares beneficially owned do not exceed one percent of the outstanding
shares of Common Stock.
(5) Includes 47,462 shares which Mr. Jessie had the right to acquire upon
the exercise of stock options exercisable on December 10, 1999 or
within 60 days thereafter.
(6) Includes 45,127 shares which Mr. Harrison had the right to acquire upon
the exercise of stock options exercisable on December 10, 1999 or
within 60 days thereafter.
(7) Includes 29,221 shares which Mr. Gerak had the right to acquire upon
the exercise of stock options exercisable on December 10, 1999 or
within 60 days thereafter.
(8) Includes 268,525 shares subject to option as described in the foregoing
notes.
2
<PAGE> 5
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On December 10, 1999, the following persons were known to the Company
to be the beneficial owners of more than five percent of the Common Stock:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Heartland Advisors, Inc............................... 545,500(1) 13.4%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
State of Wisconsin Investment Board................... 450,000(2) 11.0%
P.O. Box 7842
Madison, Wisconsin 53707
Franklin Resources, Inc............................... 450,000(3) 11.0%
777 Mariners Island Boulevard
San Mateo, California 94404
NS Group, Inc......................................... 400,000(4) 9.8%
Ninth and Lowell Streets
Newport, Kentucky 41072
Tontine Partners, L.P................................. 296,500(5) 7.3%
200 Park Avenue
New York, NY 10166
</TABLE>
(1) Based on Amendment No. 4 to Schedule 13G filed with the SEC on November
10, 1999. Heartland Advisors, Inc., an investment adviser, has sole
voting power as to 270,000 shares and sole dispositive power as to
545,500 shares.
(2) Based on Amendment No. 5 to Schedule 13G filed with the SEC on January
8, 1999. The State of Wisconsin Investment Board has sole voting and
dispositive power as to 450,000 shares.
(3) Based on Amendment No. 1 to Schedule 13G filed with the SEC filed on
January 8, 1999 by Franklin Resources, Inc. ("Franklin Resources").
Franklin Resources, an institutional investment manager, has sole
voting power and shared dispositive power as to 450,000 shares.
(4) NS Group, Inc., a Kentucky corporation ("NS Group"), obtained such
shares in connection with the initial public offering of shares of the
Company's Common Stock as partial consideration for the transfer of all
of the assets and liabilities of a subsidiary of NS Group to the
Company. Clifford R. Borland, a director of the Company, serves as
Chairman and Chief Executive Officer of NS Group. Mr. Borland disclaims
beneficial ownership of the shares owned by NS Group.
(5) Based on Amendment No. 1 to Schedule 13G filed with the SEC on February
18, 1999 by Tontine Partners, L.P., a Delaware limited partnership
("TP"), Tontine Management, L.L.C., a Delaware limited liability
company ("TM"), Tontine Overseas Associates, L.L.C., a Delaware limited
liability company and investment advisor ("TOA"), and Jeffrey L.
Gendell, an individual. TP, TM, TOA and Mr. Gendell have shared voting
power and shared dispositive power as to 296,500 shares.
3
<PAGE> 6
PROPOSAL I: ELECTION OF DIRECTORS
In accordance with the Bylaws of the Company, the Board of Directors
has fixed the number of directors at five directors, divided into three classes
of one, two and two directors, with the terms of office of each class ending in
successive years. The Board of Directors has nominated Charles C. Hanebuth,
whose current term as director expires at the 2000 Annual Meeting, for election
as director to hold office until the 2003 Annual Meeting of Stockholders, and
until his successor is elected and qualified in the class to which he is
assigned or until his earlier death, resignation or removal.
Shares represented by your proxy will be voted in accordance with your
direction as to the election as director of the person listed below as the
nominee. In the absence of direction, the shares represented by your proxy will
be voted FOR such election. In the event that the person listed as the nominee
becomes unavailable as a candidate for election, it is intended that the shares
represented by your proxy will be voted for a substitute nominee, but the Board
knows of no reason to anticipate that this will occur.
Certain information with respect to the nominee and each of the
continuing directors is set forth below, including any positions they hold with
the Company.
<TABLE>
<CAPTION>
POSITIONS OR OFFICES SERVED AS DIRECTOR
NAME AGE WITH THE COMPANY CONTINUOUSLY SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOMINEE FOR TERM ENDING IN 2003
Charles C. Hanebuth 55 President and Chief 1993
Executive Officer
DIRECTORS WITH TERMS ENDING IN 2001
Carl E. Edwards, Jr. 58 None 1993
J. Marvin Quin II 52 None 1993
DIRECTORS WITH TERMS ENDING IN 2002
Clifford R. Borland 62 None 1993
David C. Struve 59 None 1993
</TABLE>
The following are brief summaries of the business experience of the
nominee for election as director of the Company and the other directors whose
terms of office as directors will continue after the Annual Meeting, including,
where applicable, information as to the other directorships held by each of
them.
NOMINEE
CHARLES C. HANEBUTH has been President and Chief Executive Officer of
the Company since its formation in August 1993. From November 1990 to October 6,
1993, Mr. Hanebuth was President and Chief Operating Officer of Kentucky
Electric Steel Corporation, a wholly owned subsidiary of NS Group. Mr. Hanebuth
has 20 years management experience in the steel industry. Mr. Hanebuth is an
advisory director of Fifth Third Bank Ohio Valley and a director of Ashland
Hospital Corporation, which operates King's Daughters' Medical Center.
The Board of Directors recommends a vote FOR the election of the
nominee for director of the Company.
4
<PAGE> 7
CONTINUING DIRECTORS
CLIFFORD R. BORLAND has been Chairman and Chief Executive Officer of NS
Group, a holding company for steel mini-mill operations, since 1995. Prior
thereto, Mr. Borland was President, Chief Executive Officer and a director of NS
Group.
CARL E. EDWARDS, JR. has been Executive Vice President, General Counsel
and Secretary of Lennox International Inc., a manufacturer of residential and
commercial air conditioning and heating equipment and industrial furnaces, since
February 1992. Prior thereto, Mr. Edwards was Vice President, General Counsel
and Secretary of ELCOR Corporation, a manufacturer of roofing and industrial
products.
J. MARVIN QUIN II has been Senior Vice President and Chief Financial
Officer of Ashland, Inc., a diversified corporation which produces and markets
petroleum products, chemicals and road construction services, since 1992. Prior
thereto, Mr. Quin was treasurer of Ashland, Inc. Mr. Quin also serves on the
board of directors of Arch Coal, Inc.
DAVID C. STRUVE has been Chairman of the Board and Chief Executive
Officer of Latite Roofing and Sheet Metal Company Inc., a commercial and
residential roofing company, since 1983.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held four meetings during the
fiscal year ended September 25, 1999. During such fiscal year all of the
incumbent directors attended at least 75% of the aggregate meetings held by the
Board of Directors and all committees on which they serve. The standing
committees of the Board of Directors are the Audit Committee and the
Compensation Committee. The nominees for election as directors of the Company
are chosen by the full Board of Directors, and there is no standing committee
entrusted with this function.
AUDIT COMMITTEE. Messrs. Quin (Chairman), Edwards and Struve are
members of the Audit Committee. The functions of the Audit Committee are to meet
with appropriate Company financial and legal personnel and independent public
accountants to review the internal controls of the Company and the objectivity
of its financial reporting. The Audit Committee recommends to the Board the
appointment of the independent public accountants to serve as auditors in
examining the corporate accounts of the Company. The Audit Committee met two
times during the fiscal year ended September 25, 1999.
COMPENSATION COMMITTEE. Messrs. Struve (Chairman), Borland and Edwards
are members of the Compensation Committee. The functions of the Compensation
Committee are to review, discuss and advise management and make recommendations
to the Board of Directors regarding compensation and benefits for the executive
officers and highly compensated personnel of the Company. The Compensation
Committee also has oversight responsibilities for all broadly based compensation
and benefit programs of the Company. The Compensation Committee met three times
during the fiscal year ended September 25, 1999.
COMPENSATION OF DIRECTORS. Directors who are not employees of the
Company are paid an annual retainer of $16,000 and $1,000 for each meeting of
the Board of Directors attended in excess of four meetings per fiscal year,
along with expenses for attendance at meetings of the Board and Committees. In
addition, such outside Directors are paid $750 ($1,000 for Committee Chairmen)
for each Committee meeting attended. At least sixty percent (60%) of all such
fees are paid to such directors in the form of Common Stock subject to the terms
of the Kentucky Electric Steel, Inc. 1999 Share Plan for Non-Employee Directors.
Directors who are employees do not receive any compensation for service as
directors, but the Company pays their expenses for attendance at Board meetings.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table presents summary information for the 1997, 1998 and
1999 fiscal years concerning compensation awarded or paid to, or earned by, the
Chief Executive Officer and each of the other executive officers whose salary
and bonus exceeded $100,000 for the fiscal year ended September 25, 1999 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation(1)
Name and LTIP All Other
Principal Position Year Salary Bonus(2) Other(3) Options(4) Payouts Compensation(5)
<S> <C> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth 1999 $270,360 $ -- $21,115 34,521 -- $211,426
President and Chief 1998 270,360 15,429 -- -- -- 113,215
Executive Officer 1997 270,360 -- -- 34,521 -- 85,813
William J. Jessie 1999 $132,720 $ -- $ 6,844 10,340 -- $81,347
Vice President, Secretary, 1998 132,720 6,909 -- -- -- 33,338
Treasurer and Chief 1997 126,384 -- -- 10,340 -- 26,190
Financial Officer
Joseph E. Harrison 1999 $126,384 $ -- $10,018 10,340 -- $77,015
Vice President, 1998 126,384 6,579 -- -- -- 54,548
Sales and Marketing 1997 126,384 -- -- 10,340 -- 49,621
William H. Gerak 1999 $109,896 $ -- $ 8,636 8,991 -- $72,821
Vice President, 1998 109,896 5,721 -- -- -- 46,148
Administration 1997 109,896 -- -- 8,991 -- 38,443
</TABLE>
(1) Stock options and restricted stock awards granted under the Company's
1993, 1994 and 1998 Employee Stock Option/Restricted Stock Plans
provide for acceleration of vesting of awards in the event of a change
of control of the Company, as defined in such plan.
(2) Amounts included under "Bonus" represent amounts paid or awarded under
the executive compensation plan described in the Compensation Committee
Report on Executive Compensation.
(3) Amounts represent reimbursement for tax liabilities incurred by the
named executive officers during fiscal 1999 in connection with the
transfer of insurance policies to employee grantor trusts established
by such executive officers pursuant to changes in the salary
continuation agreements.
(4) Information represents stock options awarded under the Company's
1993, 1994 and 1998 Employee Stock Option/Restricted Stock Plans.
(5) Amounts included as "All Other Compensation" for the named executive
officers consist of charges associated with the Company's salary
continuation program, imputed interest on loans made under the Key
Employee Stock/Loan Plan, the dollar value of premiums paid by the
Company in connection with life insurance policies for the benefit of
the named executive officers, contributions to the Company's Profit
Sharing Plan on behalf of the named executive officers, and charges in
connection with certain disability insurance premiums for Mr. Hanebuth.
Charges associated with the salary continuation program (including the
associated loan forgiveness and insurance premium payments) during
fiscal 1997, 1998 and 1999, respectively, were: $74,852, $101,128 and
$201,184 for Mr. Hanebuth; $24,071, $30,002 and $79,601 for Mr. Jessie;
$47,502, $51,302 and $75,010 for Mr. Harrison; and $36,467, $43,284 and
$71,116 for Mr. Gerak. Imputed interest under the Key Employee
Stock/Loan Plan for fiscal 1997, 1998 and 1999, respectively, was
$4,938, $4,018 and $2,036 for
6
<PAGE> 9
Mr. Hanebuth; $2,119, $1,715 and $1,016 for Mr. Jessie; $2,119, $1,715
and $1,016 for Mr. Harrison; and $1,976, $1,491 and $883 for Mr. Gerak.
The value of the benefit to the named individuals of the premiums paid
by the Company on behalf of named individuals pursuant to the Company's
split dollar insurance arrangements during fiscal 1998 and 1999 was
$292 and $2,183 for Mr. Hanebuth, $95 and $730 for Mr. Jessie, $77 and
$989 for Mr. Harrison, and $109 and $822 for Mr. Gerak. In fiscal year
1999, the split dollar insurance program was discontinued in connection
with certain changes made to the salary continuation program. See
"Other Compensation Arrangements." The Company made the following
contributions to the Profit Sharing Plan in fiscal 1998 and 1999,
respectively: $1,754 and none on behalf of Mr. Hanebuth; $1,526 and
none on behalf of Mr. Jessie; $1,454 and none on behalf of Mr.
Harrison; and $1,264 and none on behalf of Mr. Gerak. The Company also
provides an individual disability insurance policy for Mr. Hanebuth. In
the event Mr. Hanebuth had been disabled for more than 90 days, the
policy would pay $6,200 per month during the term of disability up to
age 65. Premiums paid on behalf of Mr. Hanebuth amounted to $6,023 in
each of fiscal 1997, 1998 and 1999.
The following tables present certain additional information concerning
stock options granted to the named executive officers during fiscal 1999. No
stock options were exercised by the named executive officers during fiscal 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(1)
----------------------------------------------------------- ----------------------------
% of Total
Options
Granted to Exercise or
Options Employees in Base Price
Name Granted (#)(2) Fiscal Year (per share)(3) Expiration date 5% 10%
---- -------------- ------------ -------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Charles C. Hanebuth 34,521 37.9% $ 3.0312 2/10/09 $ 65,807 $ 166,771
William J. Jessie 10,340 11.3% $ 3.0312 2/10/09 $ 19,711 $ 49,953
Joseph E. Harrison 10,340 11.3% $ 3.0312 2/10/09 $ 19,711 $ 49,953
William H. Gerak 8,991 9.9% $ 3.0312 2/10/09 $ 17,140 $ 43,436
</TABLE>
(1) The amounts shown under these columns are the result of calculations at
5% and 10% rates over the ten year term of the options as required by
the Securities and Exchange Commission and are not intended to forecast
future appreciation of the stock price of the Company's Common Stock.
The actual value, if any, an executive officer may realize will depend
on the excess of the stock price over the exercise price on the date
the option is exercised.
(2) These options were granted as of February 10, 1999 in connection with
the Compensation Committee's review of compensation for fiscal 1999 and
one fourth of each option becomes exercisable each year beginning
February 10, 2000.
(3) The exercise price for these options is equal to the market price
of the Company's Common Stock on February 10, 1999.
7
<PAGE> 10
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options Options at
at September 25, 1999(#) September 25, 1999($) (1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles C. Hanebuth 146,715 60,411 0 $29,129
William J. Jessie 47,462 18,095 0 8,725
Joseph E. Harrison 45,167 18,095 0 8,725
William H. Gerak 29,221 15,734 0 7,587
</TABLE>
(1) Based on the market value of the Company's Common Stock on September 25,
1999.
OTHER COMPENSATION ARRANGEMENTS
The Company entered into agreements with the named executive officers
effective June 7, 1994 (as thereafter amended, the "Employment Agreements"). The
Employment Agreements provide for continued employment of the respective officer
by the Company for a period of three years following a Change of Control (as
defined) on an equivalent basis to employment immediately before the Change of
Control. If (i) the employee terminates his employment for any reason other than
death or disability during the period from six months following a Change of
Control and ending 36 months following a Change of Control, (ii) the Company
terminates the employee's employment during the period from the date of the
Change of Control and ending 36 months following a Change of Control ("Change of
Control Period"), or (iii) the employee terminates his employment for Good
Reason (as defined) during the first six months of the Change of Control Period,
the Company shall pay the employee a single lump sum cash payment equal to $1.00
less than three times the employee's "Base Amount." The term Base Amount means
the employee's average annual compensation from the Company for the five
consecutive years preceding the Change of Control. The Employment Agreements
also provide that for a period of two years after the termination of the
employee's employment under such agreement, the employee will not engage in any
Competition Activity (as defined) and shall provide reasonable consulting
services to the Company. Pursuant to the Employment Agreements, each employee
has also agreed not to disclose Confidential Information (as defined) of the
Company.
The Board of Directors adopted an Executive Severance Plan effective
June 7, 1994 (as thereafter amended, the "Executive Severance Plan") for the
named executive officers. In consideration for certain non-competition and
confidentiality covenants and provided his employment is not terminated for
Cause (as defined), each named executive officer is entitled to be paid his
regular base salary at the time of severance from the Company for a period of 24
months (36 months for Mr. Hanebuth) following termination. In addition, the
executive would continue to receive certain employee benefits and would be
eligible to receive a pro rata share of any incentive bonus plan compensation
earned but not paid and he would receive an amount equal to the cash value of
all outstanding stock options, stock appreciation rights and restricted stock
held by such executive.
The Employment Agreements and the Executive Severance Plan also provide
that an employee will be reimbursed for any legal expenses incurred in
litigating his rights under the agreement or the severance plan.
The Compensation Committee approved a Key Employee Stock/Loan Plan in
February 1995, under which the Company may grant certain key employees rights to
apply to the Company for a loan. The
8
<PAGE> 11
proceeds of any such loan must be used to purchase Kentucky Electric Steel
Common Stock at that time, applied to previous stock purchases not made in
connection with the Stock/Loan Plan or be used to meet tax obligations on
restricted stock grants. The normal maximum amount which may be loaned to each
eligible key employee is a percentage of base salary determined by a formula
approved by the Compensation Committee. Such loans bear no interest and are
repayable by the key employee through continued service with the Company, with
the principal amount of the loan being forgiven at the rate of 20% for each year
of continuous service subsequent to the date of the making of the loan. The
outstanding balances of such loans are required to be repaid on any termination
of employment with the Company, except for termination due to disability, death
or retirement. No loans were made under the Key Employee Stock/Loan Plan in
fiscal 1997, 1998 or 1999.
Under the Company's salary continuation program, executive officers,
upon retirement at age 62, will be paid an amount equal to 60% of base salary to
age 85 (10 years certain). At age 85, Mr. Hanebuth would continue to receive a
benefit of 28% of his base salary until death. Such amounts will be reduced by
the amounts such individuals receive under certain insurance policies, as
described below. As of September 25, 1999, the salary continuation benefits
reported for each named executive officer have been vested at 75% by the Board
of Directors.
In September 1998, the Company entered into split dollar insurance
agreements with each of Mr. Hanebuth, Mr. Jessie, Mr. Harrison and Mr. Gerak.
Effective as of September 1999, the Company changed its salary continuation
program and discontinued its split dollar insurance program in connection with
such change. The Company transferred each of the insurance policies obtained
under those agreements to employee grantor trusts established by the respective
individuals covered thereby. The obligation of the Company pursuant to the
salary continuation program will be offset by actuarially calculated amounts
based upon the cash surrender values of the respective life insurance policies.
The Company has in the past paid the premiums on these insurance policies. While
the Company will no longer be obligated to pay such premiums following transfer
of the policies to the employee grantor trusts, it may elect to do so in order
to further offset its salary continuation obligations. The Company will not
receive any proceeds from such insurance. The Company agreed to lend to each of
such individuals an amount equal to the federal and state income taxes incurred
by such individuals in connection with such transfer and entered into Loan
Forgiveness Agreements whereby the Company agreed to forgive those loaned
amounts over a nine year period provided such individual either remains employed
by the Company or complies with certain non-competition and confidentiality
agreements following employment.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for fiscal 1999:
The Company's executive compensation program (the "Program") has been
designed to enable the Company to attract, motivate and retain senior management
by providing a competitive total compensation opportunity that emphasizes
variable, at-risk, performance-based compensation. The Program is comprised of
three basic elements: base salaries which are competitive in specific industry
segments within which the Company operates and which also reflect individual
performance; annual incentive opportunities which may be paid in cash and/or
awarded in restricted stock for the achievement of annual financial performance
goals established by the Compensation Committee; and long-term stock
based-incentive opportunities.
A discussion of each of the elements of the Program along with a
description of the significant decisions of the Compensation Committee with
regard to fiscal 1999 compensation is set forth below.
Annual total compensation for the executive officers consists of a base
salary and the potential for
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<PAGE> 12
an annual bonus under the Executive Incentive Compensation Plan (the "Incentive
Compensation Plan"). National survey data for all industries, data from industry
segments within which the Company operates and evaluation of individual
performance were utilized to determine fiscal 1999 base salaries for executive
officers. The annual base salaries for the executive officers other than the
chief executive officer were determined through an interactive review process
between the Compensation Committee and Mr. Hanebuth using the aforementioned
criteria. Mr. Hanebuth's base salary was reviewed and established by the
Compensation Committee.
Under the Incentive Compensation Plan, officers may be awarded annual
incentive bonuses if the Company meets certain performance criteria. Annual
incentive bonuses for Mr. Hanebuth and other named executive officers are based
upon pre-tax return on equity targets which are established at the beginning of
the fiscal year. At specified levels of return, a participant is eligible to
receive an incentive bonus equal to a variable percentage of his annual base
salary, to a maximum of approximately 100% of annual base salary. The fiscal
1999 equity targets and incentive percentage levels were reviewed and approved
by the Compensation Committee. Seventy-five percent of the incentive bonus may
be paid quarterly during the fiscal year for which bonus payments are
calculated, with the balance paid after determination of results for the fiscal
year. Any contribution made by the Company for Profit Sharing to the Salaried
Employees Profit Sharing and Flexible Compensation Plan on behalf of any
executive officer results in a corresponding reduction in incentive compensation
bonus payments to the executive officers.
The long-term incentive component of the chief executive officer and
the executive officers' 1999 compensation includes stock options. Stock options
are designed to align the long-term interests of the Company's executives and
its stockholders and assist in the retention of executives.
In February 1999, the Compensation Committee granted incentive stock
options to all of the executive officers, as well as certain other management
employees. The grants made to Mr. Hanebuth were consistent with prior option
awards made by the Company, which were determined with reference to national
survey data regarding stock option grants to chief executive officers. Other
executive officers received awards which were set at 65% of the level originally
established for Mr. Hanebuth.
All options were granted at the fair market value on the date of grant.
The Company will likely consider additional stock option grants to such
executives in fiscal 2000.
COMPENSATION COMMITTEE
David C. Struve (Chairman)
Clifford R. Borland
Carl E. Edwards, Jr.
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PERFORMANCE GRAPH
The following graph sets forth a comparison of the Company's cumulative
total stockholder return from September 24, 1994 through September 25, 1999 with
the cumulative total return for the same period of the Standard & Poor's 500
Index and the Standard & Poor's 500 Iron and Steel Index. The graph assumes a
$100 investment in the Company's Common Stock and each index and the
reinvestment of all dividends.
TOTAL SHAREHOLDER RETURNS
[GRAPH]
INDEXED RETURNS
<TABLE>
<CAPTION>
Base Years Ending
Period
Company / Index 24Sep94 30Sep95 28Sep96 27Sep97 26Sep98 25Sep99
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KENTUCKY ELECTRIC STEEL INC 100 82.96 61.94 63.64 31.82 35.23
S&P 500 INDEX 100 129.03 154.06 209.04 223.68 273.54
IRON & STEEL-500 100 70.44 67.35 77.84 54.96 54.97
</TABLE>
PROPOSAL II: RATIFICATION
OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee,
has determined to appoint Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending September 30, 2000. A resolution
will be presented at the meeting to ratify the appointment of Arthur Andersen
LLP. If the stockholders do not ratify the selection of Arthur Andersen LLP, the
selection of independent public accountants will be reconsidered by the Board.
The Company has been advised that a representative of Arthur Andersen
LLP will be present at the meeting with an opportunity to make a statement if
such representative desires and will be available to respond to questions of the
stockholders.
The Board of Directors recommends a vote FOR ratification of the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending September 30, 2000.
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COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors, and persons who own more than ten percent of
the Company's outstanding stock, file reports of ownership and changes in
ownership with the Securities and Exchange Commission. For fiscal 1999, to the
knowledge of the Company, all Section 16(a) filing requirements applicable to
its officers and directors were complied with.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders scheduled to be held on February 6, 2001, must be
received by the Company by August 31, 2000, for inclusion in the Company's Proxy
Statement and proxy relating to that meeting. Upon receipt of any such proposal,
the Company will determine whether or not to include such proposal in the Proxy
Statement and proxy in accordance with regulations governing the solicitation of
proxies.
The Company's Bylaws also set forth certain advance notice or
information requirements and time limitations on any director nomination or any
new business which a stockholder wishes to propose for consideration at an
annual or special meeting of stockholders. In order for a stockholder to
nominate a candidate for director or bring a proposal before a stockholder
meeting, the Bylaws generally require that notice be given to the Company not
less than 60 days nor more than 90 days before the meeting; provided that if
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, then the stockholder must give such notice to
the Company within 10 days after notice of the stockholder meeting is mailed or
other public disclosure of the meeting is made. Accordingly, in order to
nominate a candidate for director or bring a proposal before the 2001 Annual
Meeting, the Company must receive notice from the stockholder between November
8, 2000 and December 8, 2000. The notice must contain certain information
relating to the nominee for director or new business proposal. The Board of
Directors of the Company may reject any nomination or new business proposal not
timely made or supported by insufficient information. In addition, the time
limits discussed in this paragraph also apply in determining whether notice is
timely for purposes of rules adopted by the Securities and Exchange Commission
relating to the exercise of discretionary voting authority. If the date for the
2001 Annual Meeting is delayed or advanced by more than 30 calendar days, the
Company will inform stockholders of such change, and the new dates referred to
in this section, in accordance with the rules governing the solicitation of
proxies. These requirements are separate from the rules of the Securities and
Exchange Commission which provide for the inclusion of proposals of shareholders
in the Company's Proxy Statement.
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MISCELLANEOUS
The Company will bear the cost of solicitation of proxies. Proxies will
be solicited by mail. They may also be solicited by officers and regular
employees of the Company personally or by telephone, but such persons will not
be specifically compensated for such services. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the soliciting material to
the beneficial owners of stock held of record by such persons and will be
reimbursed for their reasonable expenses incurred in connection therewith.
Management knows of no business to be brought before the Annual Meeting
of Stockholders other than that set forth herein. However, if any other matters
properly come before the meeting, it is the intention of the persons named in
the proxy to vote such proxy in accordance with their judgment on such matters.
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<PAGE> 15
Even if you plan to attend the meeting in person, please execute, date and
return the enclosed proxy promptly. Should you attend the meeting, you may
revoke the proxy by delivering to the Company another proxy bearing a later date
or by submitting written notice of such revocation to the Secretary of the
Company. A postage-paid, return-addressed envelope is enclosed for your
convenience. Your cooperation in giving this your prompt attention will be
appreciated.
By Order of the Board of Directors,
WILLIAM J. JESSIE, Secretary
December 29, 1999
Ashland, Kentucky
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<PAGE> 16
KENTUCKY ELECTRIC STEEL, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 1, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William J. Jessie and William H. Gerak, or
either of them, with full power to act alone, the true and lawful
attorneys-in-fact and proxies of the undersigned, with full power of
substitution and revocation, to vote all shares of common stock of Kentucky
Electric Steel, Inc., a Delaware corporation, which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at the
Ashland Plaza Hotel, Ashland, Kentucky, on Tuesday, February 1, 2000 at 10:00
a.m., Eastern Standard Time, and at any adjournments thereof, with all powers
the undersigned would possess if personally present.
THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDERS. IF
NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND 2.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE DATE THIS PROXY AND SIGN NAME OR NAMES EXACTLY AS PRINTED HEREON. WHERE
THERE IS MORE THAN ONE OWNER, EACH MUST SIGN. WHEN SIGNING IN FIDUCIARY OR
REPRESENTATIVE CAPACITY, PLEASE GIVE FULL TITLE AS SUCH.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________________ ____________________________________
__________________________________ ____________________________________
__________________________________ ____________________________________
<PAGE> 17
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
- ---------------------------------------------------------
KENTUCKY ELECTRIC STEEL, INC.
- ---------------------------------------------------------
Mark box at right if you plan to attend the Meeting of Stockholders [ ]
Mark box at right if an address change or comment has been noted on [ ]
the reverse side of this card.
RECORD DATE SHARES:
1. Election of Director. WITH-
FOR HOLD
CHARLES C. HANEBUTH [ ] [ ]
(to elect the above nominee as Director)
2. Ratify the appointment of Arthur Andersen LLP,
as independent public accountants for fiscal 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion on any other matter that may properly come before the
meeting or any adjournment thereof.
------------------------
Please be sure to sign and date this Proxy. Date
------------------------
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- -------------------------------------------------------------------------------
Stockholder sign here Co-owner sign here
