UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER: 33-22603
BAYOU STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-1125783
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
P.O. BOX 5000
RIVER ROAD
LAPLACE, LOUISIANA 70069
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 652-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Class A Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
101/4% First Mortgage Notes due 2001
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 report) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value and the number of voting shares of the
registrant's common stock outstanding on October 31, 1995 was:
SHARES OUTSTANDING HELD BY MARKET VALUE
TITLE OF EACH CLASS ---------------------------- HELD BY
OF COMMON STOCK AFFILIATES NON-AFFILIATES NON-AFFILIATES
----------------------- ---------- -------------- --------------
Class A, $.01 par value....... 1,357,997 9,255,383 $41,649,224
Class B, $.01 par value....... 2,271,127 0 N/A
Class C, $.01 par value....... 100 0 N/A
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1996 Annual
Meeting of Stockholders are incorporated herein by reference in Part III.
================================================================================
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
INFORMATION WITH RESPECT TO BOARD OF DIRECTORS
During the fiscal year ended September 30, 1995, the Company's Board of
Directors held seven meetings. Each member of the Board of Directors, except Mr.
Sangalis who was elected on June 20, 1995, attended at least 80% of the meetings
of the Board and of each Board committee of which they were members.
The following table sets forth certain information as to the Director
nominees (and as to the ownership of the Company's Class A and Class B Common
Stock by Directors, named Executive Officers, and all Executive Officers and
Directors of the Company, as a group) as of October 31, 1995. Unless otherwise
indicated, each of the directors has held the positions listed for at least five
years.
COMMON STOCK
-------------------------------------------------------------
CLASS A CLASS B
---------------------------- -------------------------------
NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
NAME, AGE AND DIRECTOR BENEFICIALLY OUTSTANDING & BENEFICIALLY OUTSTANDING &
PRINCIPAL OCCUPATION SINCE OWNED EXERCISABLE OWNED EXERCISABLE
-------------------- -------- ------------ ------------- ---------------- -------------
CLASS A DIRECTOR NOMINEES
John A. Canning, Jr., 51 (1) ............ 1988 42,382 * -0- -0-
President of Madison Dearborn
Partners Inc., Capital
Advisory Services
Chicago, Illinois
Lawrence E. Golub, 36 (2) ............... 1988 103,000 * -0- -0-
President of Golub Associates, Inc.,
Equity Investment firm
New York, New York
Jeffrey P. Sangalis, 37 (3) ............. 1995 822,422 7.19 -0- -0-
Partner & Director of Rice Capital
Houston, Texas
Stanley S. Shuman, 60 (4)(8) ............ 1988 817,880 7.71 -0- -0-
Executive Vice President & Managing
Director of Allen & Company
Incorporated, investment bankers
New York, New York
CLASS B DIRECTOR NOMINEES
Melvyn N. Klein, 53 (5)(8) .............. 1988 60,000 * -0- -0-
President, JAKK Holding Corporation,
a General Partner of GKH Partners, L.P.
Corpus Christi, Texas
Albert P. Lospinoso, 59 (6)(8) .......... 1988 10,000 * -0- -0-
Chief Executive Officer and President
of RSR Corporation, nonferrous metals
recycle smelting and refining
Dallas, Texas
Howard M. Meyers, 53 (7)(8) ............. 1988 300,000 2.83 2,271,127 100
Chairman and Chief Executive Officer
of the Company
1
COMMON STOCK
-------------------------------------------------------------
CLASS A CLASS B
---------------------------- -------------------------------
NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
NAME, AGE AND DIRECTOR BENEFICIALLY OUTSTANDING & BENEFICIALLY OUTSTANDING &
PRINCIPAL OCCUPATION SINCE OWNED EXERCISABLE OWNED EXERCISABLE
-------------------- -------- ------------ ------------- ---------------- -------------
Jerry M. Pitts, 44 (9) .................. 1994 8,025 * -0- -0-
President and Chief Operating Officer
of the Company
NON-DIRECTOR NAMED EXECUTIVE OFFICERS
Richard J. Gonzalez ..................... -- 4,930(10) * -0- -0-
Vice President, Chief Financial
Officer, Treasurer and Secretary
Timothy R. Postlewait ................... -- 5,014(10) * -0- -0-
Vice President of Plant Operations
Rodger A. Malehorn ...................... -- 4,612(10) * -0- -0-
Vice President of Commercial Operations
All directors and executive officers as
a group (11) (12 persons) ............. 2,180,419 19.04 2,271,127 100
- ------------
* Less than one percent.
(1) Mr. John A. Canning has been President of Madison Dearborn Partners,
Inc., which is the management company for a private equity investment
fund, Madison Dearborn Capital Partners L.P., and a limited
partnership, Madison Dearborn Advisers, L.P., which provides venture
capital advisory services to First Chicago Corporation, since January
1993. For more than five years prior to that, Mr. Canning was President
of First Capital Corporation of Chicago and First Chicago Investment
Corporation, both subsidiaries of First Chicago Corporation, engaged in
venture capital projects. He is a director of Tyco Toys, Inc., The
Interlake Corporation, and The Milnot Corporation.
(2) Mr. Lawrence E. Golub has been President of Golub Associates, Inc., an
equity investment firm, since August 1994. From September 1993 to
August 1994, Mr. Golub was a Managing Director of Bankers Trust Company
in New York, New York. From September 1992 to August 1993, Mr. Golub
was a White House Fellow. Mr. Golub was Managing Director of
Wasserstein Perella Capital Markets from February 1990 to August 1992
and an officer of Allen & Company Incorporated, an investment banking
firm, from 1984 to February 1990. He is Chairman of Mosholu
Preservation Corporation. From February 21, 1991, until September 21,
1994, Mr. Golub served as a Director elected by the Class B Common
stockholder.
(3) All 822,422 shares are subject to a warrant beneficially owned by Rice
Partners II, LP. Mr. Sangalis is a Partner and Director of Rice
Partners II, LP and related entities. Mr. Sangalis disclaims
beneficial ownership of such shares. In addition, Rice Partners II, LP
owns Preferred Stock of the Company pursuant to a Preferred Stock and
Warrant Purchase Agreement, dated June 13, 1995, which among other
things, allows the holder to designate a director to the Company's
Board. See "Proposed Amendment to the Company's Certificate of
Incorporation (Proposal 3)."
(4) Includes 522,528 shares of Class A Common Stock owned by Allen &
Company Holding, Inc., which owns all of the outstanding shares of
Allen & Company Incorporated; Mr. Stanley S. Shuman is an Executive
Vice President and Managing Director of both Allen & Company Holding,
Inc. and Allen & Company Incorporated. Mr. Shuman disclaims beneficial
ownership of such shares. Includes an aggregate of 60,000 shares of
Class A Common Stock owned by trusts for the benefit of Mr. Shuman's
children, of which Mr. Shuman disclaims beneficial ownership. Mr.
Shuman has no voting or investment power, shared or otherwise, in the
foregoing shares. He is a Director of The News Corporation Limited,
Hudson General Corporation, Global Asset Management, U.S.A., Sesac
Inc., and Tower Air Inc.
2
(5) Mr. Melvyn N. Klein has been a practicing attorney and private investor
in Corpus Christi, Texas. He has been a Director of Quexco since 1984.
He is the sole shareholder, sole director and President of JAKK Holding
Corporation, a General Partner of GKH Partners, L.P., which is the sole
General Partner of GKH Investments, L.P., an investment fund; founder
and principal of Questor Partners Fund, L.P.; and a director of Anixter
International, Inc., Santa Fe Energy Resources and Savoy Pictures
Entertainment, Inc.
(6) Mr. Albert P. Lospinoso has been Chief Executive Officer and President
of RSR Corporation ("RSR") a privately owned, nonferrous metals recycle
smelting and refining company with offices in Dallas, Texas, and plants
in Dallas, Texas; Middletown, New York; Indianapolis, Indiana; and City
of Industry, California, since July 1995 and is a director of RSR and
Quexco Incorporated. From July 1992 until July 1995, Mr. Lospinoso was
President and Chief Operating Officer of RSR, and for more than five
years prior to that he was the Executive Vice President, Chief
Operating Officer and a director of RSR and its predecessor companies.
(7) Mr. Howard M. Meyers has been Director, Chairman of the Board, Chief
Executive Officer of the Company since September 5, 1986, and was also
President until September 21, 1994. Since 1984 he has been Director,
Chairman of the Board, Chief Executive Officer and President of Quexco
Incorporated, a privately owned company, and the parent of RSR.
(8) All 300,000 shares of Class A Common Stock are owned by a limited
partnership in which Mr. Meyers and his wife are the sole limited
partners and of which the general partner is a corporation all of the
stock of which is owned by Mr. Meyers. Through his control of the
corporate general partner of the limited partnership, Mr. Meyers has
sole voting and dispositive power over the 300,000 shares of Class A
Common Stock. The limited partnership also owns 60% of the Common Stock
of Bayou Steel Properties Limited (the "BSPL"), a Delaware corporation.
Through his control of the corporate general partner of the limited
partnership, Mr. Meyers controls BSPL's voting power. Since BSPL owns
100% of the Company's Class B Common Stock, Mr. Meyers has sole voting
and dispositive control of the Class B Common stock. The Class B Common
Stock accounts for a maximum of 60% of the voting power of the Company.
Therefore Mr. Meyers may be deemed to "control" the Company. Allen &
Co. Incorporated and Messrs. Klein, Lospinoso, and Shuman are minority
stockholders of BSPL owning 2.08%, 2.77%, 0.76%, and 1.17%,
respectively, and Messrs. Lospinoso and Meyers are directors of BSPL.
(9) Includes exercisable options for 6,000 shares of Class A Common Stock.
Mr. Jerry M. Pitts was elected Director, President and Chief Operating
Officer on September 21, 1994. He was elected Executive Vice President
and Chief Operating Officer of the Company on June 7, 1991. He had been
Executive General Manager of the Company since July 1, 1987. From 1986
to 1987, he served the Company as General Manager of Operations; from
1984 to 1986, he was Superintendent of Melting Operations; and from
1980 to 1984, he was General Foreman of Melting. Mr. Pitts worked in
various management capacities related to production and process
engineering at U.S. Steel Corporation from 1974 to 1980.
(10) Includes exercisable options for 3,000 shares of Class A Common stock
for each of Messrs. Gonzalez, Postlewait, and Malehorn.
(11) Includes 839,422 shares of Class A Common Stock, subject to exercisable
warrants and stock options held by such persons.
AGREEMENT CONCERNING CHANGE IN CONTROL
The shares of common stock of BSPL owned by Mr. Howard M. Meyers may not be
sold, nor may shares of BSPL be issued, at a price which represents a premium
attributable to the underlying Class B Common Stock over the market price of the
Class A Common Stock, to any person or group if such sale, when aggregated with
all prior sales during the immediately preceding four-year period, would result
in such
3
person or group owning more than 50% of the common stock of BSPL, unless such
person or group agrees to make a tender offer within 30 days for an equivalent
percentage of Class A Common Stock at the highest price paid by such person or
group (expressed in equivalent shares of Class B Common Stock) for the shares of
common stock of BSPL; provided that the Directors elected by the holders of the
Class A Common Stock waive the charter restriction prohibiting a purchaser from
acquiring 5% or more of the aggregate fair market value of the Class A Common
Stock. The agreement terminates when the holders of the Class B Common Stock no
longer have the right to elect a majority of the Board of Directors of the
Company.
The Company's Certificate of Incorporation provides that if Mr. Meyers
resigns, retires or is removed for cause as Chief Executive Officer of the
Company, the Class B Common Stock will no longer vote separately by class with
respect to the election of directors, and will only have one vote per share.
COMMITTEES OF THE BOARD
The Board of Directors has four committees, an Audit Committee, an
Environmental Health and Safety Audit Committee, a Compensation Committee, and a
Nominating Committee. During the fiscal year ended September 30, 1995, the Audit
Committee met twice, the Environmental Health and Safety Audit Committee twice,
the Nominating Committee once, and the Compensation Committee once.
THE AUDIT COMMITTEE presently consists of Messrs. Klein (Chairman),
Lospinoso, Golub, and Sangalis, with Mr. Sangalis joining the committee in
October 1995. The Audit Committee is charged with the duties of making
recommendations to the Board of Directors regarding the selection of the
Company's independent auditors, reviewing the activities of such independent
auditors and of any internal audit activities of the Company, disposing and
deciding of major accounting policy matters directly or indirectly affecting the
Company, defining the scope of the annual audit of the Company, and such other
powers and duties as may be delegated to such committee by the Board of
Directors from time to time.
THE COMPENSATION COMMITTEE presently consists of Messrs. Shuman (Chairman)
and Canning. Messrs. Golub and Lospinoso were added October 1, 1995. The
Compensation Committee is empowered to establish compensation payable to
directors and executive officers of the Company, as well as any loans or
advances by the Company to such persons, subject to the provision that the chief
executive officer's compensation is controlled by an employment arrangement
between the chief executive officer and the Company.
THE NOMINATING COMMITTEE presently consists of Messrs. Canning (Chairman),
Golub, and Shuman. The Nominating Committee is empowered to nominate persons
solely for election as Class A Directors at the annual meeting of stockholders.
The Committee will consider candidates for nominees for directors recommended by
Class A stockholders if such recommendations are submitted in writing to the
Secretary of the Company giving the background and qualifications of the
candidate.
ENVIRONMENTAL, HEALTH AND SAFETY AUDIT COMMITTEE, which presently consists
of Messrs. Golub (Chairman), Klein, Lospinoso, Canning, and Shuman, is charged
with oversight of the Company's Health and Safety Policy and its Environmental
Compliance Policy, reviewing the independent audit reports of the independent
outside health, safety and environmental consultants engaged for such purposes,
defining the scope of such audits and such other powers and duties in the
health, safety and environmental areas as may be delegated to the Committee by
the Board of Directors.
DIRECTOR'S COMPENSATION
The Company pays each non-employee director $30,000 per year, payable in
quarterly installments, for serving as a director, plus expenses for each
meeting of the Board of Directors that a director attends. The Company does not
compensate directors who are officers of the Company for services as directors.
Mr. Meyers and Mr. Pitts are the only directors who are officers of the Company.
4
CERTAIN TRANSACTION
Under an agreement with Allen & Company Incorporated entered into on May
28, 1987, the Company granted Allen & Company a right of first refusal, on
competitive terms, to perform certain investment banking services for the
Company until September 4, 1996. For fiscal 1995, Allen & Company acted as
comanager in conjunction with the placement of the Company's Series A Redeemable
Preferred Stock and warrants and received $160,000 for its services. Stanley S.
Shuman, a director of the Company, is Executive Vice President and Managing
Director of Allen & Company.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Company's Chief
Executive Officer and the four other most highly-compensated executive officers
for the fiscal years 1992 through 1995.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION AWARD OF
NAME AND ------------------ STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES) COMPENSATION(1)
------------------ ------ -------- ------- -------------- ---------------
Howard M. Meyers............................ 1995 $465,504 $ -0- -0- $ -0-
Chairman and Chief 1994 437,990 -0- -0- -0-
Executive Officer 1993 437,990 -0- -0- -0-
1992 435,041 -0- -0- -0-
Jerry M. Pitts.............................. 1995 225,000 112,500 -0- 1,538
President and Chief 1994 225,000 9,750 30,000 1,428
Operating Officer 1993 225,000 9,750 -0- 1,316
1992 225,000 9,750 -0- 1,702
Timothy R. Postlewait....................... 1995 150,000 63,974 -0- 1,508
Vice President 1994 150,000 6,000 15,000 1,602
of Plant Operations 1993 150,000 6,000 -0- 1,560
1992 150,000 6,000 -0- 1,560
Richard J. Gonzalez......................... 1995 147,000 77,910 -0- 1,489
Vice President, Chief Financial 1994 147,000 5,313 15,000 1,638
Officer, Treasurer and Secretary 1993 147,000 5,313 -0- 1,462
1992 147,000 5,313 -0- 1,498
Rodger A. Malehorn.......................... 1995 132,000 60,065 -0- 1,457
Vice President of 1994 120,000 -0- 15,000 1,488
Commercial Operations 1993 120,000 5,313 -0- 1,253
1992 120,000 5,313 -0- 1,253
- --------------
(1) Includes amounts contributed by the Company to the Company's Savings
Plan, a 401(k) Plan in respect of matching contributions. For fiscal
1995, the Company's contributions were $1,436 for Mr. Pitts, $1,406 for
Mr. Postlewait, $1,315 for Mr. Gonzalez, and $1,169 for Mr. Malehorn.
Also includes the dollar value of term life insurance premiums paid by
the Company for the benefit of these officers.
5
OPTION YEAR-END VALUE TABLE
The following table presents the value of unexercised options at September
30, 1995.
FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995(1)
------------------ ---------------------
EXERCISABLE(E)/ EXERCISABLE(E)/
NAME UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ---------------- ----------------
Howard M. Meyers...................... -0- $ N/A
Jerry M. Pitts........................ 6,000E/24,000U 3,375E/13,500U
Timothy R. Postlewait................. 3,000E/12,000U 1,687E/ 6,750U
Richard J. Gonzalez................... 3,000E/12,000U 1,687E/ 6,750U
Rodger A. Malehorn.................... 3,000E/12,000U 1,687E/ 6,750U
- --------------
(1) At September 30, 1995, the closing sales price for Bayou Steel
Corporation's Class A Common Stock on the American Stock Exchange was
$4.9375.
EMPLOYMENT CONTRACT
Pursuant to agreements between Mr. Howard M. Meyers and the Company, Mr.
Meyers is entitled to an annual cash salary equal to the greater of (x) a base
amount of $350,000 adjusted for increases in the consumer price index since
December 1985 or (y) 2% of the Company's pretax net income earned during the
immediately preceding year (or 1% if Mr. Meyers is no longer both the Chairman
and Chief Executive Officer of the Company with substantial day-to-day
managerial responsibilities).
RETIREMENT PLAN
The following table specifies the estimated annual benefits upon retirement
under the Retirement Plan to eligible employees of the Company of various levels
of average annual compensation and for the years of service classifications
specified:
PENSION PLAN TABLE
YEARS OF SERVICE
AVERAGE ANNUAL --------------------------------------------------------
COMPENSATION 10 20 30 45
------------ -------- -------- -------- --------
$ 20,000 $ 1,200 $ 2,400 $ 3,600 $ 3,600
50,000 4,204 8,407 12,611 12,611
100,000 9,704 19,407 29,111 29,111
150,000 15,204 30,407 45,611 45,611
200,000 15,204 30,407 45,611 45,611
250,000 15,204 30,407 45,611 45,611
300,000 15,204 30,407 45,611 45,611
600,000 15,204 30,407 45,611 45,611
The Company has adopted the Bayou Steel Corporation Retirement Plan (the
"Retirement Plan") covering eligible employees of the Company not covered by a
collective bargaining agreement. Under the terms of the Retirement Plan, the
monthly retirement benefits of a participant payable at the participant's
6
normal retirement date are equal to (i) .6% of average monthly compensation,
multiplied by years of credited service (not to exceed 30 years), plus (ii) .5%
of that portion, if any, of average monthly compensation which is in excess of
the participant's average social security taxable wage base, multiplied by years
of credited service (not to exceed 30 years).
Annual retirement benefits are computed on a straight life annuity basis
without deduction for Social Security or other benefits. The Tax Code limits the
amount of annual compensation that may be counted for the purpose of calculating
pension benefits, as well as the annual pension benefits that may be paid, under
the Retirement Plan. For 1995, these amounts are $150,000 and $120,000,
respectively.
Earnings of the named executive officers, for purposes of calculating
pension benefits, approximate the aggregate amounts shown in the Annual
Compensation columns of the Summary Compensation Table, except for Messrs.
Meyers and Pitts whose earnings for purposes of such calculation are subject to
the $150,000 limitation discussed above.
The years of credited service under the Retirement Plan as of October 1,
1995 for each of the five most highly compensated officers of the Company are:
Howard M. Meyers, 9 years; Jerry M. Pitts, 14 years; Richard J. Gonzalez, 12
years; Rodger A. Malehorn, 11 years; and Timothy R. Postlewait, 14 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Mr. John A. Canning
and Stanley S. Shuman. Neither member of the Compensation Committee has been an
officer or employee of the Company. No executive officer of the Company served
in the last fiscal year as a director or member of the compensation committee of
another entity, one of whose executive officers served as a director or on the
Compensation Committee of the Company.
REPORT OF THE COMPENSATION COMMITTEE
THIS REPORT BY THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT WHICH INCORPORATES THIS PROXY
STATEMENT BY REFERENCE INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, (THE "ACTS"), AND THEY SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to attract,
retain, reward and motivate executive management talent required to achieve its
short and long-term business objectives, maintain its competitive position in
the steel minimill industry, and increase shareholder value. This program is
administered and effected by the Company's management and monitored by the
Compensation Committee of the Board of Directors which is comprised of outside
directors of the Company.
GENERAL. In fiscal 1994, the Company engaged an independent compensation
consultant to review the competitiveness of its total executive compensation
package. Total compensation includes base pay, annual incentive pay, and
long-term incentives. The consultant, with management participation, selected a
peer group of 14 public steel minimills, and reviewed compensation of comparable
executive positions in the peer group over a three year period. Adjusting for
market capitalization, assets, and sales, the consultant determined a target
level of total compensation for each of the Company's executive officers. The
report of the independent consultant, which was presented to and accepted by the
Board of Directors, made recommendations intended to maintain total executive
compensation at a competitive level. The Compensation Committee basically used
this approach as the compensation policy for 1994 and 1995, although certain
subjective elements, including individual performance, scope of
responsibilities, and unusual activities, such as acquisitions and financing
transactions, are also considered.
7
BASE PAY. Salaries of the Company's executive officers are determined by
the Chief Executive Officer within the general compensation guidelines developed
by the independent consultant and adopted by the Committee. Based on the study
of the peer group of steel minimills, base salaries are targeted at the fifty
percentile of salaries in the peer group adjusted for sales, assets, and market
capitalization. Besides maintaining competitive market levels, subjective
criteria, such as the impact the executive has on the Company, the skills and
experience required by the job, individual performance and internal equities are
considered in determining salary levels. During 1995, the salary of the Vice
President - Commercial Operations was increased to that base salary considered
to be an appropriate level based on the criteria mentioned above.
ANNUAL INCENTIVE PAY. A significant portion of the compensation paid to the
Company's executive officers consists of an annual incentive cash bonus. The
Committee believes that incentive compensation provides the best means of
motivating and rewarding performance while providing necessary controls on cost.
The Company has instituted an Incentive Compensation Plan (the "ICP") to provide
annual cash incentives for the attainment of corporate financial objectives to
all executive officers, except Mr. Meyers. The Administrative Committee,
composed of one or all of the Company's officers, including Howard M. Meyers, as
appointed by the Compensation Committee, determines quantitative measures of
performance relating to financial or other indicators of performance for the
Company and measurable individual goals prior to the commencement of each year.
Two independent consultants reviewed the ICP in fiscal 1995, particularly for
the adequacy of the overall financial measures. The Administrative Committee
reviewed these measures with a subcommittee of the Board as to appropriateness.
In fiscal 1995, the ability of the Company's executive officers to earn
incentive bonuses under the ICP were dependent upon the Company's achievement of
certain levels of return on assets (the "ROA") percentage (income, before
interest, tax, depreciation, and amortization to defined assets), using the
historical ROA experience of six peer competitors. If the threshold level below
which no incentives would be paid is exceeded, the cash incentive bonuses
incrementally increase based upon specified ROA levels pre-established by the
Administrative Committee. Additionally, other specific goals, including
shipments, cost reduction, environment, and safety, were established as goals.
The awards were objective and entailed precise weighing and measurement of
various factors. The overall performance and cash payout for fiscal 1995 were
reviewed by the entire Board of Directors.
LONG-TERM INCENTIVES. The purposes of long-term incentive compensation is
to promote the Company's long-term goals by providing financial incentives to
executives to increase the value of the Company, as reflected in the price of
its stock, and to focus on the intermediate and long-term development and
prosperity of the Company. By providing the opportunity to acquire a significant
proprietary interest in the Company, the plans link the interests of the
executives with those of the stockholders.
Using the independent compensation consultant report and based on analysis
of peer steel minimill companies, a target level for long-term incentives for
executives as a percentage of total compensation was established using the
Black-Scholes valuation model. The Board uses incentive stock options as its
long-term incentive. Since this component of total compensation was not
previously utilized, the Company's initial awards in fiscal 1994 were two to
three times targeted annual awards. As a result, no awards were made in 1995.
The vesting schedule provides features intended to encourage long-term retention
and loyalty of its executive officers. It is anticipated that periodic awards
will be given to executive officers in the future so that, over time, target
levels are achieved. Once the value of the long-term incentive component is
determined, the numbers of incentive options was determined based on the
Black-Scholes Model and adjusted based on elapsed time since the last award and
other factors. The ultimate value of incentive stock option is based solely on
the increase in value of the shares over grant price, which has been market
value on the date of the grant.
8
CONCLUSION. Total compensation is evaluated over a period of several years
since both the annual incentive component and long-term incentive component can
vary significantly from year to year depending on the cyclical nature of the
industry, Company performance, and individual performance. The Compensation
Committee believes that current total compensation for executive officers is
reasonable and competitive. The Compensation Committee believes that fiscal year
1995 compensation is consistent with its current compensation philosophy and
reflects corporate performance.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The compensation payable to Mr.
Meyers for all services performed on behalf of the Company in any capacity is
determined by the terms of agreements dated July 26, 1988, and August 28, 1986,
to which the Company and Mr. Meyers are parties. The two agreements provide that
Mr. Meyers is entitled to the greater of (x) a base amount of $350,000 adjusted
for increases in the consumer price index since December 1995 or (y) 2% of the
Company's pretax net income earned in the previous year (or 1%, if Mr. Meyers is
no longer both the Chairman and Chief Executive Officer of the Company with
substantial day-to-day managerial responsibilities).
POLICY ON DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal
Revenue Code limits to $1 million the Company's tax deduction for compensation
paid to each of the Company's most highly paid executive officers, unless
certain requirements are met. The Committee believes it unlikely in the short
term that the limitation will affect the Company. Additionally, the Company has
substantial net operating loss carryforwards to reduce income taxes. The
Committee's present intention is to structure executive compensation so that it
will be fully deductible provided that such continues to be in the best interest
of the Company and its stockholders.
Submitted by the Compensation Committee
John A. Canning, Jr., Chairman
Stanley S. Shuman
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the change in the cumulative total shareholder
return on the Company's Common Stock with the total return of the Standard &
Poor's 500 Stock Index and an index of peer companies, in the minimill steel
industry, selected by the Company for the period of five years commencing on
October 1, 1990 and ending on September 30, 1995. The graph assumes an
investment on October 1, 1990 of $100 in Bayou Steel Corporation Common Stock,
Standard & Poor's 500 Stock Index and the common stock of the peer group, and
that all dividends were reinvested. The peer group consists of eight domestic
steel minimills.
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
BAYOU STEEL CORPORATION
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Bayou Steel 100 143 129 176 236 282
S&P 500 100 131 146 164 171 221
Peer Group 100 108 131 179 179 157
The peer group consists of the following corporations: Birmingham Steel
Corporation, Chaparral Steel Company, Commercial Metals Company, Laclede Steel
Company, New Jersey Steel Corporation, N.S. Group, Inc., Roanoke Electric Steel
Corporation, and Northwestern Steel and Wire Company.
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On October 31, 1995, the Company had outstanding 10,613,380 shares of Class
A Common Stock ($.01 par value), 2,271,127 shares of Class B Common Stock ($.01
par value) and 100 shares of Class C Common Stock ($.01 par value).
The following table lists persons other than executive officers or
directors of the Company who are known to the Company to own beneficially more
than 5% of each class of its outstanding stock as of October 31, 1995. The
information set forth below is based upon information furnished by the persons
listed. Unless otherwise indicated, all shares shown as beneficially owned are
held with sole voting and investment power.
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TITLE
OF BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS AMOUNT PERCENTAGE
- ------------------------------------ ----- ------ ----------
First Capital Corporation of Chicago..... A 838,200(1) 7.91%
#3 First National Place
Suite 1330
Chicago, IL 60602
How & Company ........................... A 600,000(1) 5.65%
c/o The Northern Trust Co.
P.O. Box 92303
Chicago, IL 60675
Heine Securities Corporation............. A 615,000(2) 5.79%
51 John F. Kennedy Parkway
Short Hills, NJ 07080
Bayou Steel Properties Limited(3)........ B 2,271,127(1) 100.00%
2777 Stemmons Freeway
Dallas, TX 75207
Voest-Alpine International Corporation... C 100 100.00%
- ------------
(1) As of October 31, 1996
(2) As of December 31, 1996
(3) See footnote 8 on page 6.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The beneficial ownership of the Company's common stock of all Directors and
Executive Officers is incorporated by reference to Item 10. of this form.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information regarding certain relationships and related
transactions is incorporated by reference to the "Certain Transaction" section
of Item 10. and Item 8. of this form.
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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
BAYOU STEEL CORPORATION
By /S/ RICHARD J. GONZALEZ
-------------------
Richard J. Gonzalez
Vice President, Chief Financial
Officer, Treasurer, and Secretary
Date: April 30, 1996
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