[BAYOU STEEL LOGO] BAYOU STEEL CORPORATION
NOTICE OF
ANNUAL MEETING OF
CLASS A, CLASS B AND
CLASS C COMMON
STOCKHOLDERS AND
PROXY STATEMENT
January 25, 1999
Dear Stockholders:
You are cordially invited to attend the Bayou Steel Corporation Annual
Meeting of Stockholders to be held at 9:00 a.m. (E.S.T.) on Wednesday, March 3,
1999, at One West 54th Street, New York, NY 10019.
The attached Notice of Annual Meeting of Stockholders and the accompanying
Proxy Statement describe in detail the matters proposed by your Board of
Directors to be considered and voted upon at the meeting.
It is important that your shares be represented at the meeting, whether or
not you are personally able to attend. Accordingly, you are requested to sign,
date and return the enclosed proxy promptly. Your cooperation is appreciated. If
you do attend the Annual Meeting, you may still vote in person.
Sincerely,
/s/ HOWARD M. MEYERS
HOWARD M. MEYERS,
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
BAYOU STEEL CORPORATION
138 HIGHWAY 3217
P. O. BOX 5000
LAPLACE, LOUISIANA 70069-1156
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
CLASS A COMMON, CLASS B COMMON, AND CLASS C COMMON
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Bayou Steel Corporation (the "Company"), will be held at 9:00 a.m.
(E.S.T.) on Wednesday, March 3, 1999, at One West 54th Street, New York, New
York 10019, for the purpose of considering and voting upon the following matters
as set forth in the accompanying Proxy Statement:
1. Election of three (3) Class A and four (4) Class B Directors.
2. Ratification of the appointment of Arthur Andersen LLP as auditors of
the Company for the fiscal year ending September 30, 1999.
Only stockholders of record at the close of business on January 8, 1999,
are entitled to notice of and to vote at the Meeting. A certified list of
stockholders entitled to vote at the Meeting will be available for examination,
during business hours, by any stockholder for any purpose germane to the Meeting
for a period of not less than ten days immediately preceding the Meeting at the
offices of American Stock Transfer and Trust Company, 6201 15th Avenue,
Brooklyn, New York 11219.
PLEASE SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST CONVENIENCE
IN THE ACCOMPANYING ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN
PERSON.
By order of the Board of Directors
/s/ RICHARD J. GONZALEZ,
RICHARD J. GONZALEZ,
SECRETARY
January 25, 1999
BAYOU STEEL CORPORATION
138 HIGHWAY 3217
P.O. BOX 5000
LAPLACE, LOUISIANA 70069-1156
PROXY STATEMENT
SOLICITATION, QUORUM, AND VOTING OF PROXIES
This Proxy Statement, which will be first mailed to stockholders on or
about January 25, 1999, is furnished in connection with the Board of Directors'
solicitation of proxies from the holders of the Class A Common Stock of the
Company at the Annual Meeting of Stockholders of the Company to be held March 3,
1999 (the "Meeting") at the time and place set forth in the accompanying Notice.
The cost of preparing and mailing this Proxy Statement and the
accompanying proxy, and the cost of solicitation of proxies on behalf of the
Board of Directors, will be borne by the Company. Solicitation will be made by
mail. Some personal solicitation may be made by directors, officers, and
employees without special compensation, other than reimbursement for expenses.
The Board of Directors has fixed the close of business on January 8, 1999,
as the record date for the Meeting and only holders of record of the Class A,
Class B, and Class C Common Stock on the record date are entitled to receive
notice of and to vote at the Meeting. The holders of a majority of the issued
and outstanding shares of Class A, Class B, and Class C Common Stock present in
person, or represented by proxy, shall constitute a quorum at the Meeting.
Stockholders who submit a properly executed proxy voting, or abstaining
from voting, on any issue will be counted as present for purposes of
constituting a quorum. If a quorum is present: (A) the holders of the Class A
Common Stock are entitled to elect 40% of the entire board of directors, and the
holders of the Class B Common Stock are entitled to elect 60% of the entire
board of directors, in each case with the election of directors being determined
by plurality vote and (B) the affirmative vote of a majority of the Class A,
Class B, and Class C Common Stock present or represented by proxy and entitled
to vote is required to ratify the appointment of independent auditors.
Abstentions will have the effect of a vote against the proposal to ratify
the appointment of auditors.
If brokers who do not receive instructions from beneficial owners as to
the granting or withholding of proxies may not or do not exercise discretionary
power to grant a proxy with respect to such shares (a "broker non-vote") on a
proposal other than the election of directors, shares not voted on such proposal
as a result will be counted as not present with respect to the proposal. Because
the proposal to ratify the appointment of auditors must be approved by the
affirmative vote of a majority of the voting power present at the Meeting, the
failure to deliver a proxy to vote on that proposal will have no effect on the
outcome of the vote.
With respect to the proposal to ratify the appointment of auditors and
with respect to any other matter to be voted upon at the Annual Meeting as to
which the Class A, Class B, and Class C Common Stock will vote together as a
single class, each share of Class A and Class C Common Stock is entitled to one
vote and each share of Class B Common Stock is entitled to 7.0137953 votes.
All proxies received by the Company in the form enclosed will be voted as
specified and if no contrary specification is made, the proxy will be voted FOR
the election of the Class A Directors set forth in this Proxy Statement and FOR
the ratification of the appointment of Arthur Andersen LLP as auditors.
REVOCATION
A proxy may be revoked any time prior to its exercise by written notice of
revocation to the Secretary of the Company or by duly executing a proxy bearing
a later date. A stockholder who votes in person at the Meeting in a manner
inconsistent with a proxy previously filed on the stockholder's behalf will be
deemed to have revoked such proxy as it relates to the matter voted upon in
person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On October 31, 1998, the Company had outstanding 10,619,380 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, 1998. 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.
TITLE
OF BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS AMOUNT PERCENTAGE
- ------------------------------------ ----- ------ ----------
Bayou Steel Properties Limited(1) ......... B 2,271,127 100.00%
2777 Stemmons Freeway
Dallas, TX 75207
Voest-Alpine International Corporation .... C 100 100.00%
- -----------------
(1) See footnote 7 on page 5.
ELECTION OF DIRECTORS (PROPOSAL 1)
NOMINEE DIRECTORS
The Company's Certificate of Incorporation states that the number of
directors shall be between seven and thirteen, with the exact number to be set
by the Board of Directors. The Board of Directors has currently set the number
of directors at seven, of which three may be elected by the Class A Stockholders
and four may be elected by the Class B Stockholders. Each of the Class A
Director nominees, who is currently a member of the Board of Directors, has been
nominated for re-election by the Nominating Committee of the Board of Directors
for a one-year term expiring at the next Meeting of Stockholders and until their
successors have been elected. Unless authority to vote is specifically withheld
by appropriate designation on the proxy, it is the intention of the persons
named in the accompanying proxy to vote the Class A shares represented thereby
in favor of the reelection of Messrs. Lawrence E. Golub, Jeffrey P. Sangalis,
and Stanley S. Shuman, the three nominees named below, as Class A Directors of
the Company.
The Company has been advised by Bayou Steel Properties Limited (the
"BSPL"), the holder of all of the Company's Class B shares, that it is the
intention of such holder to vote all of its Class B shares in favor of the
reelection of Messrs. Melvyn N. Klein, Albert P. Lospinoso, Howard M. Meyers and
Jerry M. Pitts, the four nominees named below, as Class B Directors of the
Company. Although no such intention currently exists, the holder of the Class B
Common Stock may determine to elect as directors persons other than those
currently named as nominees.
2
THE BOARD OF DIRECTORS RECOMMENDS THAT CLASS A STOCKHOLDERS VOTE FOR EACH
OF THE CLASS A DIRECTOR NOMINEES NAMED BELOW, AND, UNLESS A STOCKHOLDER GIVES
INSTRUCTIONS ON THE PROXY CARD TO THE CONTRARY, THE PROXIES NAMED THEREON INTEND
TO SO VOTE. MANAGEMENT DOES NOT ANTICIPATE THAT ANY OF THE NOMINEES FOR CLASS A
DIRECTOR WILL BE UNABLE TO SERVE, BUT IF SUCH A SITUATION SHOULD ARISE, IT IS
THE INTENTION OF THE PERSONS NAMED IN THE ACCOMPANYING PROXY TO VOTE FOR THE
ELECTION OF SUCH OTHER PERSON OR PERSONS AS THE NOMINATING COMMITTEE OF THE
BOARD OF DIRECTORS MAY RECOMMEND.
INFORMATION WITH RESPECT TO BOARD OF DIRECTORS
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, 1998. Unless otherwise
indicated, each of the directors has held the positions listed under his name
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
Lawrence E. Golub, 39(1) 1988 103,000 * -0- -0-
President of Golub Associates, Inc.,
Equity Investment firm
New York, New York
Jeffrey P. Sangalis, 40(2) 1995 822,422 7.19 -0- -0-
Managing Partner & Director of
Rice Sangalis Toole & Wilson
Investment Firm
Houston, Texas
Stanley S. Shuman, 63(3)(7) 1988 817,880 7.70 -0- -0-
Executive Vice President & Managing
Director of Allen & Company
Incorporated, investment bankers
New York, New York
CLASS B DIRECTOR NOMINEES
Melvyn N. Klein, 56(4)(7) 1988 60,000 * -0- -0-
President, JAKK Holding Corporation,
a General Partner of GKH Partners, L.P.
Corpus Christi, Texas
Albert P. Lospinoso, 62(5)(7) 1988 10,000 * -0- -0-
Director of Quexco Inc., a holding company
involved in recycling nonferous metals
Dallas, Texas
Howard M. Meyers, 56(6)(7) 1988 300,000 2.83 2,271,127 100
Chairman and Chief Executive Officer
of the Company
Jerry M. Pitts, 47(8) 1994 30,546 * -0- -0-
President and Chief Operating Officer
of the Company
3
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
-------------------- ----- ----- ----------- ----- -----------
NON-DIRECTOR NAMED
EXECUTIVE OFFICERS
Richard J. Gonzalez, 51 ............... -- 17,381(9) * -0- -0-
Vice President, Chief Financial
Officer, Treasurer and Secretary
Timothy R. Postlewait, 48 ............. -- 15,500(9) * -0- -0-
Vice President of Plant Operations
Rodger A. Malehorn, 56 ................ -- 14,707(9) * -0- -0-
Vice President of Commercial Operations
All directors and executive officers as
a group(10) (11 persons) ............. 2,199,986 19.11 2,271,127 100
- ----------------
* Less than one percent.
(1) 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. From February 21, 1991 until September 21, 1994, Mr. Golub served as
a Director elected by the Class B Common stockholder.
(2) All 822,422 shares are subject to a warrant beneficially owned by Rice
Partners II, LP. Mr. Sangalis is a Managing Partner and Director of Rice
Sangalis Toole & Wilson, which is the general partner of Rice Partners II,
LP. Mr. Sangalis disclaims beneficial ownership of such shares. In
addition, pursuant to a Preferred Stock and Warrant Purchase Agreement,
dated June 13, 1995, the holder of the warrant is allowed to designate a
director to the Company's Board.
(3) Includes 522,528 shares of Class A Common Stock owned by Allen Holding
Inc. and officers, directors and employees of Allen & Company
Incorporated. Includes 60,000 shares of Class A Common Stock owned by
trusts for the benefit of Mr. Shuman's children. Mr. Shuman disclaims
beneficial ownership of such shares. Mr. Shuman has no voting or
investment power, shared or otherwise, in the foregoing shares. Mr.
Stanley S. Shuman is an Executive Vice President and Managing Director of
both Allen Holding Inc. and Allen & Company Incorporated. He is a Director
of The News Corporation Limited, Hudson General Corporation, and News
America Holdings, Inc..
(4) Mr. Melvyn N. Klein has been a practicing attorney and a 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 Hanover Compressor
Company.
4
(5) Mr. Albert P. Lospinoso has been a Director of Quexco since 1984. He was
Chairman of the Board 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 from May 1996 to
March 1997. He was Chief Executive Officer, President, and director of RSR
Corporation until May 1996. 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. Since 1984,
Mr. Lospinoso has been a director of Quexco Incorporated.
(6) 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.
(7) 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 & Company 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.
(8) Includes exercisable options for 24,000 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.
(9) Includes exercisable options for 12,000 shares of Class A Common Stock for
each of Messrs. Gonzalez, Postlewait, and Malehorn.
(10) Includes 890,422 shares of Class A Common Stock, subject to exercisable
warrants and stock options held by such persons.
During the fiscal year ended September 30, 1998, the Company's Board of
Directors held five regular meetings and one special meeting. Each member of the
Board of Directors attended at least 85% of the meetings of the Board and of
each Board committee of which they were members.
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 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
5
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, 1998, the
Audit Committee met twice, the Environmental, Health, and Safety Audit Committee
twice, the Nominating Committee once, and the Compensation Committee three
times.
THE AUDIT COMMITTEE presently consists of Messrs. Klein (Chairman),
Lospinoso, Golub, and Sangalis. 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.
ENVIRONMENTAL, HEALTH, AND SAFETY AUDIT COMMITTEE, which presently
consists of Messrs. Golub (Chairman), Klein, Lospinoso, 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 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.
THE COMPENSATION COMMITTEE presently consists of Messrs. Shuman
(Chairman), Golub, and Lospinoso. 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. Shuman (Chairman),
Golub, and Sangalis. 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.
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 or a Committee of the Board 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.
6
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and 10% shareholders to file with the
Securities and Exchange Commission reports of beneficial ownership, and changes
in beneficial ownership of the Common Stock of the Company. For fiscal 1998, all
such required statements were filed on a timely basis.
CERTAIN TRANSACTION
During fiscal 1998, Allen & Company Incorporated was paid $200,000 for
investment banking services rendered. Mr. Stanley S. Shuman, a director of the
Company, is Executive Vice President and Managing Director of Allen & Company
Incorporated.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four other most highly-compensated executive
officers for the fiscal years 1996 through 1998.
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 ............... 1998 $508,163 $ -0- -0- $ -0-
Chairman and Chief ............. 1997 502,488 -0- -0- -0-
Executive Officer .............. 1996 474,675 -0- -0- -0-
Jerry M. Pitts ................. 1998 $343,750 $ 385,000 30,000 $ 2,518
President and Chief ............ 1997 300,000 -0- -0- 2,549
Operating Officer .............. 1996 225,000 -0- -0- 2,477
Timothy R. Postlewait .......... 1998 $172,602 $ 188,100 15,000 $ 2,114
Vice President ................. 1997 166,000 -0- -0- 2,249
of Plant Operations ............ 1996 150,000 -0- -0- 2,062
Richard J. Gonzalez ............ 1998 $168,667 $ 188,100 15,000 $ 2,258
Vice President, Chief Financial 1997 157,000 -0- -0- 2,049
Officer, Treasurer and Secretary 1996 147,000 -0- -0- 1,855
Rodger A. Malehorn ............. 1998 $158,134 $ 172,700 15,000 $ 2,133
Vice President of .............. 1997 150,000 -0- -0- 1,751
Commercial Operations .......... 1996 132,000 -0- -0- 1,636
- ---------------
(1) Includes amounts contributed by the Company to a 401(k) Plan for matching
contributions. For fiscal 1998, the Company's contributions were $2,344
for Mr. Pitts, $1,940 for Mr. Postlewait, $1,970 for Mr. Gonzalez, and
$1,683 for Mr. Malehorn. Also includes the dollar value of term life
insurance premiums paid by the Company for the benefit of these officers.
7
The following table provides certain information concerning individual
grants of stock options under the Company's 1991 Stock Option Plan made during
the fiscal year ended September 30, 1998, to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION DATE
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE(1) VALUE$(2)
- ---- ---------- -------------- ------ ------- ---------
Howard M. Meyers ......... -0- -0- N/A N/A $ -0-
Jerry M. Pitts ........... 30,000 35% 4.75 7/27/08 49,500
Timothy R. Postlewait .... 15,000 18% 4.75 7/27/08 24,750
Richard J. Gonzalez ...... 15,000 18% 4.75 7/27/08 24,750
Rodger A. Malehorn ....... 15,000 18% 4.75 7/27/08 24,750
- ---------------
(1) These options vest equally over a five year period beginning with the
first anniversary from the grant date and every anniversary thereafter.
(2) The amounts shown under this column are based on the Black-Scholes
valuation pricing model, one of the methods approved by the Securities and
Exchange Commission. It assumes volatility of 35%, a risk free rate of
return of 5%, a ten year exercise period, and no dividend yield. This
presentation is required by the Securities and Exchange Commission and is
not intended to forecast future appreciation of the company's stock price.
The ultimate value of the option grants is based solely on the increase in
value of the shares over the exercise price, which has been the market
value on the date of the grant.
The following table provides certain information concerning each exercise
of stock options during the fiscal year ended September 30, 1998 by each of the
Named Executive Officers, and the fiscal year-end value of unexercised options
held by such persons, under the Company's 1991 Stock Option Plan.
AGGREGATED OPTION EXERCISES AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 (1)
SHARES ------------------ ---------------------
ACQUIRED VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME ON EXERCISE(#) REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U)
- ---- -------------- -------- ---------------- ----------------
Howard M. Meyers .... N/A $ N/A -0- $ N/A
Jerry M. Pitts ...... -0- -0- 24,000E/36,000U 0E/0U
Timothy R. Postlewait -0- -0- 12,000E/18,000U 0E/0U
Richard J. Gonzalez . -0- -0- 12,000E/18,000U 0E/0U
Rodger A. Malehorn .. -0- -0- 12,000E/18,000U 0E/0U
(1) At September 30, 1998, the closing sales price for Bayou Steel
Corporation's Class A Common Stock on the American Stock Exchange was
$3.875.
8
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 Bayou Steel Corporation Retirement Plan (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 3,944 7,887 11,831 11,831
100,000 9,444 18,887 28,331 28,331
150,000 14,944 29,887 44,831 44,831
200,000 16,044 32,087 48,131 48,131
250,000 16,044 32,087 48,131 48,131
300,000 16,044 32,087 48,131 48,131
600,000 16,044 32,087 48,131 48,131
The Company has adopted 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 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 1998, these amounts are $160,000 and $130,000,
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; however, earnings for
purposes of such calculation are subject to the $160,000 limitation discussed
above.
The years of credited service under the Retirement Plan as of October 1,
1998 for each of the five most highly compensated officers of the Company are:
Howard M. Meyers, 12 years; Jerry M. Pitts, 17 years; Timothy R. Postlewait, 17
years; Richard J. Gonzalez, 15 years; and Rodger A. Malehorn, 14 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Stanley S.
Shuman, Lawrence E. Golub, and Albert P. Lospinoso. No 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.
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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 and approved
by the Compensation Committee of the Board of Directors which is comprised of
outside directors of the Company.
GENERAL. In fiscal 1998, 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 publicly traded companies in the steel industry with revenue
approximately the same as the Company. The consultant then reviewed compensation
of comparable executive positions in the peer group over a three year period.
The consultant also collected survey compensation data from published surveys,
including steel manufacturers and related companies. Based on this, 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 the Compensation Committee and subsequently accepted by the
Board of Directors, made recommendations intended to maintain total executive
compensation at a competitive level. The Compensation Committee has basically
used this approach as the compensation policy since 1994, although certain
subjective elements, including individual performance, scope of
responsibilities, and unusual activities, such as acquisitions and financing
transactions, are also considered.
BASE PAY. Salaries of the Company's executive officers, other than the
Chief Executive Officer, 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 median level of salaries in the
peer group. 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 equity are considered
in determining salary levels. Adjustments to salaries are reviewed by the
Compensation Committee.
ANNUAL INCENTIVE PAY. A significant portion of the potential compensation
of 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
financial performance or other indicators of performance for the Company and
measurable individual goals each year. The Administrative Committee reviewed
these measures with a subcommittee of the Board as to appropriateness. In fiscal
1998, the ability of the Company's executive officers to earn incentive bonuses
under the ICP was dependent upon the Company's achievement of certain percentage
levels of return on assets (the "ROA") using the historical ROA experience of a
group of peer competitors. ROA is defined as income before interest, tax,
depreciation, and amortization to defined assets. 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. Since the threshold level for ROA percentage was
reached and exceeded by a substantial margin, awards were paid under the ICP for
fiscal 1998. The ROA percentage for fiscal 1998 was a record for the company and
in the top quartile of all public steel minimills.
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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 plan links the interests of the
executives with those of the stockholders.
Using the independent compensation consultant's 1994, 1997, and 1998
reports which were 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. The Board currently uses incentive stock options
as its long-term incentive and made awards to executives in 1998. The vesting
schedule provides features intended to encourage long-term retention and loyalty
of its executive officers. Once the value of the long-term incentive component
is determined, the number of incentive options was determined based on the
Black-Scholes valuation model and past practices. The ultimate value of
incentive stock option is based solely on the increase in value of the shares
over grant price, which was market value on the date of the grant. It is
anticipated that periodic awards will be given to executive officers in the
future so that, over time, target levels are achieved. The 1998 independent
consultant's report noted that the Company's long-term incentives, particularly
those related to benefits, were not as competitive as the peer group. The
Compensation Committee recommended and the Board approved certain future
adjustments such that total remuneration reaches prevailing competitive
practices.
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 compensation, as measured by cash and incentive
stock options, for executive officers is reasonable and competitive. The
Compensation Committee believes that fiscal year 1998 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 1985 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
Stanley S. Shuman, Chairman
Lawrence E. Golub
Albert P. Lospinoso
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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, 1993 and ending on September 30, 1998. The graph
assumes an investment on October 1, 1993 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.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN BAYOU STEEL CORPORATION
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Bayou Steel .............. 100 135 162 119 160 127
S&P 500 .................. 100 104 135 162 227 248
Peer Group ............... 100 100 88 89 118 95
Through September 30, 1997 the peer group consisted of the following eight
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. For fiscal 1998, Chaparral Steel Company and New Jersey Steel
Corporation have been eliminated since they were acquired by other companies and
their stock is no longer publicly traded; Schnitzer Steel has been added. The
returns of each issuer were weighted according to its stock market
capitalization at the beginning of each period for which a return is indicated.
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RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS AUDITORS (PROPOSAL 2)
The Board of Directors has appointed the firm of Arthur Andersen LLP,
independent certified public accountants, to examine the financial statements of
the Company for the year ending September 30, 1999. Arthur Andersen LLP has been
employed as independent auditors to the Company and its predecessor since its
inception in 1979. Stockholders are asked to ratify the action of the Board of
Directors in making such an appointment.
If the appointment of Arthur Andersen LLP for fiscal year 1999 is not
ratified by the Stockholders, the selection of other independent auditors will
be considered by the Board of Directors.
Representatives of Arthur Andersen LLP are not expected to be present at
the Meeting, but will be afforded the opportunity to make a statement by open
telephone, if they so desire, and will also be available to respond to
appropriate questions by open telephone.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS AUDITORS AND IT IS INTENDED THAT PROXIES
WILL BE SO VOTED UNLESS MARKED TO THE CONTRARY OR AS ABSTENTIONS.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matters to be presented for consideration at the Annual
Meeting. If other matters should properly come before the Annual Meeting, the
persons named in the enclosed form of Proxy, or their substitutes, will vote the
shares represented by the proxies with respect to any such matters in accordance
with their best judgement.
Proposals which stockholders wish to include in the Company's proxy
materials relating to the 2000 Annual Meeting of Stockholders must be received
by the Company no later than September 27, 1999. Proxies solicited on behalf of
the Board of Directors for the 2000 Annual Meeting of Stockholders will confer
discretionary authority to vote with respect to any other matter properly
submitted by a stockholder for action at the 2000 Annual Meeting of Stockholders
if the Company does not, on or before December 11, 1999, receive written notice
addressed to the Secretary of the Company that the stockholder intends to do so.
PLEASE PROMPTLY COMPLETE AND RETURN YOUR PROXY IN THE ENCLOSED SELF-ADDRESSED,
STAMPED ENVELOPE.
By order of the Board of Directors
/s/ RICHARD J. GONZALEZ
RICHARD J. GONZALEZ,
SECRETARY
LaPlace, Louisiana
January 25, 1999
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