<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1996
REGISTRATION NO. 333-12521
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STEEL DYNAMICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
INDIANA 3312 35-1929476
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
4500 COUNTY ROAD 59
BUTLER, INDIANA 46721
(219) 868-8000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEITH E. BUSSE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STEEL DYNAMICS, INC.
4500 COUNTY ROAD 59
BUTLER, INDIANA 46721
(219) 868-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT S. WALTERS, ESQ. JOHN MORRISON, ESQ.
BARRETT & MCNAGNY SHEARMAN & STERLING
215 EAST BERRY STREET 599 LEXINGTON AVENUE
FORT WAYNE, INDIANA 46802 NEW YORK, NEW YORK 10022
(219) 423-9551 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF PROPOSED PROPOSED
SHARES MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- ----------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value........... 11,320,312 Shares $17.00 $192,445,304 $58,316.76
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</TABLE>
(1) Includes 1,476,562 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) $61,465.52 was previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering of the registrant's Common Stock in the
United States and Canada (the "U.S. Prospectus") and one to be used in a
concurrent offering of the registrant's Common Stock outside the United States
and Canada (the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical except for the
front cover page. The U.S. Prospectus is included herein and is followed by the
alternate front cover page to be used in the International Prospectus. The
alternate page for the International Prospectus included herein is labeled
"Alternate Page for International Prospectus." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b) of
the General Rules and Regulations under the Securities Act.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Prospectus (Subject to Completion)
Issued November 13, 1996
9,843,750 Shares
Steel Dynamics, Inc.
COMMON STOCK
------------------------
OF THE 9,843,750 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 9,375,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 468,750 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THE SHARES OF COMMON STOCK
BY THE SELLING STOCKHOLDERS. OF THE 9,843,750 SHARES OF COMMON STOCK
BEING OFFERED, 7,875,000 SHARES ARE BEING OFFERED INITIALLY IN THE
UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND 1,968,750
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS."
PRIOR TO THE OFFERINGS, THERE HAS BEEN NO PUBLIC MARKET FOR
THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED
THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $15 AND $17. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "STLD."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total(3)............................ $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $875,000.
(3) Certain stockholders have granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 1,476,562 additional Shares of Common Stock at the price to
public less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about , 1996 at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
<TABLE>
<S> <C>
MORGAN STANLEY & CO. PAINEWEBBER INCORPORATED
Incorporated
</TABLE>
McDONALD & COMPANY SALOMON BROTHERS INC
Securities, Inc.
, 1996
<PAGE> 4
[Various photographs of mini-mill equipment]
THE EXISTING MILL
JANUARY 1996
- - Twin Shell, 195t, AC, Electric Arc Furnace Battery
- - Ladle Metallurgy Facility, Desulphurization
- - SMS, Thin-Slab Caster
- - Tunnel Furnace for Direct Charge
- - Six Stand, SMS Hot Mill, Single Downcoiler
- - CAPACITY @ 1,400,000 TONS
THE COLD MILL PROJECT
MID 1997
- - Continuous Pickle Line
- - Hot-Rolled Products Galvanizing Line
- - Semi-Tandem 2-Stand Reversing Cold-Rolling Mill
- - Cold-Rolled Products Galvanizing Line
- - Batch Annealing Furnaces
- - Temper Mill
- - PLANNED CAPACITY @ 1,000,000 TONS
THE IRON DYNAMICS PROJECT
LATE 1998
- - Pelletizing Plant
- - Rotary Hearth Reduction Furnace
- - PLANNED DRI CAPACITY @ 520,000 TONNES
THE CASTER PROJECT
LATE 1998
- - Second Hybrid Electric Arc Furnace
- - Second Thin-Slab Caster
- - Second Tunnel Furnace
- - Second Downcoiler
- - PLANNED INCREMENTAL CAPACITY @ 1,000,000 TONS
[[LOGO] SDI
STEEL DYNAMICS, INC.]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company, any Selling Stockholder or any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company, the Selling
Stockholders and the Underwriters to inform themselves about, and to observe any
restrictions as to, the offering of the Common Stock and the distribution of
this Prospectus.
------------------------
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
Use of Proceeds....................... 18
Dividend Policy....................... 18
Dilution.............................. 19
Capitalization........................ 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 29
Management............................ 52
Certain Transactions.................. 62
<CAPTION>
PAGE
----
<S> <C>
Principal and Selling Stockholders.... 65
Description of Certain Indebtedness... 67
Description of Capital Stock.......... 69
Shares Eligible for Future Sale....... 72
Certain United States Federal Tax
Consequences for Non-United States
Holders............................. 74
Underwriters.......................... 77
Legal Matters......................... 80
Experts............................... 80
Available Information................. 80
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited consolidated financial information.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. As used in this Prospectus, unless the
context otherwise indicates, "Steel Dynamics," "SDI" or the "Company" means
Steel Dynamics, Inc. and its consolidated subsidiaries. "Common Stock" means the
Company's Common Stock, par value $.01 per share. Unless otherwise indicated,
the information contained in this Prospectus (i) assumes an estimated initial
public offering price of $16.00 per share and that the U.S. Underwriters'
over-allotment option is not exercised and (ii) gives effect to a 28.06 for 1.00
split of the Common Stock to be effected in November 1996. As used in this
Prospectus, the term "tonne" means a metric tonne, equal to 2,204.6 pounds, and
the term "ton" means a net ton, equal to 2,000 pounds. Certain information
contained in this summary and elsewhere in this Prospectus, including
information with respect to the Company's plans and strategy for its business,
are forward-looking statements. For a discussion of important factors which
could cause actual results to differ materially from the forward-looking
statements contained herein, see "Risk Factors."
THE COMPANY
OVERVIEW
Steel Dynamics owns and operates a new, state-of-the-art flat-rolled steel
mini-mill, which commenced operations in January 1996. The Company was founded
by executives and managers who pioneered the development of
thin-slab/flat-rolled compact strip production ("CSP") technology and directed
the construction and operation of the world's first thin-slab/flat-rolled
mini-mill. Building upon their past experience with CSP technology, management
founded SDI to produce steel more efficiently, at a lower cost and of higher
quality. Steel Dynamics' goal is to become the low cost producer of a broad
range of flat-rolled steel products, including hot-rolled, cold-rolled and
galvanized sheet, and to serve more markets than any other flat-rolled
mini-mill. In addition, the Company intends to participate in the development
and use of new technologies to produce a broad range of steel products.
The Company was founded in September 1993 by Keith E. Busse, Mark D.
Millett and Richard P. Teets, Jr. Steel Dynamics commenced construction of the
mini-mill in October 1994 and commissioned it in December 1995. The Company
believes that this 14-month construction period is the fastest ever for this
kind of facility. In addition, the Company believes that the approximately
$275.7 million initial capital cost of its mini-mill is approximately $75.0
million, or approximately 20%, less than the cost of comparable mini-mills
currently operating. Actual production at the mini-mill of primary grade steel
commenced on January 2, 1996. The mill achieved an annualized production rate of
930,000 tons by the end of September 1996, or 66% of its capacity of 1.4 million
tons, making the mini-mill's start-up and ramp-up the fastest in the industry.
Pursuant to the Company's plan to develop downstream processing facilities
to produce further value-added steel products, Steel Dynamics is currently
constructing a cold mill, contiguous to the mini-mill, with a 1.0 million ton
annual capacity (the "Cold Mill Project") which is scheduled for completion
during the second half of 1997. Steel Dynamics also plans to add a second
melting furnace, a second caster and tunnel furnace, and an additional coiler in
1998 to expand its annual production capacity of hot-rolled steel from 1.4
million tons to approximately 2.4 million tons (the "Caster Project"). In
addition, through its wholly-owned subsidiary, Iron Dynamics, Inc. ("IDI"), the
Company intends to construct a 520,000 tonne annual capacity plant for the
manufacture of direct reduced iron ("DRI"), which the Company expects to be
completed in 1998 (the "IDI Project"). The DRI, after further processing into
430,000 tonnes of liquid pig iron, will be used in SDI's mini-mill as a steel
scrap substitute.
Management strategically located the Company's mini-mill within close
proximity to its natural customer base, steel service centers and other end
users, abundant supplies of automotive and other steel scrap (SDI's principal
raw material), competitive sources of power, and numerous rail and truck
transportation routes. Steel Dynamics believes that its strategic location
provides it with sales and marketing as well as production cost advantages. The
Company has secured a stable baseload of sales through long-term "off-take"
contracts with
4
<PAGE> 7
two major steel consumers, a 30,000 ton per month sales contract with Heidtman
Steel Products, Inc. ("Heidtman"), a major Midwest-based steel service center
and distributor and an affiliate of one of the Company's stockholders, and a
12,000 ton per month sales contract with Preussag Stahl AG ("Preussag"), a major
German steel manufacturer and a stockholder of the Company, with affiliate
distributors and steel service centers throughout the United States. The Company
has also sought to assure itself of a secure supply of steel scrap and scrap
substitute. To accomplish this objective, SDI has entered into a long-term scrap
purchasing services contract with OmniSource Corporation ("OmniSource"), one of
the largest scrap dealers in the Midwest and an affiliate of one of the
Company's stockholders. In addition, the Company has also sought to assure
itself of a secure supply of scrap substitute material for use as a lower cost
complement to steel scrap as part of the Company's melt mix. SDI has entered
into a long-term 300,000 tonne per year "off-take" contract to purchase iron
carbide from Qualitech Steel Corporation's ("Qualitech's") iron carbide facility
currently under construction in Corpus Christi, Texas which is expected to be
completed in 1998. Additional scrap substitute material will be provided through
the Company's IDI Project.
Although the Company reported net income for July, August and September
1996, the Company had incurred aggregate net losses since commencing commercial
operations in January 1996 through June 29, 1996 of approximately $14.1 million.
In addition, from September 7, 1993 through December 31, 1995, the Company had
incurred an aggregate of approximately $29.9 million of net losses, resulting
principally from operating expenses during start-up.
STRATEGY
The Company's business strategy is to use advanced CSP hot-rolled
steelmaking and cold-rolling technologies to produce high surface quality
flat-rolled steel in a variety of value-added sizes, gauges and surface
treatments, emphasizing low production costs, reliable product quality and
excellent customer service. In addition, SDI intends to remain financially
strong and competitive through the selective purchasing of scrap and scrap
substitutes to offset the effects of cyclical cost/price imbalances. The
principal elements of the Company's strategy include:
- Achieve Lowest Conversion Costs in Industry. Steel Dynamics' electric
arc furnace ("EAF"), caster and rolling mill designs represent
substantial improvements over earlier mini-mills using CSP technology.
These improvements have been designed to speed the steelmaking process,
to limit "power off time" and other non-productive time in the EAF, to
reduce the per ton cost of consumables and to yield higher quality
finished steel product. By designing and using equipment that is more
efficient, requires less periodic maintenance or rebuilding, requires
less consumables and improves the consistency and reliability of the
steelmaking process, the Company believes that it will achieve lower unit
costs for converting metallics and other raw materials into flat-rolled
steel. The Company believes that its per ton manufacturing costs are
already among the lowest in the industry.
- Emphasize Value-Added Products. Steel Dynamics believes that it will be
able to produce thinner gauge (down to .040") steel in hot-rolled form
with consistently better surface and edge characteristics than most other
flat-rolled producers. The Company believes that its high quality,
thinner hot-rolled products will compete favorably with certain more
expensive cold-rolled (further processed) products, enabling it to obtain
higher margins. In addition, with the completion of the Cold Mill
Project, SDI expects to devote a substantial portion of its hot-rolled
products to the production of higher value-added cold-rolled and
galvanized products, as well as thinner gauges, down to .015". This
increased product breadth should also allow the Company to broaden its
customer base.
- Secure Reliable Sources of Low Cost Metallics. The principal raw
material used in the Company's mini-mill is steel scrap which represents
approximately 45% to 50% of the Company's total manufacturing costs.
Steel Dynamics has pursued a three-part strategy to secure access to
adequate low cost supplies of steel scrap and steel scrap substitute
materials. First, the Company has entered into a long-term steel scrap
contract with OmniSource. Second, SDI has sought to further this strategy
through its iron carbide "off-take" contract with Qualitech. Third, Steel
Dynamics is pursuing the IDI Project to produce DRI as a lower cost
complement for use in the melt mix with steel scrap.
5
<PAGE> 8
- Secure a Solid Baseload of Hot Band Sales. In order to help ensure
consistent and efficient plant utilization, SDI has entered into six-year
"off-take" sales and distribution agreements with Heidtman and Preussag,
pursuant to which Heidtman has agreed to purchase at least 30,000 tons
and Preussag has agreed to purchase at least an average of 12,000 tons of
the Company's flat-rolled products per month, at the Company's market
price, subject to certain volume and single run discounts.
- Increase Unit Growth at Low Capital Cost. SDI seeks to continue to grow
its production of flat-rolled steel coil at low capital and unit costs.
The Company plans to use approximately $75.0 million of the net proceeds
of the offerings to finance its Caster Project. The Caster Project, which
is expected to be completed in 1998, will increase the annual production
capacity of the Company's mini-mill from 1.4 to approximately 2.4 million
tons of hot-rolled steel. The Caster Project will enable the Company to
better use the increased rolling and finishing capacity that its Cold
Mill Project will provide when completed in 1997. The foundations and
infrastructure necessary to house and support the second caster have been
pre-planned into the existing plant and, therefore, the 1.0 million
additional tons of annual hot-rolled steel capacity should be added at a
relatively low capital cost. In addition, management intends to continue
to explore new production technologies to further lower its unit costs of
production.
- Incentivize Employees. In contrast to the high fixed labor costs of many
of the Company's competitors, SDI has established certain incentive
compensation programs specifically designed to reward employee teams for
their efforts towards enhancing productivity, thereby encouraging a sense
of ownership throughout Steel Dynamics. Production employees actively
share in the Company's success through a production bonus and a
conversion cost bonus. The production bonus is directly tied to the
quantity and quality of products manufactured during a particular shift.
The conversion cost bonus encourages employees to use materials and
resources more efficiently. Steel Dynamics' employees' bonuses may equal
or exceed their base hourly wage.
- Pursue Future Opportunities. Steel Dynamics believes that technology
development and management's experience will provide significant
opportunities for SDI in a broad range of markets, potentially including
flat-rolled, non-flat-rolled, stainless and specialty steels. The Company
plans to pursue opportunities through greenfield projects, strategic
alliances or acquisitions to secure the long-term future growth and
profitability of SDI. Steel Dynamics will seek to enter new steel markets
and to produce new steel products using the latest technology, with the
objective of being a low cost producer. In addition, the Company has a
technology sharing agreement with Preussag which will provide SDI with
Preussag's expertise and know-how in steel manufacturing, particularly
steel finishing.
6
<PAGE> 9
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered:
By the Company............................. 9,375,000 shares
By the Selling Stockholders................ 468,750 shares
Total.............................. 9,843,750 shares
United States offering..................... 7,875,000 shares
International offering..................... 1,968,750 shares
Common Stock to be outstanding after the
offerings(1)............................... 47,803,341 shares
Use of proceeds.............................. The net proceeds to the Company will be used
to prepay approximately $65.5 million of
outstanding indebtedness (including
prepayment premiums and accrued interest
thereon) and to finance the Caster Project
(approximately $75.0 million). The Company
will not receive any proceeds from the sale
by the Selling Stockholders of Common Stock
in the offerings. See "Use of Proceeds."
Nasdaq National Market symbol................ "STLD"
</TABLE>
- ---------------
(1) Based on approximately 36,636,869 shares of Common Stock outstanding on
September 28, 1996, as adjusted to reflect the exercise of warrants (the
"Warrants") to purchase 1,791,472 shares of Common Stock at an aggregate
purchase price of $400,560 which were exercised after such date. Excludes
634,159 shares of Common Stock issuable upon exercise of outstanding stock
options at a weighted average exercise price of $4.25 per share.
RISK FACTORS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS." The risk factors include
(i) Start-up; Limited Operating History; Recent Losses, (ii) Variability of
Financial Results; Production Shutdowns, (iii) Significant Capital Requirements,
(iv) Cost of Steel Scrap and Other Raw Materials, (v) Cyclicality of Steel
Industry and End User Markets, (vi) Competition, (vii) Risks Related to Scrap
Substitutes, (viii) Reliance on Major Customers, (ix) Potential Costs of
Environmental Compliance, (x) Dependence upon Key Management, (xi) Restrictions
on Payment of Dividends on Common Stock, (xii) Restrictive Covenants, (xiii)
Absence of Prior Public Market and Possible Volatility of Stock Prices, (xiv)
Shares Eligible for Future Sale, (xv) Anti-Takeover Provisions and (xvi)
Dilution.
7
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data for the dates and periods indicated. The monthly summary statement of
operations data are derived from unaudited consolidated financial statements of
the Company and, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary to present fairly such data.
Operating results for interim periods are not necessarily indicative of a full
year's operations. The consolidated financial data as of and for the nine months
ended September 28, 1996 are derived from the Company's audited consolidated
financial statements appearing elsewhere in this Prospectus. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MONTH ENDED(1)
------------------------------------------------------------------------------------------------
JANUARY 27, FEBRUARY 24, MARCH 30, APRIL 27, MAY 25, JUNE 29, JULY 27, AUGUST 24,
1996 1996 1996 1996 1996 1996 1996(2) 1996
----------- ------------ --------- --------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales...................... $ 3,558 $ 10,183 $ 18,546 $ 17,874 $ 20,941 $ 27,560 $ 18,286 $ 25,277
Cost of products
sold.......................... 5,610 11,281 18,294 16,532 18,951 24,925 15,704 20,546
-------- --------- -------- -------- -------- -------- -------- --------
Gross profit
(loss)...................... (2,052) (1,098) 252 1,342 1,990 2,635 2,582 4,731
Selling, general and
administrative expenses....... 776 799 1,234 1,006 1,154 924 863 1,178
-------- --------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations.................. (2,828) (1,897) (982 ) 336 836 1,711 1,719 3,553
Foreign currency gain (loss)... 235 (189) 108 127 20 (41) (94) (6)
Interest expense(3)............ 1,650 1,896 2,291 1,879 1,930 2,482 1,675 1,887
Interest income................ 33 28 32 101 176 209 117 92
-------- --------- -------- -------- -------- -------- -------- --------
Net income (loss)(4).......... $ (4,210) $ (3,954) $ (3,133 ) $ (1,315) $ (898) $ (603) $ 67 $ 1,752
======== ========= ======== ======== ======== ======== ======== ========
Net income (loss) per
share(4)...................... $ (.13) $ (.12) $ (.10 ) $ (.04) $ (.02) $ (.02) $ -- $ .04
Weighted average common shares
outstanding(4)(5)............. 32,537 32,537 32,871 34,123 37,798 37,798 39,729 39,758
OTHER DATA:
Shipments
(net tons).................... 13,093 35,966 65,855 60,187 69,384 89,069 56,280 75,629
Hot band production (net
tons)(6)...................... 22,282 38,777 66,871 62,226 66,407 84,758 58,411 76,033
Prime tons produced(6)......... 15,495 28,690 50,220 54,215 58,242 78,577 53,996 73,096
Prime ton
percentage.................... 69.5% 74.0% 75.1% 87.1% 87.7% 92.7% 92.4% 96.1%
Yield percentage(7)............ 78.3% 85.4% 84.9% 84.9% 89.2% 87.0% 88.3% 87.8%
Average sales price per prime
ton........................... $ 302 $ 313 $ 313 $ 319 $ 317 $ 322 $ 336 $ 346
Effective capacity
utilization(8)................ 19.9% 34.6% 47.8% 55.6% 59.3% 60.5% 69.5% 67.9%
Man-hours per net ton
produced...................... 1.77 .83 .66 .73 .69 .65 .61 .61
Number of employees (end of
period)....................... 224 230 238 248 252 255 256 259
Operating profit (loss) per net
ton shipped................... $ (215.99) $ (52.74) $ (14.91 ) $ 5.58 $ 12.05 $ 19.21 $ 30.54 $ 46.98
Depreciation and
amortization.................. $ 466 $ 951 $ 1,453 $ 1,413 $ 1,532 $ 1,844 $ 1,219 $ 1,616
Net cash provided by (used in):
Operating activities.......... $ (13,293) $ (4,040) $(10,404 ) $ (13,434) $ (9,784) $ 7,019 $ (6,623) $ 12,108
Investing activities.......... $ 114 $ (247) $ (4,682 ) $ (1,268) $(32,153) $ 1,639 $ 757 $ 9,015
Financing activities.......... $ 12,953 $ 3,917 $ 19,486 $ 43,683 $ 484 $ (4,048) $ (652) $ (32)
EBITDA(9)...................... $ (2,362) $ (946) $ 471 $ 1,749 $ 2,368 $ 3,555 $ 2,938 $ 5,169
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
SEPTEMBER 28, 28,
1996 1996
------------- ------------
<S> <<C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales...................... $32,394 $174,619
Cost of products
sold.......................... 26,414 158,257
-------- --------
Gross profit
(loss)...................... 5,980 16,362
Selling, general and
administrative expenses....... 1,413 9,347
-------- --------
Income (loss) from
operations.................. 4,567 7,015
Foreign currency gain (loss)... 100 260
Interest expense(3)............ 2,360 18,050
Interest income................ 169 957
-------- --------
Net income (loss)(4).......... $ 2,476 $ (9,818)
======== ========
Net income (loss) per
share(4)...................... $ .06 $ (.27)
Weighted average common shares
outstanding(4)(5)............. 41,162 35,940
OTHER DATA:
Shipments
(net tons).................... 96,659 562,122
Hot band production (net
tons)(6)...................... 92,984 568,749
Prime tons produced(6)......... 85,470 498,001
Prime ton
percentage.................... 91.9% 87.6%
Yield percentage(7)............ 89.2% 86.9%
Average sales price per prime
ton........................... $ 348 $ 330
Effective capacity
utilization(8)................ 66.4% 53.5%
Man-hours per net ton
produced...................... .61 .73
Number of employees (end of
period)....................... 263 263
Operating profit (loss) per net
ton shipped................... $ 47.25 $ 12.48
Depreciation and
amortization.................. $ 2,224 $ 12,718
Net cash provided by (used in):
Operating activities.......... $(7,174) $(45,625)
Investing activities.......... $(4,888) $(31,713)
Financing activities.......... $25,227 $101,018
EBITDA(9)...................... $ 6,791 $ 19,733
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
---------------------------
AS
ACTUAL ADJUSTED(10)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................... $ 30,564 $105,965
Working capital..................................................................................... 58,848 134,249
Property, plant, and equipment, net................................................................. 289,431 289,431
Total assets........................................................................................ 422,368 496,299
Long-term debt (including current portion).......................................................... 257,705 198,700
Stockholders' equity................................................................................ 123,636 256,746
</TABLE>
(footnotes on following page)
8
<PAGE> 11
(1) The Company commenced actual production of primary grade steel in January
1996. Accordingly, management believes that the Company's results of
operations prior to 1996 are not indicative of results to be expected in
the future. See "Selected Consolidated Financial Data." Management believes
that during the start-up phase, while the Company is in the process of
ramping up steel production, monthly data provides a potential investor
with meaningful information to evaluate an investment in the Company. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. The Company does not intend to
continue to disclose its statement of operations and other data on a
monthly basis.
(2) The Company's accounting year, which ends on December 31, consists of
quarterly reporting periods of two four-week months, followed by a
five-week month. For operational purposes July 1996, which would have been
a four-week month, and December 1996, which would typically be a five-week
month, are three week- and four week-months, respectively, to take into
account scheduled semi-annual shutdowns for maintenance. Beginning in 1997,
the Company intends to change to a quarterly maintenance shutdown schedule
and, as a result, for operational purposes, each fiscal quarter will
consist of two four-week months and a four and one half-week month.
(3) Interest expense for the nine months ended September 28, 1996 would have
been approximately $12.3 million, giving pro forma effect to the offerings
and the application of net proceeds therefrom to prepay (a) all $55.0
million principal amount of the Company's outstanding 11% Subordinated
Notes due 2002 (the "Subordinated Notes") and (b) approximately $9.1
million of the Company's Senior Term Loan Notes (the "Term Loan Notes").
These adjustments (i) assume that the transactions occurred as of January
1, 1996 and (ii) assume that the average interest rate on the Term Loan
Notes during the period was 7.6%. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) For the nine months ended September 28, 1996, on a pro forma basis, giving
effect to the transactions described in footnote 3 above and the exercise
of the Warrants as if they had occurred as of January 1, 1996, the
Company's net loss and net loss per share would have been approximately
$4.1 million and $.09, respectively. The pro forma net loss and net loss
per share does not give effect to an extraordinary charge of approximately
$8.3 million ($.9 million in cash) that the Company expects to incur as a
result of the prepayment of the Subordinated Notes. Pro forma net loss per
share is based on the weighted average number of common shares outstanding
during the period plus the issuance of 9,375,000 shares of Common Stock
offered by the Company hereby and 1,791,472 shares of Common Stock upon
exercise of the Warrants.
(5) Weighted average common shares outstanding for each period presented give
effect to the anti-dilutive effect of shares issued from September 23, 1995
through September 23, 1996 using the treasury stock method. Common Stock
equivalents are included only when dilutive.
(6) Hot band production refers to the total production of finished coiled
products. Prime tons refer to hot bands produced which meet or exceed
metallurgical and quality standards for surface, shape, and metallurgical
properties.
(7) Yield percentage refers to tons of finished products divided by tons of raw
materials.
(8) Effective capacity utilization is the ratio of tons produced for the
operational month to the operational month's capacity based on an annual
capacity of 1.4 million tons.
(9) EBITDA represents operating income before depreciation and amortization.
Based on its experience in the steel industry, the Company believes that
EBITDA and related measures of cash flow serve as important financial
analysis tools for measuring and comparing steel companies in several
areas, such as liquidity, operating performance and leverage. However,
EBITDA is not a measurement of financial performance under generally
accepted accounting principles ("GAAP") and may not be comparable to other
similarly titled measures of other companies. EBITDA should not be
considered as an alternative to operating or net income (as determined in
accordance with GAAP), as an indicator of the Company's performance or as
an alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. See the Company's
Consolidated Statements of Operations and Consolidated Statements of Cash
Flows, including the notes thereto, appearing elsewhere in this Prospectus.
(10) As adjusted to give effect to the transactions described in footnote 3
above and the exercise of the Warrants as if they had occurred as of
September 28, 1996. See "Use of Proceeds." As adjusted stockholders' equity
reflects an extraordinary charge of approximately $8.3 million ($.9 million
in cash) that the Company expects to incur as a result of the prepayment of
the Subordinated Notes.
9
<PAGE> 12
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to other information set forth in this Prospectus in evaluating an
investment in the shares of the Common Stock offered hereby.
START-UP; LIMITED OPERATING HISTORY; RECENT LOSSES
The Company was formed in September 1993 and commenced commercial quality
production at its thin-slab steel mini-mill in January 1996. The Company is in
the process of ramping up steel production to full capacity. The Company has
experienced normal start-up and operational difficulties in bringing its
mini-mill into full scale production, and the mini-mill is not yet operating at
full capacity. By the end of September 1996, the Company was operating at an
annualized production rate of 930,000 tons, or 66% of full capacity. Because of
the high fixed cost nature of operating a steel mill, failure to bring
production to, or maintain production at, full capacity could have a material
adverse effect on the Company's cost and pricing structure and on its resulting
ability to compete and results of operations. Although the Company believes that
the start-up difficulties it experienced are typical of those encountered when a
new steel mill commences production, there is no assurance that the Company will
not continue to experience operational difficulties beyond start-up
difficulties, or that it will ultimately achieve or be able to sustain full
production. In addition, the Company could experience construction, start-up or
operational difficulties as it implements the Cold Mill, IDI and Caster
Projects. There can be no assurance that the Company will be able to operate its
mini-mill at full capacity or that the Cold Mill, IDI and Caster Projects will
be successfully built, started-up, and integrated with the Company's existing
operations. Management has no experience in building or operating scrap
substitute manufacturing plants. The Company's continued rapid development and
the implementation of the Cold Mill, IDI and Caster Projects may place a strain
on its administrative, operational and financial resources. As the Company
increases its production and expands its customer base, there will be additional
demands on the Company's ability to coordinate sales and marketing efforts with
production. The failure to produce at full capacity, coordinate its sales and
marketing efforts with production or manage its future development and growth,
or the emergence of unexpected production difficulties could adversely affect
the Company's business, results of operations and financial condition.
Because the Company commenced commercial quality production in January
1996, the Company's results of operations for prior periods will not be
comparable with future periods. As a result, there is only limited financial and
operating information available for a potential investor to evaluate an
investment in the Common Stock. Although the Company reported net income for
July, August and September 1996, the Company has incurred aggregate net losses
since start-up of production of prime grade flat-rolled steel on January 2, 1996
and through September 28, 1996 of approximately $9.8 million. As of September
28, 1996 the Company had an accumulated deficit of approximately $39.7 million.
These losses have resulted principally from operating expenses during start-up.
The Company will experience additional start-up losses in connection with the
Cold Mill, IDI and Caster Projects. There can be no assurance that the Company's
operations will continue to be profitable. If the Company cannot maintain
profitability it may not be able to make required debt service payments and the
value of the Common Stock could be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
VARIABILITY OF FINANCIAL RESULTS; PRODUCTION SHUTDOWNS
The Company's results of operations are substantially affected by
variations in the realized sales prices of its products, which in turn depend
both on prevailing prices for steel and demand for particular products. In 1995,
spot prices for hot bands dropped in the second and third quarters by
approximately $40 and $20 per ton, respectively. Operating results have been,
and in the future will be, affected by numerous factors, including the prices
and availability of raw materials, particularly steel scrap and scrap
substitutes, the demand for and prices of the Company's products, the level of
competition, the level of unutilized production capacity in the steel industry,
the mix of products sold by the Company, the timing and pricing of large orders,
start-up difficulties with respect to the Cold Mill Project, IDI Project or
Caster Project, the integration and modification of facilities and other
factors. There can be no assurance that these events and circumstances or other
events or circumstances, such as seasonal factors like weather, disruptions in
the transportation, energy
10
<PAGE> 13
or the Company's customers' industries or an economic downturn adversely
affecting the steel industry, generally, or the Company, in particular, will not
occur, any of which could have a material adverse effect on the Company.
The Company's manufacturing processes are dependent upon certain critical
pieces of steelmaking equipment, such as its EAF and continuous caster, which on
occasion may be out of service due to routine scheduled maintenance or as the
result of equipment failures. This interruption in the Company's production
capabilities could result in fluctuations in the Company's quarterly results of
operations. The most significant scheduled maintenance outages are planned to
occur quarterly, for three days at a time, and involve routine maintenance work.
Other routine scheduled maintenance could limit the Company's production for a
period of less than a day, while unanticipated equipment failures could limit
the Company's production for a longer period.
Equipment failures at its plant could limit or shut down the Company's
production. During the first ten months of its operations, the Company
experienced some equipment failures, none of which lasted more than two days. In
order to reduce the risk of equipment failure, the Company follows a
comprehensive maintenance and loss prevention program, has on-site maintenance
and repair facilities, and maintains an inventory of spare parts and machinery.
For example, the Company maintains a spare EAF transformer as well as spare
caster parts, mechanical parts and electrical controls for its cranes and other
tools. No assurance can be given, however, that material shutdowns will not
occur in the future or that a shutdown would not have a material adverse affect
on the Company. In addition to equipment failures, the mill is also subject to
the risk of catastrophic loss.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's business is capital intensive and will require substantial
expenditures for, among other things, the purchase and maintenance of equipment
used in its steelmaking and finishing operations and compliance with
environmental laws. In addition, the construction and start-up of the Cold Mill,
IDI and Caster Projects (collectively, the "Expansion Projects") will require
substantial capital.
The Company currently estimates that the funds required for the
construction and start-up of (i) the Cold Mill Project, which is expected to be
completed in the second half of 1997, will total approximately $200.0 million,
(ii) the IDI Project, which is expected to be completed in 1998, will total
approximately $65.0 million and (iii) the Caster Project, which is expected to
be completed in the second quarter of 1998, will total approximately $75.0
million. There can be no assurance that the Expansion Projects will be completed
as planned or at the costs currently budgeted or that the Company will have
adequate sources of funds for any such future capital expenditures. The Company
may also require additional financing in the event it decides to enter into
strategic alliances or make acquisitions.
The Company intends to use cash on hand, funds from operations and
borrowings under the Credit Agreement (as defined) to finance the construction
and startup of the Cold Mill Project. The Company's Credit Agreement provides
for a $150.0 million senior term loan facility for the construction of the Cold
Mill Project. Borrowings under the Credit Agreement are conditioned upon the
Company's compliance with various financial and other covenants and other
conditions set forth therein and, as a result, there can be no assurance that
such financing will be available to the Company as planned. See "Description of
Certain Indebtedness." The Company intends to use $20.0 million of the $25.4
million of net proceeds it recently received from the private placement of its
Common Stock to finance a portion of the IDI Project and intends to finance the
remaining $45.0 million of expenditures required to construct and fund the
start-up operating losses for the IDI Project with indebtedness (the "IDI
Financing"). The IDI Financing will be raised by IDI, the Company's wholly owned
subsidiary. Although IDI is negotiating to obtain such indebtedness, it has not
yet secured a commitment. No assurances can be given that the IDI Financing will
be obtained on terms acceptable to the Company or within the limitations
contained in the Credit Agreement. The Company intends to use approximately
$75.0 million of the net proceeds from the offerings to finance the Caster
Project. The extent of additional financing will depend on the success of the
Company's business. There can be no assurance that additional financing, if
needed, will be available to the Company or, if available, that it can be
11
<PAGE> 14
obtained on terms acceptable to the Company and within the limitations contained
in the Credit Agreement or any future financing, including the IDI Financing.
Failure to obtain the required funds could delay or prevent some portion of the
Expansion Projects from being implemented or completed, which could have a
material adverse effect on the Company. See "-- Restrictive Covenants."
COST OF STEEL SCRAP AND OTHER RAW MATERIALS
The Company's principal raw material is scrap metal derived from, among
other sources, junked automobiles, industrial scrap, railroad cars and railroad
track materials, agricultural machinery and demolition scrap from obsolete
structures, containers and machines. The prices for scrap are subject to market
forces largely beyond the control of the Company, including demand by U.S. and
international steel producers, freight costs and speculation. The prices for
scrap have varied significantly and may vary significantly in the future. In
addition, the Company's operations require substantial amounts of other raw
materials, including various types of pig iron, alloys, refractories, oxygen,
natural gas and electricity, the price and availability of which are also
subject to market conditions. The Company may not be able to adjust its product
prices, especially in the short-term, to recover the costs of increases in scrap
and other raw material prices. The Company's future profitability may be
adversely affected to the extent it is unable to pass on higher raw material and
energy costs to its customers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Steel Scrap and
Scrap Substitute Resources" and "-- Energy Resources."
CYCLICALITY OF STEEL INDUSTRY AND END USER MARKETS
The steel industry is highly cyclical in nature and sensitive to general
economic conditions. The financial condition and results of operations of
companies in the steel industry are generally affected by macroeconomic
fluctuations in the U.S. and global economies. The Company is particularly
sensitive to trends in the automotive, oil and gas, gas transmission,
construction, commercial equipment, rail transportation, agriculture and durable
goods industries, because these industries are significant markets for the
Company's products and are highly cyclical. In the early 1980s, U.S. integrated
steel producers incurred significant restructuring charges associated with
efforts to reduce excess capacity. Significant losses and bankruptcies in
certain cases, occurred as a result of a number of factors, including worldwide
production overcapacity, increased U.S. and global competition, low levels of
steel demand, substitution of alternative materials for steel, high labor costs,
inefficient plants and the strength of the U.S. dollar relative to other
currencies. In the late 1980s, earnings of U.S. steel producers benefitted from
improved industry conditions. During the 1990 to 1992 downturn, substantial
excess worldwide manufacturing capacity for steel products, combined with a
worldwide economic slowdown, resulted in a substantial decrease in the demand
for steel products, increased competition and a decline in financial performance
for the steel industry. Although demand for steel products recovered and the
profitability of the industry has improved recently, there can be no assurance
that economic conditions will remain favorable to the steel industry. Future
economic downturns, a stagnant economy or currency fluctuations may adversely
affect business, results of operations, and financial condition of the Company.
COMPETITION
Competition within the steel industry can be intense. The Company competes
primarily on the basis of price, quality, and the ability to meet customers'
product specifications and delivery schedules. Many of the Company's competitors
are integrated steel producers which are larger, have substantially greater
capital resources and experience, and, in some cases, have lower raw material
costs than the Company. The Company also competes with other mini-mills which
may have greater financial resources. The highly competitive nature of the
industry, combined with excess production capacity in some products, may in the
future exert downward pressure on prices for certain of the Company's products.
In addition, in the case of certain product applications, steel competes with
other materials, including plastics, aluminum, graphite composites, ceramics,
glass, wood and concrete. There can be no assurance that the Company will be
able to compete effectively in the future.
12
<PAGE> 15
U.S. The Company's products compete with many integrated hot-rolled coil
producers, such as Rouge Steel Co. and National Steel Corp.'s Great Lakes Steel
Division in the Detroit area, LTV Steel Co., Inc., Inland Steel Co., Bethlehem
Steel Corp., U.S. Steel, Acme Steel Co. and Beta Steel Corp. in the northwest
Indiana and Chicago area, as well as a growing number of hot-rolled mini-mills,
such as Nucor Corporation's ("Nucor's") Crawfordsville, Indiana and Hickman,
Arkansas facilities and the Gallatin Steel Company's mini-mill in Ghent,
Kentucky. New hot-rolled band producing mini-mills are scheduled to be opened by
Delta Steel, the BHP/Northstar joint venture in Delta, Ohio, and TRICO Steel,
the three-way, joint venture in Alabama among LTV Steel Co., Inc., Sumitomo
Metal USA Corp. and British Steel, in 1997. Despite significant reductions in
raw steel production capacity by major U.S. producers over the last decade, the
U.S. industry continues to be adversely affected, from time to time, by excess
world capacity. According to the American Iron and Steel Institute (the "AISI"),
annual U.S. raw steel production capacity was reduced from approximately 154
million tons in 1982 to approximately 112 million tons in 1995. This reduction
resulted in higher utilization rates. Average utilization of U.S. industry
capacity improved from approximately 61% in the 1982 to 1986 period to
approximately 83% in the 1987 to 1991 period, was approximately 89% in 1993, 93%
in 1994 and 93% in 1995. Recent improved production efficiencies also have begun
to increase overall production capacity in the United States. Excess production
capacity exists in certain product lines in U.S. markets and, to a greater
extent, worldwide. Increased industry overcapacity, coupled with economic
recession, would intensify an already competitive environment.
Over the last decade, extensive downsizings have necessitated costly
restructuring charges that, when combined with highly competitive market
conditions, have resulted at times in substantial losses for some U.S.
integrated steel producers. A number of U.S. integrated steel producers have
gone through bankruptcy reorganization. These reorganizations have resulted in
somewhat reduced capital costs for these producers and may permit them to price
their steel products at levels below those that they could have otherwise
maintained.
An increasing number of mini-mills have entered or are expected to enter
the EAF-based thin-slab/flat-rolled steel market in the next several years.
These mini-mills have cost structures and management cultures more closely akin
to those of the Company than to the integrated producers. Flat-rolled mini-mill
production capacity increased from 4.0 million tons in 1994 to approximately 5.0
million tons in 1995, and industry sources expect this cumulative flat-rolled
mini-mill capacity to reach up to 14.9 million tons in 1997 and up to 18.7
million tons in 1998. The Company's penetration into the flat-rolled steel
market is limited by geographic considerations, to some extent by gauge and
width of product specifications and by metallurgical and physical quality
requirements. Based on product type and geographic location, the Company
believes it will most closely compete with the following mini-mills: Nucor's
Crawfordsville, Indiana facility, Gallatin Steel's Ghent, Kentucky facility,
Delta Steel's Delta, Ohio facility, and, to a more limited extent, Nucor's
Hickman, Arkansas facility, Nucor's Berkeley County, South Carolina facility,
and TRICO Steel's facility in northern Alabama. Each of these mills produces
hot-rolled product, however, only an affiliate of the anticipated Delta Steel
facility in Delta, Ohio is expected to produce hot-rolled galvanized product,
and only Nucor's Crawfordsville, Indiana facility produces cold-rolled and
cold-rolled galvanized products.
Non-U.S. U.S. steel producers face significant competition from certain
non-U.S. steel producers who may have lower labor costs. In addition, U.S. steel
producers may be adversely affected by fluctuations in the relationship between
the U.S. dollar and non-U.S. currencies. Furthermore, some non-U.S. steel
producers have been owned, controlled or subsidized by their governments, and
their decisions with respect to production and sales may be, or may have been in
the past, influenced more by political and economic policy considerations than
by prevailing market conditions. Some non-U.S. producers of steel and steel
products have continued to ship into the U.S. market despite decreasing profit
margins or losses. If certain pending trade proceedings ultimately do not halt
or otherwise provide relief from such trade practices, if other relevant U.S.
trade laws are weakened, if world demand for steel eases or if the U.S. dollar
strengthens, an increase in the market share of imports may occur, which could
adversely affect the pricing of the Company's products. The costs for current
and future environmental compliance may place U.S. steel producers, including
the Company, at a competitive disadvantage with respect to non-U.S. steel
producers, which are not subject to environmental requirements as stringent as
those in the U.S.
13
<PAGE> 16
RISKS RELATED TO SCRAP SUBSTITUTES
The process that the Company currently plans to use to produce DRI in the
IDI Project (the "IDI Process") has not been previously used commercially for
this purpose. There are many alternative technologies available to produce
commercially viable scrap substitute material, but only a small number have been
commercially operated. The technologies that the Company intends to use in its
IDI Project have not been previously combined into a steel scrap substitute
production facility. There is a risk, therefore, that the IDI Process will not
produce DRI for a price that makes it commercially viable as a steel scrap
substitute. If the IDI Process does not work as planned, the capital costs
incurred in designing and building the facility may be largely unrecoverable,
the planned 430,000 tonnes of low cost liquid pig iron that was intended to be
available annually to help lower the Company's overall metallics costs might be
unavailable or available at higher costs, and the impact could be materially
adverse to the Company's profitability. In addition, the Company does not have
any experience in the production of DRI and there can be no assurance that the
Company will be able to successfully design, construct and operate the IDI
Project or that the expected production capacity will be achieved. Although the
technologies to be employed by Qualitech to produce iron carbide in its Corpus
Christi, Texas plant currently under construction have been used commercially,
Qualitech is a start-up company, and there is no assurance that it will be able
to successfully complete that project, or that the project, when completed, will
produce commercially viable iron carbide. If this material were not available to
the Company, the Company could be unable to secure a comparable amount of
similar material or the cost to the Company could be materially higher, causing
the Company to rely more heavily on potentially higher-priced steel scrap for a
greater proportion of its melt mix. See "Business -- The Company's Steelmaking
Equipment and Technology -- The IDI Project" and "-- Steel Scrap and Scrap
Substitute Resources."
RELIANCE ON MAJOR CUSTOMERS
The Company has entered into long-term "off-take" contracts with Heidtman
and with Preussag pursuant to which they have agreed to purchase an aggregate of
at least 42,000, or 36%, of the Company's monthly output capacity. If the
Company's actual output is less than its full capacity, as it has been to date,
sales to these customers increase as a percentage of the Company's total net
sales. For the nine months ended September 28, 1996, these customers accounted
for 37% and 10%, respectively, of the Company's total net sales, and the
Company's top five customers accounted for approximately 66% of its total net
sales. Although the Company expects to continue to depend upon certain customers
for a significant percentage of its net sales, there can be no assurance that
any of the Company's customers will continue to purchase its steel from the
Company. A loss of one or more of them, or of a group of its next largest
customers could have a material adverse effect on the Company's results of
operations and financial condition. Heidtman is an affiliate of a stockholder of
the Company. The President and Chief Executive Officer of Heidtman serves as the
designated director of such stockholder and another stockholder on the Company's
Board of Directors. Preussag is a stockholder of the Company and a
representative of Preussag serves on the Company's Board of Directors. If the
terms of the "off-take" contracts are or become burdensome to these companies,
or if a dispute arises over the contracts, either or both of the "off-take"
providers could be viewed as having a conflict of interest between what they
perceive to be best for their companies as "off-take" buyers and what is best
for the Company as the product seller.
POTENTIAL COSTS OF ENVIRONMENTAL COMPLIANCE
U.S. steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to, among other things,
wastewater, air emissions, toxic use reduction and hazardous material disposal.
The Company believes that its facility is in material compliance with these laws
and regulations and does not believe that future compliance with such laws and
regulations will have a material adverse effect on its results of operations or
financial condition. The Company has made, and will continue to make,
expenditures to comply with such provisions. The Company generates certain waste
products, such as EAF dust, that are classified as hazardous waste and must be
properly disposed of under applicable environmental laws, which, despite the
Company's due care, could result in the imposition of strict liability for the
costs of clean-up of any landfills to which the waste may have been transported.
14
<PAGE> 17
Environmental legislation and regulations and related administrative
policies have changed rapidly in recent years. It is likely that the Company
will be subject to increasingly stringent environmental standards in the future
(including those under the Clean Air Act Amendments of 1990, the Clean Water Act
Amendments of 1990, stormwater permit program and toxic use reduction programs)
and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. In addition,
due to the possibility of unanticipated regulatory or other developments, the
amount and timing of future environmental expenditures may vary substantially
from those currently anticipated.
DEPENDENCE UPON KEY MANAGEMENT
The Company's ability to maintain its competitive position is dependent to
a large degree on the services of its senior management team, including Keith E.
Busse, President and Chief Executive Officer, Mark D. Millett, Vice President of
Melting and Casting, Richard P. Teets, Jr., Vice President of Rolling and
Finishing, and Tracy L. Shellabarger, Vice President and Chief Financial
Officer. Although these senior managers all have employment agreements with, and
are substantial stockholders of, the Company, there can be no assurance that
such individuals will remain with the Company. The loss of the services of any
of these individuals or an inability to attract, retain and maintain additional
senior management personnel could have a material adverse effect on the Company.
There can be no assurance that the Company will be able to retain its existing
senior management personnel or to attract additional qualified senior management
personnel. See "Management." The Company maintains key man life insurance on
Messrs. Busse, Millett, Teets and Shellabarger.
RESTRICTIONS ON PAYMENT OF DIVIDENDS ON COMMON STOCK
The Company has never paid any dividends on its Common Stock and does not
anticipate paying dividends on its Common Stock in the foreseeable future. In
addition, the Company is currently prohibited from declaring cash dividends on
the Common Stock under its Credit Agreement. See "Dividend Policy" and
"Description of Certain Indebtedness."
RESTRICTIVE COVENANTS
The Company's Credit Agreement restricts the Company's ability to incur
additional indebtedness, except (i) refinancings of indebtedness incurred under
the Credit Agreement and other existing indebtedness, (ii) licensing or royalty
fees payable to SMS Schloemann-Siemag AG and (iii) unsecured indebtedness in an
aggregate principal amount at any one time not greater than $5.0 million. In
addition, the Credit Agreement prohibits the Company from making capital
expenditures (other than specified permitted capital expenditures) in any fiscal
year in excess of the lesser of (i) $20.0 million and (ii) the sum of $12.0
million plus 25% of excess cash flow for the immediately preceding year plus 70%
of the amount of capital expenditures allowed but not made in the immediately
preceding fiscal year. The Company may make specified permitted capital
expenditures including up to $230.0 million for the Cold Mill Project, up to
$55.0 million for the Caster Project and an equity investment of up to $25.0
million for the IDI Project. The Company is also prohibited from creating liens
on its properties except (i) liens created in connection with its indebtedness
under the Credit Agreement and in connection with its existing indebtedness,
(ii) liens created and/or deposits made in the ordinary course of business for
taxes and assessments, workmen's compensation, unemployment insurance and other
social security obligations, bids, surety and appeal bonds and the like and
(iii) purchase money liens on assets acquired after completion of the Cold Mill
Project in an aggregate amount not to exceed $5.0 million. The Credit Agreement
contains additional restrictive covenants, including among others, covenants
restricting the Company and its subsidiaries with respect to: investments in
additional equipment and business opportunities, entering into certain
contracts, disposition of property or assets, the payment of dividends, entering
into sale-leaseback transactions, entering into transactions with affiliates,
mergers and consolidations, the making of payments on and modifications of
certain indebtedness and modification of certain agreements. In addition, the
Credit Agreement requires the Company to meet certain financial tests, including
maintaining (a) its current ratio at or above 1.3, (b) its leverage ratio at or
below 2.25 for 1996, 2.10 for 1997, 1.90 for 1998, 1.40 for 1999 and 1.00
thereafter, (c) its tangible net worth at or above the sum of (i) $45.0 million
and
15
<PAGE> 18
(ii) 50% of cumulative net income at such time and (d) its fixed charge coverage
ratio at or above 1.00 for 1996, 1.15 for 1997 and 1998, and 1.25 thereafter.
See "Description of Certain Indebtedness." In addition, the Stockholders
Agreement dated as of June 30, 1994 (the "Stockholders Agreement"), among the
Company and the stockholders party thereto, contains a number of restrictive
covenants. See "Description of Capital Stock -- The Stockholders Agreement." In
addition to a voting agreement for the election of all ten of the Company's
Directors, the Stockholders Agreement restricts the stockholders from selling,
transferring, assigning, pledging, or otherwise disposing of their shares
without first according all other parties "first offer" rights, and, even if
declined, enables any stockholder who wishes to do so to particpate with the
selling stockholder in any proposed sale (thereby reducing the amount of shares
the selling stockholder would otherwise be entitled to sell). These restrictions
do not apply to affiliate Transfers (as defined) within a stockholder group, to
public sales, or to a sale of the Company, and the restriction will cease to
apply entirely upon the realization of a "public float" (defined as the date
upon which at least 25% of the Company's Common Stock has been sold pursuant to
effective registration statements under the Securities Act). Except with the
prior written consent of holders of 70% of the outstanding shares of Common
Stock subject to the Stockholders Agreement, until a Public Float has been
realized, the Company is not permitted to pay dividends or make distributions,
redeem, purchase, or acquire its own equity securities, issue debt or equity
securities (except for stock options), make investments (except for investments
in limited financial instruments) in excess of $5.0 million, merge, sell or
dispose of assets in excess of $5.0 million, acquire an interest in any business
involving consideration of $2.0 million or more, or make capital expenditures in
excess of $5.0 million. These restrictions may make it more difficult for the
Company to operate in a manner that it deems necessary or appropriate to take
advantage of opportunities, to adjust to operational difficulties or to respond
to other difficulties.
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICES
Prior to the offerings, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations among the Company, the Selling Stockholders and the Underwriters
and may not be indicative of the market price for shares of the Common Stock
after the offerings. For a description of the factors to be considered in
determining the initial public offering price, see "Underwriters -- Pricing of
the Offerings." Although the Common Stock has been approved for quotation on the
Nasdaq National Market ("Nasdaq"), subject to official notice of issuance, there
can be no assurance that an active trading market for the Common Stock will
develop or if developed, that such a market will be sustained. The market price
for shares of the Common Stock may be significantly affected by such factors as
the Company's net sales, earnings and cash flow, the difference between the
Company's actual results and results expected by investors and analysts, news
announcements including price reductions by the Company or its competitors or
changes in general market conditions. In addition, broad market fluctuation and
general economic conditions may adversely affect the market price of the Common
Stock, regardless of the Company's actual performance.
SHARES ELIGIBLE FOR FUTURE SALE
The future sale of a substantial number of shares of Common Stock in the
public market following the offerings, or the perception that such sales could
occur, could adversely affect the market price for the Common Stock and could
make it more difficult for the Company to raise funds through equity offerings
in the future. Upon completion of the offerings, the Company expects to have
47,803,341 shares of Common Stock outstanding. Of these shares, the 9,843,750
shares of Common Stock sold in the offerings will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities Act"),
except for any such shares which may be acquired by an "affiliate" of the
Company. The remaining 37,959,591 shares of Common Stock outstanding will be
"restricted securities" and may in the future be sold without registration under
the Securities Act to the extent permitted by Rule 144 under the Securities Act
or any applicable exemption under the Securities Act. See "Shares Eligible for
Future Sale." In connection with the offerings, the Company, its executive
officers and directors, the Selling Stockholders, and certain other stockholders
of the Company, have agreed that, subject to certain exceptions, they will not
sell, offer or contract to sell any shares of Common Stock without the prior
written consent of Morgan Stanley & Co. Incorporated, for a period of 180 days
after the date of this Prospectus. Certain of the Company's existing
stockholders also have
16
<PAGE> 19
registration rights with respect to their Common Stock. In addition, as soon as
practicable after the offerings, the Company intends to file a registration
statement under the Securities Act to register shares of Common Stock reserved
for issuance under the Company's 1994 and 1996 Incentive Stock Option Plans,
thus permitting the resale of such shares by non-affiliates upon issuance in the
public market without restriction under the Securities Act. As of October 26,
1996, options to purchase 634,159 shares were outstanding under these Plans. See
"Management -- Employee Plans," "Description of Capital Stock -- The
Registration Agreement," "Shares Eligible for Future Sale" and "Underwriters."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Indiana Business Corporation Law (the "BCL"), and
certain provisions of the Stockholders Agreement may have the effect of delaying
or preventing transactions involving a change of control of the Company,
including transactions in which stockholders might otherwise receive a
substantial premium for their shares over then current market prices, may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interests or may delay or frustrate the removal of incumbent
directors. In addition, as long as the stockholders party to the Stockholders
Agreement hold a majority of the Company's outstanding Common Stock, they will
be able to elect all of the Company's directors. After giving effect to the
offerings, the stockholders party to the Stockholders Agreement will hold 79.4 %
of the outstanding shares of Common Stock. See "Description of Capital
Stock -- Certain Provisions of Indiana Law Regarding Takeovers" and "-- The
Stockholders Agreement."
DILUTION
Investors in the Common Stock offered hereby will experience an immediate
dilution of $10.90 per share (assuming an initial public offering price of
$16.00 per share) in the net tangible book value of their shares of Common
Stock. See "Dilution."
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the offerings are estimated to be
approximately $140.5 million (assuming an initial public offering price of
$16.00 per share), after deducting estimated underwriting discounts and
commissions and offering expenses. The Company will not receive any proceeds
from the sale of Common Stock by the Selling Stockholders.
The Company will use the net proceeds of the offerings: (i) to prepay
approximately $55.0 million principal amount of the Company's Subordinated Notes
(which bear interest at 11% per annum and mature on September 30, 2002),
together with accrued interest to the date of payment (estimated to be
approximately $.5 million) and a prepayment premium of approximately $.9
million, (ii) to finance approximately $75.0 million of construction and
start-up costs for the Caster Project and (iii) to prepay approximately $9.1
million of Term Loan Notes outstanding under the Credit Agreement, together with
accrued interest to the date of prepayment. The Term Loan Notes outstanding
under the Credit Agreement bear interest at variable rates (8.0% weighted
average rate at September 28, 1996) and mature in 2002. See "Description of
Certain Indebtedness." The Company intends on funding its Caster Project over
the next 30 months. Pending such use, the Company will invest these funds in
short-term, marketable, investment grade securities. See "Risk
Factors -- Significant Capital Requirements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently anticipates that all of its future earnings will be
retained to finance the expansion of its business and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. Any determination
to pay cash dividends in the future will be at the discretion of the Company's
Board of Directors after taking into account various factors, including the
Company's financial condition, results of operations, outstanding indebtedness,
current and anticipated cash needs and plans for expansion. The payment of
dividends on the Company's Common Stock is subject, in any event, to limitations
under the terms of the Company's Credit Agreement. See "Description of Certain
Indebtedness."
18
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at September 28, 1996
after giving effect to the exercise of the Warrants would have been
approximately $109.4 million or $2.85 per share of Common Stock. Pro forma net
tangible book value per share is determined by dividing the net tangible book
value (total assets less net intangibles and less total liabilities) by the
number of outstanding shares of Common Stock. After giving effect to the sale by
the Company of 9,375,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $16.00 per share and the application of the net
proceeds as set forth under "Use of Proceeds," the net tangible book value of
the Company as of September 28, 1996, would have been approximately $244.0
million or $5.10 per share, representing an immediate increase in net tangible
book value of $2.25 per share to the existing stockholders and an immediate
dilution to investors purchasing shares in the offerings of $10.90 per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $ 16.00
Pro forma net tangible book value per share at September 28,
1996.......................................................... $ 2.85
Increase per share attributable to sale of Common Stock in the
offerings..................................................... 2.25
------
Pro forma net tangible book value per share after the offerings.... 5.10
-------
---
Dilution per share to investors who purchase Common Stock in the
offerings........................................................ $ 10.90
==========
</TABLE>
The foregoing table does not give effect to the exercise of outstanding
options granted to employees to purchase 634,159 shares of Common Stock at a
weighted average exercise price of $4.25 per share. If all such outstanding
options were exercised, the dilution to new investors would be $10.96 per share.
The following table sets forth on a pro forma basis as of September 28,
1996, the number of shares and percentage of total outstanding Common Stock
purchased, the total consideration and percentage of total consideration paid
and the weighted average price per share paid by existing stockholders
(including the holders of the Warrants) and by investors purchasing the shares
of Common Stock offered by the Company hereby (assuming an initial public
offering price of $16.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION WEIGHTED
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).......... 38,428,341 80.4% $158,559,705 51.4% $ 4.12
New investors..................... 9,375,000 19.6 150,000,000 48.6 16.00
--------- --- --------- ---
Total................... 47,803,341 100.0% $308,559,705 100.0%
========= === ========= ===
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in the offerings (assuming no exercise of
the U.S. Underwriters' over-allotment option) will cause the number of
shares held by existing stockholders to be reduced, and the number of shares
held by new investors to be increased by 468,750. See "Principal and Selling
Stockholders."
19
<PAGE> 22
CAPITALIZATION
The following table sets forth the actual cash and cash equivalents,
current maturities of long-term debt and capitalization of the Company as of
September 28, 1996, and as adjusted to give effect to the offerings and the
exercise of the Warrants and the application of the net proceeds therefrom
(assuming an initial public offering price of $16.00 per share). This
information should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE INFORMATION)
<S> <C> <C>
Cash and cash equivalents............................................. $ 30,564 $ 105,965
======== ========
Current maturities of long-term debt.................................. $ 5,840 $ 5,840
======== ========
Long-term debt, excluding current maturities:
Revolving credit facility........................................... $ -- $ --
Senior term loans................................................... 150,000 140,900
11% subordinated notes.............................................. 49,905(1) --
Other(2)............................................................ 51,960 51,960
-------- --------
Total long-term debt........................................ 251,865 192,860
Stockholders' equity:
Common Stock, $.01 par value per share, 100,000,000 shares
authorized, 36,636,869 shares issued and outstanding; 47,803,341
shares issued and outstanding, as adjusted....................... 366 478
Additional paid-in capital.......................................... 163,341 303,804
Amounts due from stockholders....................................... (325) --
Accumulated deficit................................................. (39,746) (47,536)
-------- --------
Total stockholders' equity.................................. 123,636 256,746
-------- --------
Total capitalization...................................... $375,501 $ 449,606
======== ========
</TABLE>
- ---------------
(1) The Subordinated Notes are recorded net of unamortized debt discount
(approximately $5.1 million as of September 28, 1996). The Subordinated
Notes were originally issued with warrants to purchase Common Stock. A
portion of the net proceeds from the sale of the Subordinated Notes was
allocated to additional paid-in capital to reflect the issuance of the
warrants. The remaining debt discount will be expensed in connection with
the prepayment of the Subordinated Notes with a portion of the net proceeds
of the offerings.
(2) For a description of other long-term debt, see Note 3 to the Company's
Consolidated Financial Statements appearing elsewhere in this Prospectus.
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the periods indicated. The selected consolidated financial data for
the period from September 7, 1993 (date of inception) through December 31, 1993,
as of December 31, 1993, 1994 and 1995 and September 28, 1996, for each of the
two years in the period ended December 31, 1995 and for the nine months ended
September 28, 1996 are derived from the Company's Consolidated Financial
Statements appearing elsewhere in this Prospectus which have been audited by
Deloitte & Touche LLP. The selected consolidated financial data for the nine
months ended September 30, 1995 are derived from the unaudited consolidated
financial statements of the Company and, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly such data. Operating results for interim periods are not
necessarily indicative of a full year's operations. The information below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 7, 1993 YEAR ENDED
(DATE OF INCEPTION) DECEMBER 31, NINE MONTHS ENDED
THROUGH ------------------- ---------------------------------------
DECEMBER 31, 1993 1994 1995 SEPTEMBER 30, 1995 SEPTEMBER 28, 1996
------------------- -------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ -- $ -- $ 137 $ -- $ 174,619
Cost of products sold........... -- -- 3,169 -- 158,257
-------- -------- ---------- ---------- ----------
Gross profit (loss)......... -- -- (3,032) -- 16,362
Selling, general and
administrative expenses....... 1,159 4,192 13,580 8,640 9,347
-------- -------- ---------- ---------- ----------
Income (loss) from
operations................ (1,159) (4,192) (16,612) (8,640) 7,015
Foreign currency gain (loss).... (4,952) (3,272) (2,658) 260
Interest expense(1)............. 2 43 564 139 18,050
Interest income................. 1 307 560 463 957
-------- -------- ---------- ---------- ----------
Net loss(2)................. $(1,160) $ (8,880) $(19,888) $ (10,974) $ (9,818)
======== ======== ========== ========== ==========
Net loss per share(2)........... $ (.07) $ (.36) $ (.62) $ (.34) $ (.27)
Weighted average common shares
outstanding(2)(3)............. 15,931 24,679 31,975 31,952 35,940
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents....... $ 117 $ 28,108 $ 6,884 $ 3,202 $ 30,564
Working capital................. (29) 8,230 (14,488) (2,995) 58,848
Property, plant, and equipment,
net........................... 200 54,566 274,197 204,796 289,431
Total assets.................... 521 94,618 320,679 227,989 422,368
Long-term debt (including
current maturities)........... 800 11,949 223,054 151,012 257,705
Stockholders' equity
(deficiency).................. (429) 62,536 62,972 66,820 123,636
</TABLE>
- ---------------
(1) Interest expense for the nine months ended September 28, 1996 would have
been approximately $12.3 million, giving pro forma effect to the offerings
and the application of net proceeds therefrom to prepay (a) all $55.0
million principal amount of the Company's outstanding Subordinated Notes and
(b) approximately $9.1 million of the Company's Term Loan Notes. These
adjustments assume that (i) the transactions occurred as of January 1, 1996
and (ii) the average interest rate on the Term Loan Notes during the period
was 7.6%. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) For the nine months ended September 28, 1996, on a pro forma basis, giving
effect to the transactions described in footnote 1 above and the exercise of
the Warrants as if they had occurred as of January 1, 1996, the Company's
net loss and net loss per share would have been approximately $4.1 million
and $.09, respectively. The pro forma net loss and net loss per share does
not give effect to an extraordinary charge of approximately $8.3 million
($.9 million in cash) that the Company expects to incur as a result of the
prepayment of the Subordinated Notes. Pro forma net loss per share is based
on the weighted average number of common shares outstanding during the
period plus the issuance of 9,375,000 shares of Common Stock offered by the
Company hereby and the 1,791,472 shares of Common Stock upon exercise of the
Warrants.
(3) Weighted average common shares outstanding for each period presented give
effect to the anti-dilutive effect of shares issued from September 23, 1995
through September 23, 1996 using the treasury stock method. Common Stock
equivalents are included only when dilutive.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Company's Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus.
Certain information contained below, including information with respect to the
Company's plans with respect to the Cold Mill, IDI and Caster Projects, are
forward-looking statements. See "Risk Factors" for a discussion of important
factors which could cause actual results to differ materially from the forward-
looking statements contained herein.
OVERVIEW
Steel Dynamics owns and operates a new, state-of-the-art flat-rolled steel
mini-mill, which commenced operations in January 1996. The Company was founded
by executives and managers who pioneered the development of
thin-slab/flat-rolled CSP technology and directed the construction and operation
of the world's first thin-slab/flat-rolled mini-mill. Building upon their past
experience with CSP technology, management founded SDI to produce steel more
efficiently, at a lower cost and of higher quality. Steel Dynamics' goal is to
become the low cost producer of a broad range of flat-rolled steel products,
including hot-rolled, cold-rolled and galvanized sheet, and to serve more
markets than any other flat-rolled mini-mill. In addition, the Company intends
to participate in the development and use of new technologies to produce a broad
range of steel products.
The Company was founded in September 1993 by Keith E. Busse, Mark D.
Millett and Richard P. Teets, Jr. Steel Dynamics commenced construction of the
mini-mill in October 1994 and commissioned it in December 1995. The Company
believes that this 14-month construction period is the fastest ever for this
kind of facility. In addition, the Company believes that the approximately
$275.7 million initial capital cost of its mini-mill is approximately $75.0
million, or approximately 20%, less than the cost of comparable mini-mills
currently operating. Actual production at the mini-mill of primary grade steel
commenced on January 2, 1996. The mill achieved an annualized production rate of
930,000 tons by the end of September 1996, or 66% of its capacity of 1.4 million
tons, making the mini-mill's start-up and ramp-up the fastest in the industry.
Pursuant to the Company's plan to develop downstream processing facilities
to produce further value-added steel products, Steel Dynamics is currently
constructing a cold mill, contiguous to the mini-mill, with a 1.0 million ton
annual capacity which is scheduled for completion during the second half of
1997. Steel Dynamics also plans to add a second melting furnace, a second caster
and tunnel furnace, and an additional coiler in 1998 to expand its annual
production capacity of hot-rolled steel from 1.4 million tons to approximately
2.4 million tons. In addition, through IDI, the Company intends to construct a
520,000 tonne annual capacity plant for the manufacture of DRI, which the
Company expects to be completed in 1998. The DRI, after further processing into
430,000 tonnes of liquid pig iron, will be used in SDI's mini-mill as a steel
scrap substitute.
Management strategically located the Company's mini-mill within close
proximity to its natural customer base, steel service centers and other end
users, abundant supplies of automotive and other steel scrap (SDI's principal
raw material), competitive sources of power, and numerous rail and truck
transportation routes. Steel Dynamics believes that its strategic location
provides it with sales and marketing as well as production cost advantages. The
Company has secured a stable baseload of sales through long-term "off-take"
contracts with two major steel consumers, a 30,000 ton per month sales contract
with Heidtman, a major Midwest-based steel service center and distributor and an
affiliate of one of the Company's stockholders, and a 12,000 ton per month sales
contract with Preussag, a major German steel manufacturer and a stockholder of
the Company, with affiliate distributors and steel service centers throughout
the United States. The Company has also sought to assure itself of a secure
supply of steel scrap and scrap substitute. To accomplish this objective, SDI
has entered into a long-term scrap purchasing services contract with OmniSource,
one of the largest scrap dealers in the Midwest and an affiliate of one of the
Company's stockholders. In addition, the Company has also sought to assure
itself of a secure supply of scrap substitute material for use as a lower cost
complement to steel scrap as part of the Company's melt mix. SDI has entered
into a long-term 300,000 tonne per year
22
<PAGE> 25
"off-take" contract to purchase iron carbide from Qualitech's iron carbide
facility currently under construction in Corpus Christi, Texas which is expected
to be completed in 1998. Additional scrap substitute material will be provided
through the IDI Project.
The Company's business strategy is to use advanced CSP hot-rolled steel
making and cold-rolling technologies to produce high surface quality flat-rolled
steel in a variety of value-added sizes, gauges and surface treatments,
emphasizing low production costs, reliable product quality and excellent
customer service. In addition, SDI intends to remain financially strong and
competitive through the selective purchasing of scrap and scrap substitutes to
offset the effects of cyclical cost/price imbalances.
Since commencing commercial operations in January 1996, through June 29,
1996, the Company incurred net losses of approximately $14.1 million and had an
accumulated deficit of approximately $44.0 million. However, in July, a
three-week operating period, August 1996, a four-week operating period, and
September 1996, a five-week operating period, SDI reported monthly net income of
approximately $67,000, approximately $1.8 million and approximately $2.5 million
as a result of shipments of approximately 56,000, 76,000 and 97,000 tons,
respectively, representing approximately 67%, 68% and 69%, respectively, of
capacity.
The Company's operations are subject to the cyclical nature of the steel
industry and the U.S. economy as a whole. U.S. steel industry production was
approximately 104.9 million tons in 1995, an increase of 8.0% from an average
during the prior three-year period of approximately 97.1 million tons. This
increase was due primarily to an improvement of general economic conditions and
increased demand for durable goods. For instance, the production of U.S. cars
and trucks in 1995 increased to approximately 12.0 million units from an annual
average during the prior three-year period of approximately 11.0 million units.
U.S. steel production in 1995 increased approximately 4.3% to approximately
104.9 million tons compared to approximately 100.6 million tons in 1994.
Shipments increased over the same corresponding period from approximately 95.1
million tons to approximately 97.5 million tons, an increase of approximately
2.5%. Other factors which affect the performance of the Company include
increasing competition from U.S. and international steel producers (both
integrated mills and mini-mills), worldwide supply and demand for hot bands and
the strength of the U.S. dollar relative to the currencies of other steel
producing countries.
The following table summarizes the annual raw steel capacity, raw steel
production, utilization rates and finished shipments information for the U.S.
steel industry (as reported by the AISI) for the years 1993 through 1995:
<TABLE>
<CAPTION>
U.S. RAW STEEL U.S. RAW STEEL TOTAL U.S.
YEAR CAPABILITY PRODUCTION UTILIZATION SHIPMENTS
- ---- -------------- -------------- ----------- ----------
(THOUSANDS OF TONS)
<S> <C> <C> <C> <C> <C>
1993....................... 109,900 97,877 89.1% 89,022
1994....................... 108,200 100,579 93.0% 95,084
1995....................... 112,400 104,930 93.4% 97,494
</TABLE>
The Company believes that the current market for flat-rolled steel appears
to be sufficiently strong to absorb the current capacity of integrated and
mini-mill producers. In 1995, spot prices for hot band dropped significantly in
the second and third quarters, approximately $40 and $20 per ton, respectively,
before recovering by $10 per ton in the fourth quarter. Since December 1995, a
series of spot price increases for hot band amounting to $30 to $40 per ton have
been announced by leading U.S. producers, the most recent of which was announced
effective for the third quarter of 1996. Although Steel Dynamics believes the
immediate outlook for the U.S. economy remains positive, there can be no
assurance that the level of net tons shipped in the industry and current price
levels will continue or increase from present levels in view of the modest
nature of the improvement in the U.S. economy to date, increasing worldwide
competition within the steel industry and increasing steel production capacity.
Net Sales. The Company's net sales are a function of net tons shipped,
prices and mix of products. SDI has experienced continued net sales growth since
start-up and expects that trend to continue due to increasing
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<PAGE> 26
production and shipments as well as improving pricing. In addition, the
Company's products are sold out through the end of the fourth quarter of 1996
(the latest date for which Steel Dynamics has accepted orders).
SDI has not entered into any fixed-price, long-term (exceeding one calendar
quarter) contracts for the sale of steel. Although fixed price contracts may
reduce the risk of price declines, these contracts also limit the ability of the
Company to take advantage of price increases. All of the Company's orders are
taken at its announced pricing levels with price discounts for high volume
purchases when appropriate. SDI is also able to charge premium prices for
certain grades of steel, dimensions of product, or certain smaller volumes,
based upon the cost of production. When the Cold Mill Project is completed in
the second half of 1997, the Company will be able to manufacture more
value-added products requiring more exacting tolerances, thinner gauges, finer
surface conditions, and galvanized coatings, thereby enabling it to charge
premium prices.
Of the Company's shipments through September 28, 1996, approximately 37%
have been purchased by Heidtman and 10% have been purchased by Preussag pursuant
to long-term "off-take" contracts based upon market pricing. In addition to this
stable baseload of demand, the Company is continually seeking to attract new
customers for its products. The Company had 18 customers at the end of January
1996 and the number of the Company's customers has grown to 100 at the end of
September. SDI is also continually seeking to enter new markets. Of the
Company's shipments since start-up, the Company believes that approximately 23%
has been used in the automotive industry, approximately 18% for tubing,
approximately 13% for construction, approximately 12% for commercial equipment,
with the balance for appliances and rail, machinery, agriculture and
recreational equipment. Steel Dynamics believes that when the Cold Mill Project
is completed, it will be able to broaden its customer base, diversify its
product mix and access more profitable markets. See "Business -- The Flat-Rolled
Market."
Cost of Products Sold. All direct and indirect manufacturing costs are
included in costs of products sold. The principal elements comprising Steel
Dynamics' current costs of products sold are steel scrap and scrap substitutes,
electricity, natural gas, oxygen and argon, electrodes, alloys, depreciation and
direct and indirect labor and benefits.
Steel scrap and scrap substitutes represent the most significant component
of the Company's total cost of products sold. Although SDI believes that there
will be an ample supply of high quality, low residual scrap in the future, the
Company recognizes that the construction of additional mini-mills, increased
efficiency of the steel making process and the continuing general recovery in
steel prices have led to increased demand for, and higher prices of, steel
scrap. The Company believes that, over the long-term, prices of steel scrap will
continue to be volatile but its price ranges will likely increase. As a result,
Steel Dynamics has pursued a three-part strategy to secure access to adequate
supplies of steel scrap and lower cost steel scrap substitute materials. First,
the Company has entered into a long-term steel scrap contract with OmniSource.
Second, SDI has sought to assure itself of a secure supply of scrap substitute
material as a lower cost complement for use in the melt mix with steel scrap
through its iron carbide "off-take" contract with Qualitech. Third, the Company
is pursuing the IDI Project to develop DRI.
The Company purchases its electricity from American Electric Power ("AEP"),
pursuant to a contract which extends through 2005. The contract designates a
portion of the Company's load as "firm" with the majority of the load designated
as "interruptible." The blended rate under the contract is favorable and when
the mill reaches full production is expected to be between $.024 and $.025 per
kilowatt hour ("kWh"). The Company has a "primary firm" natural gas delivery
contract on the Panhandle Eastern Pipeline that extends through May 2000 and an
interruptible delivery contract with NIPSCO/NIFL/Crossroads that extends through
December 2000. The Company believes the combined negotiated cost of natural gas
and its transportation to be favorable. The Company has also contracted for all
of its estimated requirements of natural gas at $1.91 per decatherm through July
1997. The Company maintains a liquid propane tank farm on site with sufficient
reserves to sustain operations for approximately two weeks in the event of an
interruption in the natural gas supply. SDI purchases all of its requirements
for oxygen and argon from Air Products and Chemicals, Inc. ("Air Products"),
which built a large plant adjacent to the mini-mill. Air Products uses its plant
to supply other customers as well as the Company. As a result, the Company has
been able to buy its oxygen and argon at what SDI believes to be favorable
prices. Steel Dynamics generally purchases its other
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<PAGE> 27
raw materials, such as electrodes and alloys, in the open market from various
sources and their availability and price are subject to market conditions.
For manufacturing plant and equipment, the Company uses the
units-of-production method of depreciation.
The current work force of Steel Dynamics consists of approximately 200
hourly and 60 salaried personnel. For September 1996, the Company's employment
costs per ton shipped were approximately $14. The Company has established
certain incentive compensation programs specifically designed to reward employee
teams for their productivity efforts. Production employees actively share in
SDI's success through a production bonus, a conversion cost bonus and a profit
sharing plan. The Company's employees are not represented by any labor unions.
Selling, General & Administrative. Selling, general and administrative
expenses are comprised of all costs associated with the sales,
finance/accounting, materials and transportation, and administrative
departments. These costs include labor and benefits, advertising, promotional
materials, bad debt expenses and professional fees. These costs are not directly
affected by sales volumes. SDI has established a Profit Sharing Plan for
eligible employees under which a minimum of 5% of pretax profits are paid into a
"profit sharing pool." The majority of the profit sharing pool is used to fund
the Profit Sharing Plan, with the balance paid to employees as a cash bonus in
March of each year. Selling, general and administrative expenses also include
all non-capitalized start-up costs associated with the construction of the Cold
Mill Project, including all labor and benefits, utilities and general supplies
and services. The Company expects that these costs will increase through the
construction and start-up of the Cold Mill Project. The Company may incur
additional selling, general and administrative expenses as a result of becoming
a publicly-held company.
Foreign Currency Gain (Loss). The foreign currency gains and losses
represent transaction gains and losses incurred by the Company for purchases of
equipment used within the Company's mini-mill. A portion of the purchase price,
as stated within the contract to purchase the equipment, was denominated in
German marks. The Company committed to purchase the equipment in December 1993
with settlement of the liability primarily occurring during the construction
period of the mini-mill. No foreign currency financial instruments were entered
into as a result of this equipment purchase to hedge the foreign currency risk.
No commitments for equipment purchases denominated in a foreign currency exist
at December 31, 1995 or September 28, 1996. The Company's strategy for managing
foreign currency risk will depend on the facts and circumstances of the related
transactions and the Company will consider risk management strategies, as
appropriate.
Interest Expense. During the construction of the mini-mill, the costs
related to construction expenditures are considered to be assets qualifying for
interest capitalization under Statement of Financial Accounting Standards
("SFAS") No. 34, "Capitalization of Interest Cost." Capitalized interest for the
year ended December 31, 1994 ("Fiscal 1994"), the year ended December 31, 1995
("Fiscal 1995"), the nine months ended September 30, 1995 (the "1995 Nine-Month
Period") and the nine months ended September 28, 1996 (the "1996 Nine-Month
Period") was approximately $.3 million, $10.1 million, $6.0 million and $.1
million, respectively. There was no capitalized interest for the period from
September 7, 1993 (date of inception) to December 31, 1993 ("Fiscal 1993").
Management expects that a majority of the interest on the indebtedness incurred
to finance the construction of the Cold Mill and the IDI Projects will be
capitalized.
Taxes. At September 28, 1996, the Company had available net operating loss
carryforwards ("NOLs") for federal income tax purposes of approximately $42.0
million of which $.2 million expire in 2009, $2.3 million expire in 2010 and
$39.5 million expire in 2011. Because of the Company's limited operating
history, a valuation allowance for net deferred tax assets has been provided.
RESULTS OF OPERATIONS
Founded in September 1993, SDI commenced actual production of primary grade
steel in January 1996. Accordingly, the Company's historical results of
operations are not indicative of results to be expected in the future.
Net Sales. Net sales totaled approximately $174.6 million for the 1996
Nine-Month Period. SDI commenced commercial production of primary grade steel on
January 2, 1996 and has continued to increase
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<PAGE> 28
its net sales as its production of prime tons increased. By the end of September
1996, the Company was operating at an annualized rate of 930,000 tons, or at 66%
of full capacity. In addition, the average sales price per prime ton increased
from $302 for January 1996 to $348 for September 1996. For Fiscal 1993, Fiscal
1994 and Fiscal 1995, during which time the mini-mill was under construction,
Steel Dynamics had no net sales other than $137,000 in December 1995 from the
sale of approximately 600 tons of secondary grade steel.
Cost of Products Sold. Cost of products sold totaled approximately $158.3
million, or 91% of net sales, for the 1996 Nine-Month Period. As the Company
continues to increase the number of prime tons sold, the Company expects that
cost of products sold will continue to increase but, as a percentage of net
sales, the cost of products sold will decrease. For Fiscal 1995 cost of products
sold was $3.2 million.
Selling, General and Administrative. Selling, general and administrative
was approximately $1.2 million, $4.2 million and $13.6 million for Fiscal 1993,
Fiscal 1994 and Fiscal 1995, respectively and approximately $8.6 million and
$9.3 million for the 1995 Nine-Month Period and the 1996 Nine-Month Period,
respectively. The increasing costs through 1995 were due to the increasing
employee base as construction activity accelerated toward completion in December
1995.
Interest Expense. Interest expense totaled approximately $2,000, $43,000
and $564,000 for Fiscal 1993, Fiscal 1994 and Fiscal 1995, respectively, and
approximately $139,000 and $18.1 million for the 1995 Nine-Month Period and the
1996 Nine-Month Period, respectively. The low level of interest expense during
Fiscal 1993, Fiscal 1994 and Fiscal 1995 reflects the effect of capitalizing
interest relating to construction costs.
Foreign Currency Gain (Loss). Foreign currency loss totaled approximately
$0, $5.0 million and $3.3 million for Fiscal 1993, Fiscal 1994 and Fiscal 1995,
respectively, and approximately $2.7 million for the 1995 Nine-Month Period. In
the 1996 Nine-Month Period, foreign currency gain totaled $260,000.
Interest Income. Interest income totaled approximately $1,000, $307,000
and $560,000 for Fiscal 1993, Fiscal 1994 and Fiscal 1995, respectively, and
approximately $463,000 and $957,000 for the 1995 Nine-Month Period and the 1996
Nine-Month Period, respectively.
Taxes. At September 28, 1996, the Company had available NOLs for federal
income tax purposes of approximately $42.0 million of which $.2 million expire
in 2009, $2.3 million expire in 2010 and $39.5 million expire in 2011. Because
of the Company's limited operating history, a valuation allowance for net
deferred tax assets has been provided.
LIQUIDITY AND CAPITAL RESOURCES
Steel Dynamics' business is capital intensive and requires substantial
expenditures for, among other things, the purchase and maintenance of equipment
used in its steelmaking and finishing operations and compliance with
environmental laws. See "Risk Factors -- Significant Capital Requirements" and
"-- Potential Costs of Environmental Compliance." The Company's liquidity needs
arise primarily from capital investments, working capital requirements and
principal and interest payments on its indebtedness. Since its inception, SDI
has met these liquidity requirements with cash provided by equity, long-term
borrowings, state and local government grants and capital cost reimbursements.
Net cash used in operating activities totaled approximately $22.7 million
for Fiscal 1993 through Fiscal 1995. During the 1996 Nine-Month Period, the
Company used net cash of approximately $45.6 million in operating activities.
Net cash used in investing activities totaled approximately $246.4 million for
Fiscal 1993 through Fiscal 1995 and approximately $31.7 million for the 1996
Nine-Month Period. Investing activities primarily consisted of capital
expenditures of approximately $268.4 million for the construction of the
Company's existing facility and the beginning of the Cold Mill Project. Cash
provided by financing activities totaled approximately $276.0 million for Fiscal
1993 through Fiscal 1995 and approximately $101.0 million for the 1996
Nine-Month Period.
In June 1994, the Company issued $55.0 million principal amount of the
Subordinated Notes (together with warrants to purchase Common Stock) to finance
a portion of the construction of the mini-mill. All of the
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<PAGE> 29
Subordinated Notes will be repaid with a portion of the net proceeds from the
offerings. See "Use of Proceeds."
The Credit Agreement provides for (i) up to an aggregate of $300.0 million
of senior term loans and (ii) a $45.0 million revolving credit facility (the
"Revolving Credit Facility") for working capital purposes, subject to borrowing
base restrictions. Indebtedness outstanding under the Credit Agreement is
secured by a first priority lien on substantially all of the assets of the
Company. Of the $300.0 million in senior term loan commitments the Company
borrowed $150.0 million for the construction of the mini-mill and $150.0 million
was designated and remains available for the construction of the Cold Mill
Project. See "Description of Certain Indebtedness." As of September 28, 1996,
$150.0 million of senior term loans were outstanding and there were no
outstanding borrowings under the Revolving Credit Facility. The Company will
prepay $9.1 million of such indebtedness with a portion of the net proceeds from
the offerings. See "Use of Proceeds."
As of September 28, 1996, after giving pro forma effect to the offerings
and the application of the net proceeds therefrom, the Company's long-term debt
(including current portion) would have been approximately $198.7 million and SDI
would have had approximately $150.0 million available under the Credit Agreement
to finance the Cold Mill Project. Most of the Company's indebtedness will bear
interest at floating rates, causing the Company's results of operations to be
affected by prevailing interest rates.
The Company currently estimates that the funds required for the
construction and start-up (including capital expenditures) of the Expansion
Projects will total approximately $340.0 million (approximately $200.0 million
for the Cold Mill Project; approximately $65.0 million for the IDI Project and
approximately $75.0 million for the Caster Project). The Company may also
require additional financing in the event it decides to enter into strategic
alliances or make acquisitions. See "Risk Factors -- Significant Capital
Requirements."
The Company intends to use $20.0 million of the $25.4 million of net
proceeds it recently received from the private placement of its Common Stock to
finance a portion of the IDI Project and intends to finance the remaining $45.0
million with the IDI Financing. Although IDI is negotiating to obtain the IDI
Financing, it has not yet secured a commitment. No assurance can be given that
the IDI Financing will be obtained on terms acceptable to the Company or at all.
See "Certain Transactions."
The Company intends to use approximately $75.0 million of the net proceeds
from the offerings to finance the Caster Project. The Company intends to finance
the Cold Mill Project with cash on hand and borrowings under the Credit
Agreement. Borrowings under the Credit Agreement are conditioned upon the
Company's compliance with various financial and other covenants and other
conditions set forth therein and, as a result, there can be no assurance that
such financing will be available to the Company as planned. See "Description of
Certain Indebtedness." The extent of additional financing required, if any, by
the Company will depend on the success of the Company's business. There can be
no assurance that additional financing, if needed, will be available to the
Company or, if available, that it can be obtained on terms acceptable to the
Company and within the limitations contained in the Credit Agreement or the
terms of any future financings, including the IDI Financing. Failure to obtain
the required funds could delay or prevent some portion of the Expansion Projects
from being implemented or completed, which could have a material adverse effect
on the Company. See "Risk-Factors -- Significant Capital Requirements."
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
SDI has incurred and, in the future, will continue to incur capital
expenditures and operating expenses for matters relating to environmental
control, remediation, monitoring and compliance. Capital expenditures for
environmental control for the Fiscal 1994, Fiscal 1995 and 1996 Nine-Month
Period were approximately $595,000, $15.9 million, and $790,000, respectively,
and operating expenses relating to environmental matters were approximately $0,
$30,000, and $2.1 million, for the same periods. SDI has planned environmental
capital expenditures for the years ending December 31, 1996, 1997, and 1998 of
approximately $1.0 million, $3.0 million, and $6.1 million, respectively. In
addition, the Company expects to incur expenses relating to environmental
matters of approximately $2.7 million, $4.3 million, and $4.4 million, for the
years ending December 31, 1996, 1997, and 1998, respectively. Steel Dynamics
believes that compliance with current
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<PAGE> 30
environmental laws and regulations is not likely to have a material adverse
effect on the Company's financial condition, results of operations or liquidity;
however, environmental laws and regulations have changed rapidly in recent years
and SDI may become subject to more stringent environmental laws and regulations
in the future. See "Risk Factors -- Potential Costs of Environmental
Compliance."
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets, and for
Long-Lived Assets to be Disposed of " and SFAS No. 123, "Accounting for
Stock-Based Compensation" were adopted effective January 1, 1996. Adopting these
standards had no effect on the Company's financial position, results of
operations or cash flows in 1996.
INFLATION
SDI does not believe that inflation has had a material effect on its
results of operations over the periods presented.
28
<PAGE> 31
BUSINESS
OVERVIEW
Steel Dynamics owns and operates a new, state-of-the-art flat-rolled steel
mini-mill, which commenced operations in January 1996. The Company was founded
by executives and managers who pioneered the development of
thin-slab/flat-rolled CSP technology and directed the construction and operation
of the world's first thin-slab/flat-rolled mini-mill. Building upon their past
experience with CSP technology, management founded SDI to produce steel more
efficiently, at a lower cost and of higher quality. Steel Dynamics' goal is to
become the low cost producer of a broad range of flat-rolled steel products,
including hot-rolled, cold-rolled and galvanized sheet, and to serve more
markets than any other flat-rolled mini-mill. In addition, the Company intends
to participate in the development and use of new technologies to produce a broad
range of steel products.
The Company was founded in September 1993 by Keith E. Busse, Mark D.
Millett and Richard P. Teets, Jr. Steel Dynamics commenced construction of the
mini-mill in October 1994 and commissioned it in December 1995. The Company
believes that this 14-month construction period is the fastest ever for this
kind of facility. In addition, the Company believes that the approximately
$275.7 million initial capital cost of its mini-mill is approximately $75.0
million, or approximately 20%, less than the cost of comparable mini-mills
currently operating. Actual production at the mini-mill of primary grade steel
commenced on January 2, 1996. The mill achieved an annualized production rate of
930,000 tons by the end of September 1996, or 66% of its capacity of 1.4 million
tons, making the mini-mill's start-up and ramp-up the fastest in the industry.
Pursuant to the Company's plan to develop downstream processing facilities
to produce further value-added steel products, Steel Dynamics is currently
constructing a cold mill, contiguous to the mini-mill, with a 1.0 million ton
annual capacity which is scheduled for completion during the second half of
1997. Steel Dynamics also plans to add a second melting furnace, a second caster
and tunnel furnace, and an additional coiler in 1998 to expand its annual
production capacity of hot-rolled steel from 1.4 million tons to approximately
2.4 million tons. In addition, through IDI, the Company intends to construct a
520,000 tonne annual capacity plant for the manufacture of DRI, which the
Company expects to be completed in 1998. The DRI, after further processing into
430,000 tonnes of liquid pig iron, will be used in SDI's mini-mill as a steel
scrap substitute.
Management strategically located the Company's mini-mill within close
proximity to its natural customer base, steel service centers and other end
users, abundant supplies of automotive and other steel scrap (SDI's principal
raw material), competitive sources of power, and numerous rail and truck
transportation routes. Steel Dynamics believes that its strategic location
provides it with sales and marketing as well as production cost advantages. The
Company has secured a stable baseload of sales through long-term "off-take"
contracts with two major steel consumers, a 30,000 ton per month sales contract
with Heidtman, a major Midwest-based steel service center and distributor and an
affiliate of one of the Company's stockholders, and a 12,000 ton per month sales
contract with Preussag, a major German steel manufacturer and a stockholder of
the Company, with affiliate distributors and steel service centers throughout
the United States. The Company has also sought to assure itself of a secure
supply of steel scrap and scrap substitute. To accomplish this objective, SDI
has entered into a long-term scrap purchasing services contract with OmniSource,
one of the largest scrap dealers in the Midwest and an affiliate of one of the
Company's stockholders. In addition, the Company has also sought to assure
itself of a secure supply of scrap substitute material for use as a lower cost
complement to steel scrap as part of the Company's melt mix. SDI has entered
into a long-term 300,000 tonne per year "off-take" contract to purchase iron
carbide from Qualitech's iron carbide facility currently under construction in
Corpus Christi, Texas which is expected to be completed in 1998. Additional
scrap substitute material will be provided through the Company's IDI Project.
STRATEGY
The Company's business strategy is to use advanced CSP hot-rolled
steelmaking and cold-rolling technologies to produce high surface quality
flat-rolled steel in a variety of value-added sizes, gauges and
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<PAGE> 32
surface treatments, emphasizing low production costs, reliable product quality
and excellent customer service. In addition, SDI intends to remain financially
strong and competitive through the selective purchasing of scrap and scrap
substitutes to offset the effects of cyclical cost/price imbalances. The
principal elements of the Company's strategy include:
- Achieve Lowest Conversion Costs in Industry. Steel Dynamics' EAF, caster
and rolling mill designs represent substantial improvements over earlier
mini-mills using CSP technology. These improvements have been designed to
speed the steelmaking process, to limit "power off time" and other non-
productive time in the EAF, to reduce the per ton cost of consumables and
to yield high quality finished steel product. By designing and using
equipment that is more efficient, requires less periodic maintenance or
rebuilding, requires less consumables and improves the consistency and
reliability of the steelmaking process, the Company believes that it will
achieve lower unit costs for converting metallics and other raw materials
into flat-rolled steel. The Company believes that its per ton
manufacturing costs are already among the lowest in the industry.
- Emphasize Value-Added Products. Steel Dynamics believes that it will be
able to produce thinner gauge (down to .040") steel in hot-rolled form
with consistently better surface and edge characteristics than most other
flat-rolled producers. The Company believes that its high quality,
thinner hot-rolled products will compete favorably with certain more
expensive cold-rolled (further processed) products, enabling it to obtain
higher margins. In addition, with the completion of the Cold Mill
Project, SDI expects to devote a substantial portion of its hot-rolled
products to the production of higher value-added cold-rolled and
galvanized products, as well as thinner gauges, down to .015". This
increased product breadth should also allow the Company to broaden its
customer base.
- Secure Reliable Sources of Low Cost Metallics. The principal raw
material used in the Company's mini-mill is steel scrap which represents
approximately 45% to 50% of the Company's total manufacturing costs.
Steel Dynamics has pursued a three-part strategy to secure access to
adequate low cost supplies of steel scrap and steel scrap substitute
materials. First, the Company has entered into a long-term steel scrap
contract with OmniSource. Second, SDI has sought to further this strategy
through its iron carbide "off-take" contract with Qualitech. Third, Steel
Dynamics is pursuing the IDI Project to produce DRI as a lower cost
complement for use in the melt mix with steel scrap.
- Secure a Solid Baseload of Hot Band Sales. In order to help ensure
consistent and efficient plant utilization, SDI has entered into six-year
"off-take" sales and distribution agreements with Heidtman and Preussag,
pursuant to which Heidtman has agreed to purchase at least 30,000 tons
and Preussag has agreed to purchase at least an average of 12,000 tons of
the Company's flat-rolled products per month, at the Company's market
price, subject to certain volume and single run discounts.
- Increase Unit Growth at Low Capital Cost. SDI seeks to continue to grow
its production of flat-rolled steel coil at low capital and unit costs.
The Company plans to use approximately $75.0 million of the net proceeds
of the offerings to finance its Caster Project. The Caster Project, which
is expected to be completed in 1998, will increase the annual production
capacity of the Company's mini-mill from 1.4 to approximately 2.4 million
tons of hot-rolled steel. The Caster Project will enable the Company to
better use the increased rolling and finishing capacity that its Cold
Mill Project will provide when completed in 1997. The foundations and
infrastructure necessary to house and support the second caster have been
pre-planned into the existing plant and, therefore, the 1.0 million
additional tons of annual hot-rolled steel capacity should be added at a
relatively low capital cost. In addition, management intends to continue
to explore new production technologies to further lower its unit costs of
production.
- Incentivize Employees. In contrast to the high fixed labor costs of many
of the Company's competitors, SDI has established certain incentive
compensation programs specifically designed to reward employee teams for
their efforts towards enhancing productivity, thereby encouraging a sense
of ownership throughout Steel Dynamics. Production employees actively
share in the Company's success through a production bonus and a
conversion cost bonus. The production bonus is directly tied to the
quantity and quality of products manufactured during a particular shift.
The conversion cost bonus
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encourages employees to use materials and resources more efficiently.
Steel Dynamics' employees' bonuses may equal or exceed their base hourly
wage.
- Pursue Future Opportunities. Steel Dynamics believes that technology
development and management's experience will provide significant
opportunities for SDI in a broad range of markets, potentially including
flat-rolled, non-flat-rolled, stainless and specialty steels. See "-- The
Flat-Rolled Market." The Company plans to pursue opportunities through
greenfield projects, strategic alliances or acquisitions to secure the
long-term future growth and profitability of SDI. Steel Dynamics will
seek to enter new steel markets and to produce new steel products using
the latest technology, with the objective of being a low cost producer.
In addition, the Company has a technology sharing agreement with Preussag
which will provide SDI with Preussag's expertise and know-how in steel
manufacturing, particularly steel finishing.
INDUSTRY OVERVIEW
The steel industry has historically been and continues to be highly
cyclical in nature, influenced by a combination of factors including periods of
economic growth or recession, strength or weakness of the U.S. dollar, worldwide
production capacity, levels of steel imports and tariffs. The industry has also
been affected by other company-specific factors such as failure to adapt to
technological change, plant inefficiency, and high labor costs. As an industry,
most U.S. steel producers suffered losses between 1982 and 1986, earned profits
between 1987 and 1989, weakened again through the end of 1992, strengthened
during 1993 and 1994, weakened again in 1995 and appear to be strengthening at
the present time. Steel, regardless of product type, is a commodity that
responds to forces of supply and demand, and prices have been volatile and have
fluctuated in reaction to general and industry specific economic conditions.
Under such conditions, a steel company must be a low cost, efficient producer
and a quality manufacturer.
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There are generally two kinds of primary steel producers, "integrated" and
"mini-mill." The following diagram illustrates the differences in production
methodologies between the typical multi-step integrated mill production process
and the typical continuous mini-mill melting-casting-rolling process.
[FLOW CHART]
Steel manufacturing by an "integrated" producer involves a series of
distinct but related processes, often separated in time and in plant geography.
This process generally involves ironmaking followed by steelmaking, followed by
billet or slab making, followed by reheating and further rolling into steel
plate or bar, or flat-rolling into sheet steel or coil. These processes may, in
turn, be followed by various finishing processes (including cold-rolling) or
various coating processes (including galvanizing). In integrated producer
steelmaking, coal is converted to coke in a coke oven, then combined in a blast
furnace with iron ore (or pellets) and limestone to produce pig iron, and then
combined with scrap in a "basic oxygen" or other furnace to produce raw or
liquid steel. Once produced, the liquid steel is metallurgically refined and
then either poured as ingots for later reheating and processing or transported
to a continuous caster for casting into a billet or slab, which is then further
shaped or rolled into its final form. Typically, though not always, and whether
by design or as a result of downsizing or re-configuration, many of these
processes take place in separate and remote facilities.
In contrast, a mini-mill employs an electric arc furnace to directly melt
scrap steel or steel scrap substitute, thus entirely eliminating the
energy-intensive blast furnace. A mini-mill incorporates the melt shop, ladle
metallurgical station, casting, and rolling into a unified continuous flow. The
melting process begins
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<PAGE> 35
with the charging of a furnace vessel with scrap steel, carbon, and lime,
following which the vessel's top is swung into place and electrodes lowered into
the scrap through holes in the top of the furnace. Electricity is then applied
to melt the scrap. The liquid steel is then checked for chemistry and the
necessary metallurgical adjustments are made while the steel is still in the
melting furnace or, if the plant has a separate staging area for that process
(as SDI's does), the material is transported by a ladle to an area, commonly
known as a ladle metallurgy station. From there, the liquid steel is transported
by ladle to a turret at the continuous caster, wherein it is then transferred
into a tundish, a kind of reservoir, which controls the flow of the liquid steel
into a water-cooled copper-lined mold (collectively, the "caster") from which it
exits as an externally solid billet or slab. After a billet is cast, it is then
cut to length and either shipped as billets or stored until needed for further
rolling or processing (which would involve reheating) or it may be sent directly
into the rolling process, after which it may then be cut to length,
straightened, or stacked and bundled. In the case of thin-slab casting, however,
the slabs proceed directly into a tunnel furnace, which maintains and equalizes
the slab's temperature, and then after descaling, into the first stand of the
rolling mill operation. In this rolling process, the steel is progressively
reduced in thickness. In the case of sheet steel, it is wound into coil and may
be sold either directly to end users or to intermediate steel processors or
service centers, where it may be pickled, cold-rolled, annealed, tempered, or
galvanized.
As a group, mini-mills are generally characterized by lower costs of
production and higher productivity than the integrated steelmakers. This is due,
in part, to the mini-mills' lower capital costs and to their lower operating
costs resulting from their streamlined melting process and smaller, more
efficient plant layouts. Moreover, mini-mills have tended to employ a management
culture that emphasizes worker empowerment and flexible, incentive-oriented
non-union labor practices. The smaller plant size of the mini-mill operation
also permits greater flexibility in locating the facility to optimize access to
scrap supply, attractive energy costs, infrastructure and markets. Furthermore,
the mini-mill's more efficient plant size and layout, which incorporates the
melt shop, metallurgical station, casting and rolling in a unified continuous
flow under the same roof (as contrasted with integrated mills, which have
typically been downsized and re-configured over time and thus may perform each
of these functions in separate facilities), have reduced or eliminated costly
re-handling and re-heating of partially finished product. Mini-mills, moreover,
have tended to be more willing to adapt to newer, more innovative and aggressive
management styles, featuring decentralized decision-making. They have also
adapted more quickly to the use of newer, more cost effective and efficient
machinery and equipment, translating technological advances in the industry into
more efficient production more quickly than the integrated mills.
EVOLUTION OF COMPACT STRIP PRODUCTION TECHNOLOGY
Mini-mills have been producing steel since the early 1960s when EAFs and
continuous casting were initially commercialized. For many of those years, the
mini-mills focused almost exclusively on lower-quality, lower-priced "long
products," including merchant shapes such as rebar, wire, rod, angles, and
structurals, due to the mini-mill's relatively smaller size, initial quality
limitations and early power and capacity limitations. In 1989, however, a
mini-mill, using the world's first CSP machine employing a revolutionary mold
design, directly cast a 2" slab that was less than 25% of the thickness of the
typical 8" to 10" slabs cast by the integrated producers.
The CSP technology was one of the most significant advances in steelmaking
in the last forty years. The thinner slab greatly reduces costs, as less
reduction is necessary in the hot-strip rolling mill to create hot-rolled bands
or coils of steel, and there is substantially less re-heating required prior to
rolling. Most important, the development of this thin-slab casting technology,
with its lower capital cost requirement, allowed for the entry of the mini-mills
into the flat-rolled segment of the steel market.
33
<PAGE> 36
THE FLAT-ROLLED MARKET
The flat-rolled market represents the largest steel product group,
accounting for approximately 62.4% of the total annual U.S. steel shipments.
Flat-rolled products consist of hot-rolled, cold-rolled, and coated sheet and
coil. Currently, the Company's products consist only of hot-rolled coil. This
product group has been the fastest growing segment of the U.S. steel market over
the last 40 years, amounting to approximately 60.8 million tons of shipments in
1995. The following table shows the U.S. flat-rolled shipments by hot-rolled,
cold-rolled, and coated production (as reported by the AISI) for the last five
years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C>
Hot-Rolled(1)........................................... 20.8 20.8 22.7 24.6 26.8
Cold-Rolled(2).......................................... 13.0 14.2 14.4 14.7 14.1
Coated(3)............................................... 13.9 15.6 18.3 20.2 19.9
---- ---- ---- ---- ----
Total......................................... 47.7 50.6 55.4 59.5 60.8
==== ==== ==== ==== ====
% Total Steel Shipments................................. 60.6% 61.6% 62.3% 62.6% 62.4%
</TABLE>
- ---------------
(1) Includes pipe/tube, sheet, strip and plate in coils.
(2) Includes blackplate, sheet, strip and electrical.
(3) Includes tin coated, hot dipped, galvanized, electrogalvanized and all other
metallic coated.
The following chart presents 1995 U.S. industry flat-rolled product
shipments by market segment (as reported by the AISI):
[PIE CHART]
34
<PAGE> 37
Hot-Rolled Products. All coiled flat-rolled steel is initially hot-rolled,
a process that consists of passing an ingot or a cast slab through a multi-stand
rolling mill to reduce its thickness to less than 1/2" and, in some mills, to
less than 1/16". Hot-rolled steel is minimally processed steel coil that is used
in the manufacture of various non-surface critical applications such as
automobile suspension arms, frames, wheels, and other unexposed parts in auto
and truck bodies, agricultural equipment, construction products, machinery,
tubing, pipe, tools, lawn care products and guard rails. The U.S. market for
hot-rolled steel in 1995 was approximately 26.8 million tons, excluding imports.
This is a market segment that the Company's existing mini-mill currently serves.
The following chart presents 1995 U.S. industry hot-rolled product shipments by
market segment (as reported by the AISI):
[PIE CHART]
Cold-Rolled Products. Cold-rolled steel is hot-rolled steel that has been
further processed through a pickler and then successively passed through a
rolling mill without reheating until the desired gauge (or thickness) and other
physical properties have been achieved. Cold-rolling reduces gauge and hardens
the steel and, when further processed through an annealing furnace and a temper
mill, improves uniformity, ductility and formability. Cold-rolling can also
impart various surface finishes and textures. Cold-rolled steel is used in
applications that demand higher quality or finish, such as exposed automobile
and appliance panels. As a result, cold-rolled prices are typically higher than
hot-rolled. The U.S. market for cold-rolled steel in 1995 was approximately 14.1
million tons, excluding imports. This is a market segment that the Company's
cold mill will serve when completed in 1997. The following chart presents 1995
U.S. industry cold-rolled product shipments by market segment (as reported by
the AISI):
[PIE CHART]
35
<PAGE> 38
Coated Products. Coated steel is usually cold-rolled sheet that has been
coated with a non-ferrous metal to render it corrosion-resistant and to improve
its paintability. Hot-dipped galvanized, electrogalvanized and aluminized
products are types of coated steels. These are also the highest value-added
sheet products because they require the greatest degree of processing and tend
to have the strictest quality requirements. Coated steel is used in high volume
applications such as automotive, household appliances, roofing and siding,
heating and air conditioning equipment, air ducts, switch boxes, chimney flues,
awnings, garbage cans and food containers. The use of coated steels in the U.S.
has increased dramatically over the last 40 years. The U.S. market for coated
steels in 1995 was approximately 19.9 million tons, excluding imports. This
market segment will be served by SDI's cold mill when completed in 1997. The
following chart presents 1995 U.S. industry coated product shipments by market
segment (as reported by the AISI):
LOGO
THE COMPANY'S PRODUCTS AND APPLICATIONS
The Company's current array of hot-rolled products includes a variety of
high quality mild and medium carbon and high strength low alloy hot-rolled bands
in 40" to 62" widths and in thicknesses from .500" down to .040" (1 mm). These
products are suitable for mechanical and structural tubing, gas and fluid
transmission piping, metal building systems, parts and components for
automobiles, trucks, trailers, and recreational vehicles, rail cars, ships,
barges, and other marine equipment, agricultural equipment and farm implements,
lawn, garden, and recreational equipment, industrial machinery and shipping
containers. SDI believes that, because of innovations made in its
state-of-the-art caster, its basic production hot band has surface and edge
quality characteristics that exceed those of the other thin-slab/flat-rolled
mini-mills operating currently. The Company also believes that the surface and
edge quality of its hot bands compares favorably with conventional mills. Steel
Dynamics believes that it is able to access a substantial portion of the current
U.S. shipped hot-rolled market of 26.8 million tons. Based on information from
its customers, the following chart displays SDI's 1996 flat-rolled shipments,
for the first nine months of its operations, by market classification of the
ultimate end user, regardless of whether the Company's hot band was further
processed by a steel service center or other intermediate processor before being
shipped to the end user.
<TABLE>
<CAPTION>
END USER INDUSTRY PERCENTAGE TYPICAL APPLICATIONS
---------------------- ---------- ----------------------------------------------------
<S> <C> <C>
Automotive............ 23% Safety restraints, suspension, frame
Tubing................ 18 Structural tube, mechanical tube, conduit
Construction.......... 13 Metal buildings, piling, safety grating
Commercial equipment.. 12 Racks, shelving, hardware
Machinery............. 6 Construction equipment, machine tools
Rail.................. 4 Rail car sides, tops, end caps
Residential
equipment........... 4 Lawn equipment, garden implements, motion furniture
Appliances............ 3 Liners, backs, brackets
Agriculture........... 2 Farm equipment, feeders, bins
Other................. 15 Exercise and recreational equipment
----------
Total....... 100%
==========
</TABLE>
36
<PAGE> 39
After completion of the Cold Mill Project (expected to occur during the
second half of 1997), SDI expects to produce a full range of hot-rolled,
hot-rolled coated, cold-rolled and cold-rolled coated products. At that time,
the Company expects to devote a substantial portion of its hot bands to the
production of higher value added products, including galvanized coatings, as
well as thinner gauge cold-rolled, down to .015(). This increased product
breadth should also allow SDI to broaden its direct customer base, so that many
of the products required by end user consumers could be purchased directly from
the Company, instead of through an intermediate processor or steel service
center. The Company believes that upon completion of the Cold Mill Project it
will be able to access a substantial portion of the current U.S. shipped
flat-rolled market of 60.8 million tons.
THE COMPANY'S CUSTOMERS AND MARKETS
Intermediate Steel Processors and Steel Service Centers. The Company's
customers currently are primarily intermediate steel processors and steel
service centers. Of Steel Dynamics' total net sales since the Company commenced
operations, 81% were to steel processors or service centers. These steel
processors and service centers typically act as intermediaries between primary
steel producers, such as SDI, and the various end user manufacturers that
require further processing of hot bands. The additional processing performed by
the intermediate steel processors and service centers include pickling,
galvanizing, cutting to length, slitting to size, leveling, blanking, shape
correcting, edge rolling, shearing and stamping. After the completion of the
Cold Mill Project, the Company expects to provide additional value-added
cold-rolling and coating services. The Company expects, however, that its
intermediate steel processor and service center customers will remain an
integral part of its future customer base and plans to continue to sell its hot
bands and other products to these customers after the Cold Mill Project is
complete.
The Company's largest customers, Heidtman and Preussag, accounted in the
aggregate for approximately 47% of Steel Dynamics' total net sales through
September 28, 1996. While the loss of either Heidtman or Preussag as a customer,
or a significant reduction in the business generated by Heidtman or Preussag,
might have a material adverse effect on SDI's results of operations, the Company
believes its relationships with these two companies have enabled it to baseload
the mill, thus helping to ensure consistent and sufficient plant utilization.
Heidtman and Preussag are the only two customers of SDI that have accounted,
individually, for more than 10% of the Company's total net sales through
September 28, 1996. Heidtman is an affiliate of one of the Company's
stockholders and Preussag is a stockholder. See "Principal and Selling
Stockholders." The Company's five largest customers in the aggregate accounted
for approximately 66% of total net sales through September 28, 1996. See "Risk
Factors -- Reliance on Major Customers."
SDI has a six-year purchasing agreement with Heidtman for the purchase of
at least 30,000 tons of the Company's hot band products per month, at market
prices, determined by reference to the lowest prices charged by other thin-slab
mini-mills or conventional mills for the same products. The price at which the
Company is required to sell 30,000 tons of steel coil to Heidtman cannot be
higher than the lowest price at which SDI offers its products to any other
customer. Heidtman is entitled to single run as well as certain volume
discounts. In addition, Heidtman has priority purchase rights to the Company's
secondary material and field claim material. The Company's aggregate sales to
Heidtman (including its affiliated companies) through September 28, 1996 has
amounted to 201,500 tons.
SDI also has a six-year Purchasing, U.S. Sales and Export Distribution
Agreement (the "Preussag Purchasing Agreement") with Preussag pursuant to which,
and subject to the Company's obligations to fill Heidtman's orders, Preussag is
obligated to purchase an average of at least 12,000 tons per month of the
Company's available products, at a market price determined by reference to the
Company's price sheet and by reference to prevailing competitive market prices
charged to large customers by other mills within the Company's typical marketing
area. Preussag is entitled to single run and certain volume discounts. Under the
Preussag Purchasing Agreement, the Company has also appointed Preussag as its
preferred distributor for all sales to customers outside the United States,
Canada and Mexico. See "-- International Sales." Preussag's affiliated companies
include: Delta Steel, Inc., located in Houston, Texas; Feralloy Corporation,
located in Chicago, Illinois; Feralloy North American Steel Co., LP, located in
Melvindale, Michigan; Preussag Handel, Canada, located in Vancouver, British
Columbia, Canada; Preussag Handel, GmbH, located in Mexico City,
37
<PAGE> 40
Mexico; and Preussag International Steel Corporation, located in Atlanta,
Georgia. The Company's aggregate sales to Preussag (including its affiliated
companies) through September 28, 1996 has amounted to 56,800 tons.
Direct Sales to End Users. The Company sells directly to end users,
including manufacturers of cold-rolled strip, oil and gas transmission pipe, and
mechanical and structural tubing. The Company employs a 12-person direct sales
staff, consisting of a Manager of Sales and Marketing, three Field Sales
Managers, a Manager of Secondary Sales, with the balance dedicated to inside
sales and administration. Steel Dynamics plans on keeping its end user sales and
support staff small and efficient, reflecting the Company's emphasis on
cost-containment and productivity.
Geographic Proximity to Customers. The following map illustrates the
geographic proximity of certain of the more significant U.S. markets for
flat-rolled sheet to the Company's mini-mill in Butler, Indiana.
[MAP]
Of the Company's total net sales through September 28, 1996, more than 80%
were to customers within 300 miles of SDI. In addition to its low production
costs, the Company believes that it also enjoys a pricing advantage over most of
its competitors due to freight savings to its customers to the north and east of
SDI's mini-mill, where it sold 60% of its flat-rolled steel through September
28, 1996.
International Sales. Of the Company's total net sales through September
28, 1996, sales outside the continental United States accounted for less than
5%. Pursuant to the Preussag Purchasing Agreement, the Company has appointed
Preussag its preferred distributor for all sales to customers outside the United
States, Canada and Mexico (the "Export Territory"). Under the Preussag
Purchasing Agreement, if the Company wishes to sell in the Export Territory, it
must notify Preussag of the products available for sale and the price of these
products. Preussag must then use its best efforts to solicit these sales and to
present the Company with any purchase orders for the product, which the Company
may then accept or reject. Sales within the Export Territory are for Preussag's
own account, regardless of whether Preussag is purchasing for its use or for
resale. If the Company receives an unsolicited offer to purchase any products
from a prospective customer in the Export Territory, the Company must notify
Preussag of the terms and Preussag has a right of first refusal to effect the
purchase. For sales in the Export Territory, Preussag is entitled to a sales
commission in addition to
38
<PAGE> 41
any other applicable discounts or rebates. The Company has also entered into a
"second look" export sales agreement for such international sales with Sumitomo
Corporation of America ("Sumitomo"). Sumitomo is also a stockholder in the
Company.
THE COMPANY'S STEELMAKING EQUIPMENT AND TECHNOLOGY
Steel Dynamics' thin-slab/flat-rolled steelmaking equipment represents the
state-of-the-art in EAF melting and thin-slab casting and rolling technology and
embodies advancements and improvements reflecting the combined design and
operating experience with thin-slab steelmaking of the Company's three founders,
Keith E. Busse, Mark D. Millett, and Richard P. Teets, Jr. The Company's
existing equipment and technology, as well as the design criteria of the
equipment and technology that will constitute the Cold Mill Project and the
Caster Project, are intended to improve steelmaking speed, efficiency and
output, result in less "power off" and down time, require less maintenance,
prolong equipment life and produce steel of better consistency and of better
surface and edge qualities.
The Existing Mill. The principal steelmaking equipment that comprises the
existing thin-slab/flat-rolling plant that is currently producing the Company's
hot bands consists of a melting furnace, a ladle metallurgy station, a turret,
thin-slab caster and rolling mill.
[SCHEMATIC DRAWING OF THE COMPANY'S CURRENT STEELMAKING PROCESS]
The Electric Arc Furnace. The Company's EAF is a 165-ton capacity tap
weight (195-ton gross weight with a 30-ton "hot heel") Fuchs AC-powered 120 MVA
high reactance twin-shell EBT (eccentric bottom tap) furnace, consisting of two
melting hearths working off of a single power source. Although such a large
capacity furnace might have suggested the use of DC power, SDI purchased an
AC-powered unit but with a reactor added to the electrical system on the primary
side of the transformer. In addition to saving approximately 30% in the capital
cost of the EAF (as compared to a DC-type unit), the AC-powered EAF is designed
to use smaller electrodes, which are less expensive than those required by a
DC-type EAF, and to consume a smaller amount of electrodes per pound of steel
produced. With a large capacity EAF, such as Steel Dynamics' furnace, using a DC
power source would require substantially larger (28() to 30() diameter)
electrodes, which cost up to 30% more per pound than the smaller (24() diameter)
electrodes required by the Company's AC-powered EAF. Furthermore, electrode
consumption by the Company's EAF (a substantial operating cost component) is
designed to be less than a DC-powered unit, approximately 3.2 pounds per ton vs.
3.8 to 4.0 pounds per ton, a function of lower amperage to the electrode brought
about by the reactor, which allows it to mimic the power characteristics of the
DC EAF.
SDI's twin-shell EAF design results in virtually continuous melting and
reduces the tap-to-tap time (i.e. the length of time between successive melting
cycles or "heats"). While melting is being done on one side, the other vessel
can be tapped and then refilled with scrap and readied for the next melt. In a
single EAF with a 60-minute tap-to-tap time, typically 10 to 15 minutes is taken
to tap liquid metal, gun refractories onto the side walls of the furnace,
re-sand and repair the tap hole, and recharge the vessel with scrap. Therefore,
for a small incremental capital cost of a second vessel, there is an approximate
20% increase in productivity gained by reducing the tap-to-tap time. Preheating
of the scrap will occur in the idle vessel with both oxygen and natural gas, at
a fairly low cost, aided by the 30-ton "hot heel" of melted scrap remaining in
the idle vessel after tapping. This design enables the Company to save the
additional capital cost of competing technologies such as a shaft furnace with a
scrap preheating feature. The Company believes that shaft furnaces do not work
well with larger pieces of scrap, such as the industrial bundles which the
Company purchases. An additional attractive feature of the twin-shell design is
that if there is a maintenance problem requiring work on one
39
<PAGE> 42
vessel, melting can proceed in the other vessel without interruption.
Electricity consumption in the EAF is approximately 350 to 375 kWh per ton.
Ladle Metallurgy Station. The Company has a separate ladle metallurgy
station, built by Fuchs, consisting of two small EAFs, each of which consumes
approximately 25 kWh of electricity per ton of steel, and a desulfurization
station. A separate ladle refining station, located apart from the primary
melting furnace, allows metallurgical adjustments to be effected, while still
maintaining the steel at a sufficiently high temperature during the refining
stage. This maximizes the time that the primary furnace can be used for scrap
melting, while enabling the molten steel to continue through metallurgical
testing, stirring, alloying, desulfurization, reheating and other adjustments,
on its way to the casting deck. There are two ladle stations, each of which
receives molten steel from the primary furnaces after tapping. When the
adjustment process has been completed the refined metal is then transported by
overhead crane to the casting deck. The ladles are placed on a turret, which
rotates an empty ladle away from the top of the casting machine while
simultaneously replacing it with a full ladle, allowing for a continuous
process. The molten steel flows from the ladle to a tundish (a holding
reservoir) and then directly into the mold of the casting machine.
The Thin-Slab Caster. The state-of-the-art continuous thin-slab caster was
built by SMS Schloemann-Siemag AG and SMS Concast and is equipped with Liquid
Core Reduction ("LCR") which the Company has not yet activated. LCR enables the
caster to perform as a typical thin slab caster producing 50 mm slabs for hot
rolling, as well as allowing the flexibility to produce slabs from 40 mm to 80
mm thick by using a variable thickness mold and movable segments. This feature
is designed to ensure greater quality and a more diversified product line for
the Company by reducing turbulence in the mold; providing for "soft reduction"
on segregation sensitive grades; improving hot rolling reduction ratios on thick
gauge products and the reduction of hot rolling loads to produce light gauge
products.
The caster is also equipped with a newly designed submerged entry nozzle
("SEN"), with an improved geometry. This permits the walls of the SEN to be
thicker, resulting in longer SEN life and, in turn, enables the Company to run a
"string" of 12 heats before the SEN requires replacement (in contrast with 10 or
less with a smaller SEN). These advantages are directly reflected in increased
productivity. Within the newly designed SEN, SDI has incorporated a new baffle
design to modify the fluid flow of molten steel into the mold cavity which slows
and more evenly distributes the molten steel into the mold as compared to
previous designs. This results in a quieter top surface of the liquid steel in
the mold (at the meniscus), a more uniform solidification of the shell, and
effectively eliminates sub-surface inclusions. The tundish design has been
upgraded to include state-of-the-art baffle and other flow modification dividers
which allow for maximum flotation and subsequent removal of inclusions prior to
the molten steel entering the SEN.
The Hot-Rolling Mill. The Company's rolling mill is a state-of-the-art,
six-stand rolling mill built by SMS Schloemann-Siemag AG. The hot-rolling mill
is equipped with a specially designed high pressure 6,000 psi water descaling
system to remove the mill scale after the steel emerges from the
Bricmont-supplied tunnel furnace just before entering the rolling mill. This
system provides an exceptionally clean surface while minimizing the cooling of
the 2,000(++)F slab. The tunnel furnace restores heat lost during the casting
process. The rolling mill is equipped with the latest electronic and hydraulic
controls. Each rolling stand is driven by a high-powered 10,000 horsepower mill
drive motor. The normal exit speed of light gauge steel, prior to coiling as it
exits the last stand of the rolling mill, is approximately 10.5 meters per
second. The Company's smaller more closely-spaced rolls on the run-out table
will help prevent the steel strip from cobbling when rolling lighter gauges.
When rolling to a thickness of 1 mm (.040()), the exit speed will remain the
same until the sheet is captured in the down-coiler, at which point it will
"zoom" the strip to a faster speed of 13.3 meters per second; which increases
productivity. The last two stands of the rolling mill use specially designed
work rolls to facilitate the Company's ability to roll to the thinnest gauge of
any hot mill in the industry. Steel Dynamics' coiler is approximately 210 feet
from the last stand of the rolling mill, and all necessary foundations and
infrastructure have been pre-engineered and constructed to accommodate the
second coiler that will be added as part of the Caster Project.
Throughout the rolling process, laser optical measuring equipment and
multiple x-ray devices measure all strip dimensions, allowing adjustments to
occur continuously and providing feedback information to the mill
40
<PAGE> 43
process controls and computers. All positioning and control equipment used to
adjust the rolling mill is hydraulically operated and regulated electronically
to achieve a high degree of accuracy. The entire production process is monitored
and controlled by both business and process computers. Production schedules are
created based on order input information and transmitted to the mill computers
by the plant business system. Mathematical models then determine the optimum
settings for the tunnel furnace, the hot rolling mill and the strip cooling
sprays. This information is then directly transmitted to the equipment
controlling the rolling operations. As the material is processed, operating and
quality data are gathered and stored for analysis of operating performance and
for documentation of product parameters to the customer. The system then
coordinates and monitors the shipping process, and prints all relevant paper
work for shipping when the coil leaves the plant.
The Cold Mill Project. The Cold Mill Project is under construction
adjacent to and south of the existing hot mill. Design work and equipment
specification for the Cold Mill Project began in November 1995. Site preparation
work began in July 1996, and foundation work began in August 1996. The budgeted
cost for the Cold Mill Project is approximately $200.0 million.
[SCHEMATIC DRAWING OF THE COLD MILL PROJECT]
The Cold Mill Project will consist of a continuous pickle line, two hot
dipped galvanizing lines, a semi-tandem two-stand reversing cold-rolling mill,
batch annealing furnaces and a temper mill. The pickle line will consist of a
dual payoff system, scale breaker, shallow bath pickling section, rinsing
section and recoiler built by Davy International; the hot dipped galvanizing
lines will consist of dual payoff, cleaning, annealing, coating, rolling,
tension leveling, post-coating treatment, and recoiling systems built by Davy
International and others; the semi-tandem two-stand reversing cold-rolling mill
will consist of a payoff system, two take-up reels, two four-high stands, full
instrumentation and quality controls, to be built by SMS Schloemann-Siemag AG;
the batch annealing furnaces will be built by Ebner Furnaces and will consist of
18 bases and nine hydrogen annealing bells; and the temper mill will consist of
a single four-high stand built by SMS Schloemann-Siemag AG. All electric drives
and controls will be supplied by the General Electric Corporation, a stockholder
of SDI. One of the galvanizing lines will process primarily hot-rolled product,
while the second galvanizing line will process primarily cold-rolled product.
The pickle line will begin at the existing hot strip mill building, and
will deliver pickled product to a coil storage facility centrally located in the
cold-rolling and processing facility. Configuring the facility in this manner
eliminates the need for equipment to transfer coils to the cold-rolling
facility. At the entry end of the pickle line, there are two reels to unwind
coils and a welder to join the coils together. Coils will be unwound on
alternate reels and attached end to end by the welder, creating a continuous
strip through the pickle tanks. The center section of the 700-foot pickle line
consists of the scale breaker/tension leveler, the pickling tanks, where the
strip moves through a bath of hydrochloric acid that thoroughly cleans the strip
in preparation for galvanizing and rolling operations, and the rinse tanks. At
the delivery end of the line there is a reel for recoiling the pickled product,
and shearing facilities to separate the strip back into discrete coils. After
recoiling, each coil is stored in the central coil storage facility.
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From the central coil storage area, coils can proceed in either of two
directions. Some coils will be immediately galvanized on the hot-rolled
galvanizing line. The ability of the hot-rolling mill to produce steel strip
that is extremely thin by comparison will allow for immediate galvanizing
without the need for further rolling in the cold-rolling mill. The hot-rolled
galvanizing line is designed to efficiently handle this type of material.
Hot-rolled coils that are not intended for immediate galvanizing will be
processed on the cold-rolling mill. SDI's cold-rolling mill will be unique in
that it will be a semi-tandem two-stand reversing cold-rolling operation. This
configuration provides considerably higher throughput than a conventional
single-stand reversing mill, yet also takes advantage of considerably lower
equipment costs than the conventional four to six-stand tandem cold-rolling
mill. The rolling mill is configured with multiple x-ray gauges, hydraulic
bending systems, rolling solution controls, gauge controls and strip flatness
controls used to produce an extremely high level of product quality parameters.
The cold-rolling mill will also use a process control computer using
sophisticated mathematical models to optimize both quality and throughput.
Cold-rolled product that requires galvanizing will proceed to the
cold-rolled galvanizing line. There it will be annealed and coated. The
cold-rolled galvanizing line is quite similar to the hot-rolled galvanizing
line, but will have a more elaborate and larger strip heating furnace. This
larger furnace is required to anneal cold-rolled product, which is not necessary
on hot-rolled product. Designing the pickle line and the two galvanizing lines
concurrently and procuring the equipment from the same manufacturer has allowed
a high degree of commonality of parts between the three lines. This provides a
high degree of flexibility and cost savings with regard to management of spare
parts.
Cold-rolled product that does not require galvanizing will then proceed to
the batch annealing furnaces. The batch annealing furnaces heat and then cool
the coils in a controlled manner to reduce the hardness of the steel that is
created in the cold-rolling process. The batch annealing furnaces will heat the
steel in a hydrogen environment that optimizes the efficiency of the heating
process and produces a product that is superior to conventional batch annealing
with regard to cleanliness and uniform metallurgical characteristics. The
heating and cooling of the coils is regulated by means of computer models based
on current knowledge of heat transfers and steel characteristics.
Product from the annealing furnaces will then be temper-rolled. The
temper-rolling facility is a single stand four-high rolling mill designed for
relatively light reduction of the product. The temper mill introduces a small
amount of hardness into the product and further ensures the overall flatness and
surface quality of the product. The temper mill will also have an x-ray gauge to
monitor strip thickness. This mill was purchased concurrently with the two-stand
cold-rolling mill from the same manufacturer. This provides a high degree of
flexibility and cost savings with regard to management of spare parts.
Product from both galvanizing lines and the temper mill will be delivered
directly from the processes to a common coil storage area, where they will then
be shipped by either truck or rail.
As in its hot mill, all facilities in the cold mill will be linked by means
of business and process computers. Business systems will be expanded to
comprehend order entry of the additional cold mill products and all line
scheduling will be accomplished in the business computer systems, with schedules
transmitted to the appropriate process related computers. Operating and quality
data will also be collected for analysis and quality control purposes, and for
reporting product data to customers.
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The Caster Project. The Caster Project, which the Company believes will
enable it to increase its annual production capacity of hot-rolled steel from
1.4 million tons to approximately 2.4 million tons, primarily involves the
design and construction of an additional hybrid EAF, a second thin-slab caster,
a second tunnel furnace, a second coiler and minor modifications to the meltshop
building. The total cost of the Caster Project is estimated to be approximately
$75.0 million. The Company expects this project to be completed in 1998. The
following diagram shows the components of SDI's hot-mill upon completion of the
Caster Project.
[CASTER GRAPHIC]
The necessary foundations and infrastructure to house and support the
second caster were pre-planned into the existing plant at the time of its design
and construction. This should allow SDI to add additional annual capacity of 1.0
million tons of hot-rolled steel at an incrementally low capital cost. The
Company believes that these additional tons will allow it to maximize its
rolling and finishing capacity that its Cold Mill Project is expected to provide
in the second half of 1997.
The equipment that is being considered as a part of the Caster Project is
similar in design and use to the equipment that constitutes the existing
mini-mill facility.
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The IDI Project. The IDI Project consists of the design, construction, and
operation of a facility for the manufacture of DRI for use by Steel Dynamics
(or, when desired, for resale to others) as a steel scrap substitute. The
Company has studied and considered many alternative methods of securing a low
cost source of steel scrap substitute material. Some of these methods are in
limited commercial use while others have not been tested commercially, either
for their ability to successfully yield useable substitute iron units or, even
if technologically successful, their ability to do so at a cost that makes its
use as a scrap substitute commercially feasible. The existing commercial
processes differ by the type of raw feedstock they employ and the type of
reductant that is used to "reduce" the feedstock to useable or semi-finished
iron units. The Company currently intends to use the IDI Process, which uses low
cost iron ore fines that are ultimately reduced to DRI in a rotary hearth
furnace using coal as the reductant. The resulting DRI will be converted by SDI
into liquid pig iron in a hybrid EAF and desulphurization station, intended to
yield a final iron content of 96% (with little sulphur and gangue).
[FLOW CHART OF IDI PROCESS]
Background of Alternative Scrap Substitute Methodologies. DRI is a
metallic product produced from iron ore that is used as an alternative or
complementary feedstock in EAF steelmaking, blast furnaces and other iron and
steelmaking applications. Of the approximately 30.7 million tonnes of DRI
produced in 1995, over 90% was produced by either the Midrex or HYL processes,
both of which use lump form iron ore or pellets that are treated in a direct
reduction shaft furnace with natural gases to reduce the iron oxide to metallic
iron. Although these processes are proven to work commercially, iron ore pellets
tend to command a premium over iron ore fines. There are a number of other
processes that use iron ore fines with natural gas as a reductant. One of these
has been selected by Qualitech in building its iron carbide production facility,
with which the Company has a long-term 300,000 tonne per year "off-take"
contract.
The IDI Process. While the IDI Process has not been commercially employed,
the Company believes that it has the technical capability to develop and
implement the IDI Process. Moreover, the Company believes that the IDI Process,
when combined with further processing by SDI, will produce a liquid pig iron
with a richer iron content, at a lower cost, using readily available raw
material and energy resources, than any other available process considering the
location of SDI's mill.
The IDI Project will use low cost standard iron ore fines, which will be
combined with ground coal, mixed with a bentonite binder and other fluxes, and
then pelletized. The resulting green pellets will be fed onto a rotary hearth
furnace, where they will be heated to 1,300(++)C for approximately 12 to 15
minutes, after which they will be removed by water-cooled screws to a
refractory-lined container. At this stage, the DRI will be expected to have an
iron content of approximately 81% to 82%, which is less than optimum. Although
this product would be commercially viable, IDI intends to transport the DRI to
Steel Dynamics for melting in SDI's hybrid EAF where gangue will be reduced, and
then to SDI's desulphurization station, where impurities, such as sulphur, will
be reduced. This reduction process is expected to reduce the resulting DRI to
96% to 97% metallic iron (versus an average 91% to 94% for standard DRI or 94%
to 96% for standard manufactured pig iron), and which would have characteristics
similar to that produced in conventional blast furnaces. The hybrid EAF and
desulphurization station will be located within the Company's existing melt shop
in Butler, Indiana, as part of the Caster Project. An added benefit which the
Company expects to realize
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from the use of this process is that electricity consumption can be lowered by
the chemical energy available from the carbon, as well as from the fact that the
liquid pig iron is expected to contain no iron oxide (versus 6% iron oxide in
most other available DRI), which would otherwise take additional energy to
reduce. Furthermore, since the resulting liquid pig iron would already be molten
at 2,400(++)F, the electrical energy required in the Company's regular EAF would
be substantially reduced when the liquid pig iron is introduced into the melt
mix, resulting in not only an electrical consumption savings but a reduction in
electrode consumption as well. The Company believes that there would be an
approximate 20% productivity gain if pig iron produced by the IDI Process
constituted 25% of the melt mix, and more if iron carbide is also added into the
melt mix.
Steel Dynamics believes that the anticipated advantages of the IDI Process
are that it permits the use of high silica iron ore fines, which are the
cheapest iron ore units available (approximately $20 per ton cheaper than DRI
pellets), that the fines do not have to be sized or graded, that pricing of the
fines appears to be stable, and that coal as the reductant is abundantly
available and not affected by global shortages that sometimes affect gas
availability and prices. Additionally, the IDI Process is expected to allow for
the use, as additional raw materials, of EAF dust and mill scale, which the
Company will generate and will be able to purchase from other area mills. At
present, the Company generates 30,000 tons of EAF dust per year, which otherwise
causes the Company to incur disposal costs in excess of $120 per ton.
Steel Dynamics also believes that the DRI which it expects IDI to begin
producing in 1998, when combined into the melt mix with iron carbide to be
manufactured by Qualitech, and which the Company expects to begin receiving in
1998, will enable the Company to use these steel scrap substitute materials for
up to 40% of its metallics charge, thus reducing its dependency upon low
residual scrap (the most expensive grade).
STEEL SCRAP AND SCRAP SUBSTITUTE RESOURCES
Steel scrap is the single most important raw material used in the Company's
steelmaking process, representing approximately 45% to 50% of the direct cost of
a ton of finished steel. All steel scrap, however, is not the same. As it
relates to final product quality, EAF flat-rolled producers, such as the
Company, can only tolerate a maximum .2% level of "residuals" (i.e. non-ferrous
metallic contamination such as copper, nickel, tin, chromium, and molybdenum,
which, once having been dissolved into steel cannot be refined out). In order
for the scrap melt to provide this level of quality under present circumstances
(without the anticipated availability of future scrap substitute products), the
mill must use approximately 60% of "low residual" steel scrap or an equivalent
material. There are many grades of scrap (for example, Steel Dynamics maintains
10 to 12 separate grades of scrap in its 20-acre scrap holding yard on premises
adjacent to the mini-mill), but scrap can be broadly categorized as either
"obsolete scrap" or "prompt industrial scrap." Obsolete scrap, which is derived
from discarded agricultural and construction equipment, consumer goods such as
automobiles and appliances, container drums and building demolition scrap,
generally contains residuals that exceed the tolerable maximums for EAF use (the
only exception being old structural steel and rails that were made from Bessemer
and open-hearth steel production process with high iron content, the supply of
which is limited). Prompt industrial scrap, on the other hand, is produced as a
by-product of various metalworking operations, such as steel fabricators,
machine shops, automobile production and stamping plants, and is the most
desirable for EAF steelmaking due to the traceability of its origins and to the
fact that it is generally "low residual" scrap. Such low residual scrap
generally takes the form of No. 1 Dealer Bundles, No. 1 Factory Bundles,
busheling, and clips. Many variables impact scrap prices, the most critical of
which is U.S. steel production. Generally, as steel demand increases, so does
scrap demand (and resulting prices).
Until 1989 when Nucor commenced flat-rolled production of steel in its
Crawfordsville, Indiana mini-mill and the subsequent opening of additional
thin-slab/flat-rolled mini-mills (including the Company's), the availability of
low residual scrap kept pace with demand, indeed exceeded demand, enabling the
United States to be a net exporter of low residual scrap. By 1994, however, the
supply of low residual scrap became tighter, although the shortfall was made up
by a combination of pig iron use, obsolete structural steel, and, to a limited
extent, non-U.S. or imported DRI. This supply/demand pressure on the cost of low
residual scrap is expected to continue, as more flat-rolled EAF production comes
on-line, although this may be mitigated to some extent
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by the anticipated production of more steel scrap substitute material (such as
the IDI Project or Qualitech's iron carbide production facility).
The Company uses various grades of obsolete (and thus less expensive) scrap
in its melt mix, which it blends with its low residual scrap to keep within
final tolerances. To the extent that SDI will be able to introduce the
relatively pure pig iron that it expects to obtain from IDI's DRI (commencing in
1998), or the Qualitech iron carbide which it expects to begin receiving in
1998, Steel Dynamics believes that it will be able to use greater amounts of
lower-priced obsolete scrap in its melt and still remain within acceptable
limits.
There are several regions in the United States where scrap generation
exceeds consumption within the region. One of these regions is in the Midwest.
The Company believes that it enjoys freight savings versus other current
mini-mill competitors for scrap generated near the mini-mill and made available
to Steel Dynamics for use in its mini-mill.
The Company believes that the demand for low residual steel scrap will rise
more rapidly than the supply in the coming years. This belief has prompted SDI,
as a means of maintaining a low metallics cost, to seek and secure both a strong
and dependable source through which to purchase steel scrap of all grades,
including low residual scrap, and a reliable source for lower cost steel scrap
substitute resources. SDI has accomplished this through a long-term scrap
purchase agreement with OmniSource, and, in addition to its own IDI Project,
through a long-term purchase contract for iron carbide with Qualitech.
Steel Scrap. The Company has entered into a six-year Agreement To Provide
Scrap Purchasing Services And Certain Priority Purchase Rights with OmniSource,
an affiliate of Heavy Metal, L.C., a stockholder of the Company. See "Principal
and Selling Stockholders." Pursuant to this agreement, OmniSource has agreed to
act as the Company's exclusive scrap purchasing agent and to use its best
efforts to locate and secure for the Company's mini-mill such scrap supplies as
SDI may from time-to-time wish to purchase, at the lowest then available market
prices for material of like grade, quantity and delivery dates. The cost to the
Company of OmniSource-owned scrap is the price at which OmniSource, in bona fide
market transactions, can actually sell material of like grade, quality and
quantity. With respect to general market scrap, the cost to the Company is the
price at which OmniSource can actually purchase that scrap in the market
(without mark-up or any other additional cost). For its services, OmniSource
receives a commission per gross ton of scrap received by Steel Dynamics at its
mini-mill. All final decisions regarding scrap purchases belong to the Company,
and SDI maintains the sole right to determine its periodic scrap needs,
including the extent to which it may employ steel scrap substitutes in lieu of
or in addition to steel scrap. No commission is payable to OmniSource for scrap
substitutes purchased or manufactured by the Company.
During the first nine months of 1996, the Company purchased 661,000 tons of
steel scrap from OmniSource, and expects to purchase an average of 100,000 to
120,000 tons of steel scrap per month once full production is reached in 1997.
Thereafter, although SDI expects that its total output in tons of flat-rolled
steel coil will increase from 1.4 million to approximately 2.4 million after the
completion of the Cold Mill and Caster Projects, the Company expects that its
receipt of substantial quantities of steel scrap substitute material, both iron
carbide from Qualitech and DRI from the IDI Project, will mitigate its continued
dependency on low residual steel scrap. Steel Dynamics believes that its scrap
purchasing relationship with OmniSource, an affiliate of one of the Company's
stockholders, provides the Company with excellent access to available steel
scrap within its primary scrap generation area.
Steel Scrap Substitutes. In June 1996, the Company entered into an Iron
Carbide Off-Take Agreement (the "Iron Carbide Agreement") with Qualitech, in
whose parent SDI is a 4% stockholder. The Iron Carbide Agreement is for five
years, running from the time that Qualitech begins commercial production of iron
carbide, and is subject to renewal. Qualitech is building a 660,000 tonne annual
capacity iron carbide facility in Corpus Christi, Texas, of which 300,000 tonnes
annually is expected to be sold to Steel Dynamics at a formula purchase price
based on various components of Qualitech's costs of production, which the
Company believes is favorable, and with a ceiling price which SDI believes will
be favorable relative to the price of steel scrap. The Company will also
purchase iron carbide from Qualitech during Qualitech's ramp-up commencing as
early as 1998, although the amount of iron carbide that SDI can anticipate
receiving during that period is unknown. In addition to the Iron Carbide
Agreement, the Company has formed IDI, which is designing and
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will construct a 520,000 tonne capacity rotary hearth-based DRI production
facility. See "Certain Transactions."
ENERGY RESOURCES
SDI believes that it has very favorable energy rates, both electricity and
gas, as well as for oxygen. These rates are critical to the Company in
maintaining its status as a low-cost provider of flat-rolled steel.
Electricity. The plant operates at an average electrical power consumption
level of 100 million watts, under an electric service contract with AEP that
extends through 2005. The contract designates a capacity reservation of 150,000
kVa with provisions allowing for a total capacity increase of 80,000 kVa for new
load connected within five years of the commencement date with a one-year notice
of intent requirement. The contract designates a portion of the Company's load
as "firm," which is billed under the applicable AEP retail tariff. All of the
rest of the Company's load is designated as "interruptible service," which
allows customers the option of accepting varying levels of risk of power
interruption as a trade-off for discounted energy prices. With interruptible
service, the Company is subject to risk of interruption at any time in the
operation of the AEP System, as a result of an AEP annual peak demand, or even
when AEP can receive a higher market price from an alternate buyer. Under such
circumstances, the Company has the option of matching the market price of the
alternate buyer in order to avoid interruption.
The interruptible load is billed as either "base" energy or as "peak"
energy. The base energy charge is derived monthly from a formula that includes a
discounted demand component, an energy component, and a fuel component. A peak
energy charge, or "real-time price," is calculated hourly for differing
peak-period hours throughout the year. The real-time price is defined as AEP's
incremental cost of supplying energy that otherwise would not have been incurred
if such energy had not been supplied to the Company, plus a fixed cost
increment. The Company's average price of electricity for the month of September
1996 was $.027 per kWh. The Company's negotiated rate with AEP, once it reaches
full capacity, however, should be in the range of $.024 and $.025 per kWh, which
SDI believes is relatively attractive.
Electrical power to the plant site is supplied by AEP over its 14-mile,
345,000 volt transmission line directly to the Company's own electrical
substation. The Company entered into a Transmission Facilities Agreement with
AEP to pay "contributions in aid of construction" for the electric transmission
lines, and these payments to AEP from the Company, pursuant to a $7.8 million
20-year note, at 8% interest, which commenced January 1, 1996, amounts to
$65,400 per month. According to the Transmission Facilities Agreement, if any
other users use these transmission lines, the amount owed by SDI would decrease.
Additionally, the Company entered into a Substation Facilities Agreement with
AEP whereby AEP provided the financing for Steel Dynamics' on-site substation
and related facilities. This financing totaled $13.0 million as of January 1,
1996, and requires repayment, at 8% interest, commencing January 1, 1996, over a
15-year period, amounting to monthly payments of $125,000.
Gas. The Company uses approximately 3,200 decatherms (equivalent to 1,000
BTUs or 1,000 cubic feet) of natural gas per day. The Company holds a "Primary
Firm" delivery contract on the Panhandle Eastern Pipeline that extends through
May 2000, costing the Company $.42 per decatherm, with a current fuel surcharge
equal to 5.72% of the gas the Company flows. The Company also has an
interruptible delivery contract with NIPSCO/NIFL/Crossroads ("LDC") that extends
through December 2000, costing the Company $.20 per decatherm with a fuel
surcharge of .2%. LDC takes the gas from the Panhandle Eastern Pipeline and
delivers it to the mini-mill.
The actual purchase of the gas itself is currently contracted through July
1997 for $1.91 per decatherm. The Company maintains a liquid propane tank farm
on site with sufficient reserves to sustain operations for approximately two
weeks in the event of an interruption in the natural gas supply. During February
1996, when severe weather conditions disrupted the flow of natural gas, the
Company operated on liquid propane for a period of eight days.
Oxygen. Steel Dynamics uses oxygen, as well as nitrogen and argon for
production purposes, which it purchases from Air Products, which built a plant
on land adjacent to the Butler, Indiana mill site. Air
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Products uses its plant not only to supply the Company, but also to provide
oxygen and other gasses to other industrial customers. As a result, SDI has been
able to effect very favorable oxygen and other gas purchase prices on the basis
of Air Products' volume production.
COMPETITION
Competition within the steel industry can be intense. The Company competes
primarily on the basis of price, quality, and the ability to meet customers'
product specifications and delivery schedules. Many of the Company's competitors
are integrated steel producers which are larger, have substantially greater
capital resources and experience, and, in some cases, have lower raw material
costs than the Company. The Company also competes with other mini-mills which
may have greater financial resources. The highly competitive nature of the
industry, combined with excess production capacity in some products, may in the
future exert downward pressure on prices for certain of the Company's products.
In addition, in the case of certain product applications, steel competes with
other materials, including plastics, aluminum, graphite composites, ceramics,
glass, wood and concrete.
U.S. The Company's products compete with many integrated hot-rolled coil
producers, such as Rouge Steel Co. and National Steel Corp.'s Great Lakes Steel
Division in the Detroit area, LTV Steel Co., Inc., Inland Steel Co., Bethlehem
Steel Corp., U.S. Steel, Acme Steel Co. and Beta Steel Corp. in the northwest
Indiana and Chicago area, as well as a growing number of hot-rolled mini-mills,
such as Nucor's Crawfordsville, Indiana and Hickman, Arkansas facilities and the
Gallatin Steel Company's mini-mill in Ghent, Kentucky. New hot-rolled band
producing mini-mills are scheduled to be opened by Delta Steel in Delta, Ohio
and TRICO Steel in Alabama in 1997. Despite significant reductions in raw steel
production capacity by major U.S. producers over the last decade, the U.S.
industry continues to be adversely affected, from time to time, by excess world
capacity. According to the AISI, annual U.S. raw steel production capacity was
reduced from approximately 154 million tons in 1982 to approximately 112 million
tons in 1995. This reduction resulted in higher utilization rates. Average
utilization of U.S. industry capacity improved from approximately 61% in the
1982 to 1986 period to approximately 83% in the 1987 to 1991 period, was
approximately 89% in 1993, 93% in 1994 and 93% in 1995. Recent improved
production efficiencies also have begun to increase overall production capacity
in the United States. Excess production capacity exists in certain product lines
in U.S. markets and, to a greater extent, worldwide. Increased industry
overcapacity, coupled with economic recession, would intensify an already
competitive environment.
Over the last decade, extensive downsizings have necessitated costly
restructuring charges that, when combined with highly competitive market
conditions, have resulted at times in substantial losses for some U.S.
integrated steel producers. A number of U.S. integrated steel producers have
gone through bankruptcy reorganization. These reorganizations have resulted in
somewhat reduced capital costs for these producers and may permit them to price
their steel products at levels below those that they could have otherwise
maintained.
An increasing number of mini-mills have entered or are expected to enter
the EAF-based thin-slab/flat-rolled steel market in the next several years.
These mini-mills have cost structures and management cultures more closely akin
to those of the Company than to the integrated producers. Flat-rolled mini-mill
production capacity increased from 4.0 million tons in 1994 to approximately 5.0
million tons in 1995, and industry sources expect this cumulative flat-rolled
mini-mill capacity to reach up to 14.9 million tons in 1997 and up to 18.7
million tons in 1998. The Company's penetration into the total flat-rolled steel
market is limited by geographic considerations, to some extent by gauge and
width of product specifications, and by metallurgical and physical quality
requirements. Based on product type and geographic location, the Company
believes it will most closely compete with the following mini-mills: Nucor's
Crawfordsville, Indiana facility, Gallatin Steel's Ghent, Kentucky facility,
Delta Steel's Delta, Ohio facility, and, to a more limited extent, Nucor's
Hickman, Arkansas facility, Nucor's Berkeley County, South Carolina facility,
and TRICO Steel's facility in northern Alabama. Of the anticipated 14.9 million
tons of 1997 flat-rolled mini-mill capacity, the Company believes that it will
most closely compete for approximately 4.6 million of those flat-rolled tons.
Each of these mills will produce hot-rolled product, however, only an affiliate
of the anticipated Delta Steel facility in Delta, Ohio is expected to produce
hot-rolled galvanized product, and only Nucor's Crawfordsville, Indiana facility
is expected to produce cold-rolled and cold-rolled galvanized products.
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Non-U.S. U.S. steel producers face significant competition from certain
non-U.S. steel producers who may have lower labor costs. In addition, U.S. steel
producers may be adversely affected by fluctuations in the relationship between
the U.S. dollar and non-U.S. currencies. Furthermore, some non-U.S. steel
producers have been owned, controlled or subsidized by their governments, and
their decisions with respect to production and sales may be, or may have been in
the past, influenced more by political and economic policy considerations than
by prevailing market conditions. Some non-U.S. producers of steel and steel
products have continued to ship into the U.S. market despite decreasing profit
margins or losses. If certain pending trade proceedings ultimately do not halt
or otherwise provide relief from such trade practices, if other relevant U.S.
trade laws are weakened, if world demand for steel eases or if the U.S. dollar
strengthens, an increase in the market share of imports may occur, which could
adversely affect the pricing of the Company's products. The costs for current
and future environmental compliance may place U.S. steel producers, including
the Company, at a competitive disadvantage with respect to non-U.S. steel
producers, which are not subject to environmental requirements as stringent as
those in the United States.
BACKLOG
SDI's backlog was approximately 248,000 tons of flat-rolled product or
$87.0 million as of September 28, 1996.
FACILITIES
The Company's plant is situated on a greenfield 806-acre site in DeKalb
County, Indiana, strategically located within eight miles of Interstate 69
(north-south), twenty miles from the Indiana Toll Road System (east-west
Interstate 80). In addition, a cross-country high pressure gas line is located
three-quarters of a mile north of the plant, and a 14-mile, 345,000 volt
transmission line brings electrical power to the Company's own electrical
sub-station. In addition, two truck scales and one rail scale have been
installed. The land was formerly farm land, and 67 acres are still being farmed.
The site is served by the east-west rail lines of Conrail, the north-south lines
of the Norfolk & Southern Railway, and the east-west lines of CSX. Railroad
spurs and switching apparatus link the plant with all three railroads. Within
the plant site, the Company has 10 1/2 miles of railroad track, serving both the
plant and the on-site 20-acre scrap yard facility operated by the Company to
receive, hold, and stage its scrap. Water is supplied by two 12" 2,500 gallon
per minute wells which are located on site and which pump out of an aquifer,
located between 160 and 190 feet down, into a 13.0 million gallon reservoir.
Water from this reservoir is pumped to a service water piping system that links
the reservoir to the various water treatment facilities that support the
steelmaking processes.
There are three main buildings that comprise the mill. They are the melt
shop building, containing four bays totaling 103,740 square feet, the tunnel
furnace building, which is 675 feet long and which is, 54,511 square feet in
area (connecting the melt shop to the hot mill), and the hot mill building,
283,558 square feet in size, consisting of two bays in width and is 1,146 feet
in length. The tunnel furnace building is serviced by a 10-ton crane, and the
hot mill building is serviced by three 80 ton cranes. Office buildings on site
include a general administrative corporate headquarters building, consisting of
12,000 square feet, a building for the hot rolling, engineering and safety
personnel, consisting of 6,000 square feet, a melt shop office, consisting of
2,000 square feet, and a shipping office of 1,000 square feet. There is an
employee services building of 8,000 square feet that includes a shower and
locker room facility, as well as the plant cafeteria. A 22,000 square foot
warehouse has been constructed to receive, store, and manage necessary parts and
materials to maintain the plant.
Other support facilities include a bag house and a water treatment system
with buildings located at various places in the plant. The bag house captures
the gasses from the melting operation and cleans them to comply with all federal
emissions standards. The bag house is capable of cleaning 1.5 million cubic feet
per minute of these gasses. The water treatment system cleans, cools, and
recirculates the water used by the plant in various processes at the overall
rate of 100,000 gallons per minute.
The Company considers its manufacturing and operating facilities adequate
for its needs, including the Expansion Projects, and for the foreseeable future.
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Equipment failures at its plant could limit or shut down the Company's
production. During the first eight months of its operations, the Company
experienced some equipment failures, none of which lasted more than a day. In
order to reduce the risk of equipment failure, SDI follows a comprehensive
maintenance and loss prevention program, has on-site maintenance and repair
facilities, and maintains an inventory of spare parts and machinery. For
example, the Company maintains a spare EAF transformer as well as spare caster
parts, mechanical parts and electrical controls for its cranes and other tools.
No assurance can be given, however, that material shutdowns will not occur in
the future or that a shutdown would not have a material adverse affect on Steel
Dynamics. In addition to equipment failures, the mill is also subject to the
risk of catastrophic loss. The Company believes that it maintains adequate
property damage insurance to provide for reconstruction of damaged equipment, as
well as business interruption insurance to mitigate losses resulting from any
production shutdown caused by an insured loss.
The Company's executive offices are located at 4500 County Road 59, Butler,
Indiana 46721 and its telephone number is (219) 868-8000.
ENVIRONMENTAL MATTERS
The Company's operations are subject to substantial and evolving
environmental laws and regulations concerning, among other things, emissions to
the air, discharges to surface and ground water, noise control and the
generation, handling, storage, transportation, treatment and disposal of toxic
and hazardous substances. SDI believes that its facilities are in material
compliance with all provisions of federal and state laws concerning the
environment and does not believe that future compliance with such provisions
will have a material adverse effect on its results of operations or financial
conditions. Since environmental laws and regulations are becoming increasingly
more stringent, the Company's environmental capital expenditures and costs for
environmental compliance may increase in the future. In addition, due to the
possibility of unanticipated regulatory or other developments, the amount and
timing of future environmental expenditures may vary substantially from those
currently anticipated. The cost for current and future environmental compliance
may also place U.S. steel producers at a competitive disadvantage with respect
to foreign steel producers, which may not be required to undertake equivalent
costs in their operations.
Under CERCLA, the Environmental Protection Agency ("EPA") has the authority
to impose joint and several liability for the remediation of contaminated
properties upon generators of waste, current and former site owners and
operators, transporters and other potentially responsible parties, regardless of
fault or the legality of the original disposal activity. Many other states,
including Indiana, have statutes and regulatory authorities similar to CERCLA
and to the EPA. Steel Dynamics has a hazardous waste hauling agreement with The
Waste Management Company of Indiana, Inc. to properly dispose of its flue dust,
ash, and other waste products of steelmaking, but there can be no assurance
that, even through no fault of the Company, SDI may not still be cited as a
waste generator by reason of an environmental clean up at a site to which its
waste products were transported.
EMPLOYEES
SDI's work force consists of approximately 200 hourly and 60 salaried
personnel as of September 28, 1996. The Company's employees are not represented
by labor unions. The Company believes that its relationship with its employees
is good.
Performance Based Incentive Compensation Program. SDI has established
certain incentive compensation programs for its employees, designed to encourage
them to be productive by paying bonuses to groups of employees, based on various
measures of productivity. The programs are designed to reward employees for
productivity efforts. It is not unusual for a significant amount of an
employee's total compensation to consist of such bonuses.
The productivity of the employees is measured by focusing on groups of
employees and not individual performance. Three groups of employees participate
in the bonus program: production, administrative and clerical, and department
managers and officers. Each group of employees has its own bonus program or
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programs. See "Management -- Employee Plans" for a description of the department
manager/officer incentive bonus.
Production employees, consisting of those directly involved in the melting,
casting and rolling processes, are eligible to participate in two cash bonus
programs: the production bonus and the conversion cost bonus programs. The
production bonus, if any, is based upon the quantity of quality product produced
that week. The amount of the production bonus is determined for and allocated to
each shift of employees. Depending upon the amount of quality product produced,
the bonus may be equal to or greater than the base hourly wage paid to an
employee. The conversion cost bonus is determined and paid on a monthly basis
based on the costs for converting raw material into finished product. The
program is intended to encourage employees to be efficient in converting the raw
materials into finished steel. Costs of raw materials, over which the production
employees have no control, are not considered.
SDI has also established a cash bonus plan for non-production employees,
including accountants, engineers, secretaries, accounting clerks and
receptionists. Bonuses under the plan are based upon the Company's return on
assets.
SDI has also established the 1994 Stock Option Plan, 1996 Stock Option
Plan, the Profit Sharing Plan and the Retirement Savings Plan for certain of its
employees. See "Management -- Employee Plans."
RESEARCH AND DEVELOPMENT
At the present time, the Company engages in no substantial third-party
research and development activities. Steel Dynamics, however, is continually
working to improve the quality, efficiency and cost-effectiveness of its
EAF-based thin-slab/flat-rolled CSP technology. The Company is also engaged in
development efforts in connection with the IDI Project.
PATENTS AND TRADEMARKS
The Company filed an application with the U.S. Patent and Trademark Office
to register the mark "SDI" and an accompanying design of a steel coil. The mark
was published on September 3, 1996, in the Official Gazette and not opposed
within 30 days. A notice of allowance is expected to be issued.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of
business. In management's opinion, the ultimate outcome of these lawsuits will
not have a material effect on the results of operations or on the financial
condition of the Company.
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<PAGE> 54
MANAGEMENT
The Company's Board of Directors consists of ten directors. Directors and
executive officers of the Company are elected to serve until they resign or are
removed or are otherwise disqualified to serve or until their successors are
elected and qualified. Directors of the Company are elected at the annual
meeting of stockholders. The directors and executive officers of the Company,
their ages as of August 31, 1996 and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Keith E. Busse................ 53 President, Chief Executive Officer and Director
Mark D. Millett............... 37 Vice President of Melting and Casting and Director
Richard P. Teets, Jr. ........ 41 Vice President of Rolling and Finishing and Director
Tracy L. Shellabarger......... 39 Vice President of Finance, Chief Financial Officer and
Director
John C. Bates................. 53 Director
Leonard Rifkin(a)............. 65 Director
Paul B. Edgerley(b),(c)....... 40 Director
William D. Strittmatter(d).... 40 Director
William Laverack,
Jr.(b),(e).................. 39 Director
Dr. Jurgen Kolb(f)............ 53 Director
</TABLE>
- ------------
(a) Mr. Rifkin serves as the designated director of the "Heavy Metal Shares"
pursuant to the Stockholders Agreement. Pursuant to the Bylaws and the
Stockholders Agreement, Daniel M. Rifkin has been designated as the Heavy
Metal Shares' alternate director to serve in place of the designated
director in case of absence or unavailability. See "Description of Capital
Stock -- The Stockholders Agreement."
(b) Member of the Audit Committee.
(c) Mr. Edgerley serves as the designated director of the "Bain Shares" pursuant
to the Stockholders Agreement. Pursuant to the Bylaws and the Stockholders
Agreement, Robert C. Gay has been designated as the Bain Shares' alternate
director to serve in place of the designated director in case of absence or
unavailability. See "Description of Capital Stock -- The Stockholders
Agreement."
(d) Mr. Strittmatter serves as the designated director of the "GECC Shares"
pursuant to the Stockholders Agreement. Pursuant to the Bylaws and the
Stockholders Agreement, Molly Ferguson has been designated as the GECC
Shares' alternate director to serve in place of the designated director in
case of absence or unavailability. See "Description of Capital Stock -- The
Stockholders Agreement."
(e) Mr. Laverack serves as the designated director of the "Whitney Shares"
pursuant to the Stockholders Agreement. Pursuant to the Bylaws and the
Stockholders Agreement, Michael Stone has been designated as the Whitney
Shares' alternate director to serve in place of the designated director in
case of absence or unavailability. See "Description of Capital Stock -- The
Stockholders Agreement."
(f) Mr. Kolb serves as the designated director of the "Preussag Shares" pursuant
to the Stockholders Agreement. Pursuant to the Bylaws and the Stockholders
Agreement, Dr. Jorg Fuhrmann has been designated as the Preussag Shares'
alternate director to serve in place of the designated director in case of
absence or unavailability. See "Description of Capital Stock -- The
Stockholders Agreement."
Keith E. Busse co-founded the Company in September 1993 and has been its
President and Chief Executive Officer and a director since its inception. Mr.
Busse is also the President and Chief Executive Officer and a director of IDI.
Previously, for a period of 21 years, he worked for Nucor in a variety of
positions, first as Division Controller and then as Vice President and General
Manager of Nucor's Vulcraft Division, and then, additionally as the Vice
President and General Manager of Nucor's Fastener Division. In 1987, he was
given the responsibility to coordinate and direct the building in
Crawfordsville, Indiana of the world's first thin-slab/flat-rolled mini-mill
(the "Crawfordsville Mini-Mill"). Mr. Busse remained with Nucor's Crawfordsville
Division as its Vice President and General Manager until his resignation in
August 1993. Mr. Busse is a director of Qualitech Steel Holdings, Inc.
Mark D. Millett co-founded the Company in September 1993 and has been its
Vice President of Melting and Casting and a director since its inception.
Previously, Mr. Millett worked for Nucor since 1982 as chief metallurgist at its
Darlington, South Carolina facility and then as manager of its Hazelett
thin-slab casting project in 1985. In 1987, Mr. Millett joined Mr. Busse's
senior management team to help build the Crawfordsville Mini-Mill, and from 1987
until his resignation in August 1993, Mr. Millett served as the Melting and
Casting Manager for the Crawfordsville Mini-Mill.
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<PAGE> 55
Richard P. Teets, Jr. co-founded the Company in September 1993 and has been
its Vice President of Rolling and Finishing and a director since its inception.
Previously, Mr. Teets worked for LTV Steel Co., Inc., in its engineering,
maintenance, and production areas, and in 1987, was hired by Nucor to be one of
the senior managers to assist Messrs. Busse and Millett in the construction of
the Crawfordsville Mini-Mill, overseeing the actual engineering and construction
process, including its electrical, mechanical, and environmental aspects. In
1991, Mr. Teets assumed the responsibilities for the Crawfordsville Mini-Mill's
cold-rolling and finishing operations as its Manager.
Tracy L. Shellabarger joined the Company as its Vice President of Finance
and Chief Financial Officer and a director in July 1994. Previously, from 1987,
Mr. Shellabarger worked for Nucor, first as its Manager of Internal Audit in its
Charlotte, North Carolina home office, and, eight months later, as its
Controller at the Crawfordsville Mini-Mill, where he also served as a member of
the senior management team that constructed and operated that facility for
Nucor.
John C. Bates was elected a director of the Company in September 1994, as
the designated director of the "Keylock/Mazelina Shares" under the Stockholders
Agreement. Mr. Bates is the President and Chief Executive Officer of Heidtman,
which he joined in 1963, and for which he has served as its President and Chief
Executive Officer since 1969. Mr. Bates is also a director of Heidtman and of
National City Bank, N.W.
Leonard Rifkin was elected a director of the Company in November 1994, as
the designated director of the "Heavy Metal Shares" under the Stockholders
Agreement. Mr. Rifkin has been the President and Chief Executive Officer of
OmniSource since 1959 and since September 1996 has been Chairman of the Board.
He is also a director of Qualitech Steel Holdings, Inc.
Paul B. Edgerley was elected a director of the Company in September 1996,
as the designated director of the "Bain Shares" under the Stockholders
Agreement, having previously served as an alternate director from September
1994. Mr. Edgerley has been a Managing Director of Bain Capital, Inc. since May
1993 and has been a general partner of Bain Venture Capital since 1990. Mr.
Edgerley was a principal of Bain Capital Partners from 1988 through 1990. Mr.
Edgerley is also a director of GS Industries, Inc. and AMF Group, Inc.
William D. Strittmatter was elected a director of the Company in September
1994, as the designated director of the "GECC Shares" under the Stockholders
Agreement. Mr. Strittmatter is a Vice-President and Senior Credit Officer of
General Electric Capital Corporation, which he joined in 1982. Mr. Strittmatter
is also a director of Newsprint South, Inc. and is Vice Chairman of Shanghai
Zhadian Gas Turbine Power Generation Co., Ltd.
William Laverack, Jr. was elected a director of the Company in September
1994, as the designated director of the "Whitney Shares" under the Stockholders
Agreement. Mr. Laverack is a general partner of J.H. Whitney & Co., a private
equity and mezzanine capital investment firm, which he joined in 1993. Prior to
joining Whitney, he was with Gleacher & Co., a mergers and acquisitions advisory
firm, from 1991 to 1993, and from 1985 to 1991 was employed by Morgan Stanley &
Co. Incorporated in its Merchant Banking Group. Mr. Laverack is also a director
of CRA Managed Care, Inc., The North Face, Inc. and Qualitech Steel Holdings,
Inc.
Dr. Jurgen Kolb was elected a director of the Company in April 1996, as the
designated director of the "Preussag Shares" under the Stockholders Agreement.
Dr. Kolb is a member of the Executive Board of Preussag Stahl AG, which he
joined in 1986. Dr. Kolb is also a member of the Supervisory Board of Preussag
Handel Gmbh and of Ruhrkohle Bergbau A.G., is Chairman of the Supervisory Board
of Universal GmbH and of Peiner Agrar and Huttenstoffe GmbH; and is a director
of Feralloy Corporation.
Daniel M. Rifkin was elected as an alternate director of the Company in
November 1994, having been designated as such by "Heavy Metal Shares" to serve
as director of the Company in Leonard Rifkin's absence or unavailability. Daniel
M. Rifkin is the son of Leonard Rifkin. Mr. Rifkin is the President and Chief
Operating Officer of OmniSource, which he joined in 1979.
Robert C. Gay was elected as an alternate director of the Company in
September 1996, having been designated as such by the "Bain Shares" to serve as
director of the Company in Mr. Edgerley's absence or
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<PAGE> 56
unavailability. Mr. Gay has been a managing director of Bain Capital, Inc. since
1996 and has been a general partner of Bain Venture Capital since 1989. From
1988 through 1989, Mr. Gay was a principal of Bain Venture Capital. Mr. Gay is a
Vice Chairman of the Board of Directors of IHF Capital, Inc., parent of ICON
Health & Fitness, Inc. In addition, Mr. Gay is a director of Alliance
Entertainment Corp., GT Bicycles, Inc., GS Industries, Inc. and its subsidiary,
GS Technologies Operating Co., Inc. and Physio-Control International
Corporation.
Molly Ferguson was elected as an alternate director of the Company in
September 1994, having been designated as such by the "GECC Shares" to serve as
director of the Company in Mr. Strittmatter's absence or unavailability. Ms.
Ferguson is a Manager, Operations of General Electric Capital Corporation which
she joined in 1987.
Michael L. Stone was elected as an alternate director of the Company in
September, 1994, having been designated as such by the "Whitney Shares" to serve
as a director of the Company in Mr. Laverack's absence or unavailability. Mr.
Stone is a general partner of J.H. Whitney & Co., a private equity and mezzanine
capital investment firm, which he joined in 1989. Mr. Stone was an associate of
the firm from 1989 through January 1992, at which time he became a general
partner.
Dr. Jorg Fuhrmann was elected as an alternate director of the Company in
November 1994, having been designated as such by the "Preussag Shares" to serve
as a director of the Company in Dr. Kolb's absence or unavailability. Dr.
Fuhrmann is a member of the Executive Board of Preussag Stahl AG, which he
joined in 1995.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered for 1995 for the Chief
Executive Officer and the other three most highly compensated executive officers
of the Company whose salary and bonus amounts exceeded $100,000 (collectively,
the "Named Executive Officers"). The amounts shown include compensation for
services rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION COMPENSATION(2)
- ---------------------------------------- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Keith E. Busse.......................... $ 275,000 $ 180,000 $ -- $ 1,320
President and Chief Executive Officer
Mark D. Millett......................... 165,000 90,000 -- 469
Vice President
Richard P. Teets, Jr. .................. 165,000 90,000 -- 446
Vice President
Tracy L. Shellabarger................... 120,000 28,515 87,882(3) 366
Vice President and Chief Financial
Officer
</TABLE>
- ------------
(1) Represents guaranteed bonuses through construction of mill.
(2) Represents matching contributions made by the Company under its Retirement
Savings Plan and optional life insurance.
(3) Amount reimbursed for the payment of interest and taxes to Mr. Shellabarger
for interest payments on a $750,000 promissory note payable to the Company.
The promissory note will be forgiven in connection with the offerings. See
"-- Employment Agreements."
OPTIONS
None of the Named Executive Officers was granted options to purchase Common
Stock in 1995, nor were any options to purchase Common Stock held by any Named
Executive Officer as of December 31, 1995.
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<PAGE> 57
DIRECTOR COMPENSATION
At present, no separate compensation or fees are payable to directors of
the Company for their services, other than reimbursement of expenses incurred
with respect to such services. The Company expects, however, that new directors
that are not employed by or otherwise affiliated with the Company or its
stockholders will be paid in a manner and at a level consistent with industry
practice.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to the offerings, the Board of Directors of the Company had no formal
committees. Immediately prior to the completion of the offerings, the Board of
Directors will establish an Audit Committee. The Board of Directors may also
establish other committees to assist in the discharge of its responsibilities.
The Audit Committee will make recommendations to the Board of Directors
regarding the independent auditors to be nominated for election by the
stockholders and will review the independence of such auditors, approve the
scope of the annual audit activities of the independent auditors, approve the
audit fee payable to the independent auditors and review such audit results.
Deloitte & Touche LLP presently serves as the independent auditors of the
Company.
The Board of Directors, acting as a compensation committee, will provide a
general review of the Company's compensation and benefit plans to ensure that
they meet corporate objectives. In addition, the Board of Directors will review
the Chief Executive Officer's recommendations on (i) compensation of all
officers of the Company and (ii) adopting and changing major Company
compensation policies and practices.
EMPLOYMENT AGREEMENTS
Effective as of June 24, 1994, the Company entered into an Employment
Agreement with Mr. Busse for a term of five years, to serve as President and
Chief Executive Officer. Mr. Busse received a Base Salary of $275,000 for 1995
and will receive a Base Salary of $290,000 for 1996. The Employment Agreement
provides for an annual bonus (an "Annual Bonus"). The bonus is determined by
making an award among executive employees selected by the Board of Directors in
proportion to their respective base salaries, out of an "Annual Bonus Pool"
consisting of 4% of the Company's pre-tax earnings, less an amount equal to 10%
of the "equity investment" in the Company, determined as of the beginning of the
year. The Annual Bonus is subject to first, a maximum of 200% of Base Salary
paid in cash, then, a maximum of 100% of Base Salary paid in restricted stock
vesting ratably over four years. For the first five years of employment, the
Annual Bonus is guaranteed at not less than 60% of Base Salary, regardless of
the Company's profitability. In addition, Mr. Busse received an additional sum
of $30,000 during 1995 and will receive $30,000 during 1996 and 1997.
In the event that Mr. Busse's employment is terminated by the Company for
cause, Mr. Busse is entitled to compensation earned prior to the date of
termination computed pro rata up to and including the date of termination and
all further obligations of the Company will terminate. For purposes of Mr.
Busse's Employment Agreement, "cause" is defined as Mr. Busse's willful and
knowing commission of a criminal act under applicable state or federal law. In
the event that Mr. Busse's employment is terminated by the Company without
"cause" or if he terminates his employment for certain specified reasons, Mr.
Busse is entitled to all compensation set forth in his Employment Agreement,
subject to Mr. Busse's reasonable duty to mitigate his damages, and provided
that compensation payable to Mr. Busse will be reduced on a dollar for dollar
basis to the extent of pre-tax compensation received by Mr. Busse from any
competitor of the Company. In the event that Mr. Busse terminates his employment
for any other reason, he will receive no further compensation under his
employment agreement. Upon termination of Mr. Busse's employment due to his
disability or death, the Company will continue paying to Mr. Busse or his
estate, as the case may be, a base salary during the remainder of the five-year
term; provided that in the case of disability, such payments will be reduced to
the extent of any benefits paid by workers' compensation, or under any state
disability benefit program or under any disability policy maintained by the
Company.
Effective June 24, 1994, the Company entered into five-year Employment
Agreements with Mr. Millett and Mr. Teets, pursuant to which Mr. Millett, as
Vice President of Melting and Casting, and Mr. Teets, as
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Vice President of Rolling and Finishing, received a Base Salary of $165,000 for
1995 and will receive a Base Salary of $175,000 for 1996. Both Mr. Millett and
Mr. Teets are entitled to an Annual Bonus, calculated in the same manner and
subject to the same limitations discussed above for Mr. Busse. The termination
provisions contained in the Employment Agreements with Messrs. Millett and Teets
are identical to those contained in the Employment Agreement with Mr. Busse.
Effective July 7, 1994, the Company entered into a four-year Employment
Agreement with Mr. Shellabarger, to serve as Chief Financial Officer, at a Base
Salary for 1995 of $120,000 ($135,000 for 1996). Mr. Shellabarger is entitled to
an Annual Bonus calculated in the same manner and subject to the same
limitations discussed above for Mr. Busse. In addition, the Company sold to Mr.
Shellabarger, at the commencement of his employment, 280,601 shares of its
Common Stock, at an aggregate purchase price of $750,100, for which he executed
a promissory note for $750,000, secured by a pledge of the stock, due and
payable in July 1998. Installments of interest are payable in July 1995 through
1997. Mr. Shellabarger is to receive an additional $70,000 annual bonus so long
as the promissory note is outstanding and Mr. Shellabarger is employed by the
Company to offset the interest payments due on the note. Pursuant to the terms
of his employment agreement the note will be forgiven in connection with the
offerings. See "Certain Transactions."
The termination provisions contained in Mr. Shellabarger's Employment
Agreement are substantially similar to those contained in the other Employment
Agreements. For purposes of Mr. Shellabarger's Employment Agreement, "cause" is
defined as (i) dishonesty with respect to the Company or any of its
subsidiaries; (ii) the unexcused failure, neglect, or refusal to perform his
duties and responsibilities, despite being apprised of such failure, neglect or
refusal and given a reasonable period to correct such problem; (iii) willful
misfeasance or nonfeasance of duty intended to injure or having the effects of
injuring the business or business opportunities of the Company or any of its
subsidiaries; or (iv) his conviction of a crime that materially adversely
affects the business of the Company or any of its subsidiaries, or his ability
to perform his duties and responsibilities as contemplated by the Employment
Agreement.
After the initial employment term expires, and although each of the
foregoing Employment Agreements continues only on a month-to-month basis
thereafter (unless renewed), Messrs. Busse, Millett, Teets, and Shellabarger are
entitled to six months of severance pay, at their Base Salary, if employment is
in fact not continued.
All four Named Executive Officers receive major medical, long-term
disability, and term life insurance equal to twice their Base Salaries.
EMPLOYEE PLANS
Officer and Manager Cash and Stock Bonus Plan. In October 1996, the board
of directors adopted and the stockholders approved an Officer and Manager Cash
and Stock Bonus Plan (the "Bonus Plan"), which prescribes cash and stock bonus
awards based upon the Company's profitability and the Officer's and Manager's
relative base salaries.
Under the Bonus Plan, 5% of an amount determined by subtracting from the
Company's "Adjusted Pre-Tax Net Income" an amount equal to 10% of "Stockholder's
Equity" as determined by the Company's audited Consolidated Balance Sheets, is
placed into a "Distribution Pool," from which the bonus awards are made.
Adjusted Pre-Tax Net Income for any of the Company's fiscal years, commencing
January 1, 1997, is defined as the Company's net income before taxes,
extraordinary items and bonuses payable to Participants under the Bonus Plan, as
determined by the Company's outside auditors, except that, to the extent
reasonably determinable, the effect upon Adjusted Pre-Tax Net Income of any
income and start-up expenses associated with significant capital expenditures,
for a period not to exceed twelve months following start-up, are to be excluded
from and not taken into account in determining Adjusted Pre-Tax Net Income.
"Participants" under the Bonus Plan include "Officers" and "Managers" selected
from time to time to participate in the Bonus Plan by a committee of the Board
which administers the Bonus Plan, consisting of at least two members of the
Board, each of whom should be both a "non-employee director" (as defined in Rule
16(b)-3 under Section 16 of the Exchange Act) and an "outside director" as
defined in Section 162 of the Code. The Board currently serves as the committee,
in the absence of the appointment of a separate committee. At the present time,
four
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<PAGE> 59
Officers (the President and three Vice-Presidents) and four Managers have been
selected to participate in the Bonus Plan.
Once the Distribution Pool has been calculated, and if it is a positive
number, the Participants are entitled to receive a bonus, payable in cash and,
if the Distribution Pool is sufficient, in stock of the Company, up to the
amount prescribed in the Bonus Plan's formula. Specifically, each Participant is
entitled to receive a cash bonus in an amount determined by multiplying the
amount in the Distribution Pool by the Participant's Bonus Percentage (as
defined below), except that, with respect to an Officer, the cash bonus is not
to exceed two times the Officer's base salary and, with respect to a Manager,
the cash bonus is not to exceed the Manager's base salary. Inasmuch as Keith E.
Busse, Mark D. Millett, Richard P. Teets, Jr. and Tracy L. Shellabarger, the
four Officers currently covered by the Bonus Plan, have existing employment
agreements which provide for the payment of a cash bonus, and in order to
preclude duplication of bonus payments, the Bonus Plan provides that the amount
of any cash bonus payable to those Officers under their existing employment
agreements is to be deducted from the cash bonus, if any, payable to them under
the Bonus Plan. The "Participant's Bonus Percentage" means, in any year with
respect to a Participant, a fraction, the numerator of which is equal to either
(i) with respect to an Officer, two (2) times the Officer's base salary or (ii)
with respect to a Manager, the Manager's base salary (both (i) and (ii) are
defined as the "Participant's Adjusted Base Salary"), and the denominator of
which is equal to the sum of all the Participants' Adjusted Base Salaries.
If there is any excess in the Distribution Pool over the sum of the
aggregate cash bonuses payable under the Bonus Plan to all Participants and the
amounts deducted from the cash bonuses otherwise payable to Messrs. Busse,
Millett, Teets and Shellabarger because of bonuses already payable to them under
their employment agreements (which sum is defined as the "Adjusted Distribution
Pool"), the amount thereof is to be distributed to the Participants in the form
of "Restricted Stock." Each Participant is to receive that number of shares of
Restricted Stock having a fair market value, at the time of issuance, equal to
the product of that Participant's Bonus Percentage and the Adjusted Distribution
Pool, except that, with respect to an Officer, the aggregate fair market value
of the Restricted Stock so issued is not to exceed the Officer's Base Salary,
and, with respect to a Manager, the aggregate fair market value of the
Restricted Stock so issued is not to exceed 50% of the Manager's Base Salary.
The Bonus Plan provides that Restricted Stock will vest and become
nonforfeitable over a four year period. Commencing on January 1 following the
year with respect to which the Restricted Stock was issued, the stock will vest
and become nonforfeitable at the rate of 25% thereof for each full year
following the year with respect to which the Restricted Stock was issued. Upon
termination of a Participant's employment for any reason other than retirement,
all shares of Restricted Stock of that Participant which were not vested at the
time of termination of employment are required to be forfeited and returned to
the Company (although the committee, in its discretion, may waive the forfeiture
provisions). Until vested, Restricted Stock is not permitted to be transferred,
assigned, sold, pledged, or otherwise disposed of in any manner, nor subject to
levy, attachment or other legal process, and, while restricted, the stock
certificates evidencing those shares are required to be legended and held by the
Company. Subject to these limitations, however, and as long as a forfeiture has
not occurred, the Participant is treated as the owner of the Restricted Stock
with full dividend and voting rights.
The total number of shares of Common Stock of the Company reserved for
distribution pursuant to the Restricted Stock portion of the Bonus Plan is
450,000 shares, subject to adjustment in the event of any stock dividends, stock
splits, combinations or exchanges of shares, recapitalizations or other changes
in the capital structure of the Company, as well as any other corporate
transaction or event having any effect similar to any of the foregoing. If any
such event occurs, the aggregate number of shares reserved for issuance under
the Bonus Plan would be adjusted to equitably reflect the effect of such
changes. The Bonus Plan will commence with the Company's fiscal year beginning
January 1, 1997, and no cash or stock bonuses under this Bonus Plan will accrue
until after the conclusion of the Company's 1997 fiscal year.
Because the attainment of the performance goals is not certain, it is not
possible to determine the benefits and amounts that will be received by any
individual participant or group of participants in the future.
The Company has also established other bonus plans for its employees. See
"Business -- Employees."
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<PAGE> 60
Stock Option Plans. The following general discussion of certain features
of the Company's 1994 Incentive Stock Option Plan (the "1994 Plan") and the 1996
Incentive Stock Option Plan (the "1996 Plan") is subject to and qualified in its
entirety by reference to the 1994 Plan and the 1996 Plan, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
1994 Incentive Stock Option Plan. In December 1994, the Company adopted
the 1994 Plan, which was approved by stockholders in March 1995. Under the 1994
Plan, the Company's Board of Directors, or a committee designated by the Board
of Directors, grants to managers, supervisors and professionals of the Company
(48 employees) incentive stock options ("ISOs") intended to qualify as such
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The exercise price of an ISO granted to any participant is the fair market value
at the time of the grant (110% of fair market value in the case of an ISO
granted to a 10% stockholder). ISOs granted under the 1994 Plan become
exercisable on the fifth anniversary of the date of grant or at such time and
subject to such terms and conditions as determined by the Board of Directors or
a committee designated by the Board of Directors. In no event will exercise be
permitted after ten years from the date of grant (five years, in the case of an
ISO granted to a 10% stockholder). If an option expires or terminates without
having been exercised in full, the unpurchased shares will continue to be
available for award under the 1994 Plan. An ISO may be exercised during the life
of the participant solely by the participant or the participant's duly appointed
guardian or personal representative. The total number of shares of Common Stock
available for awards under the 1994 Plan is 1,102,765 shares, subject to
adjustment for future stock splits, stock dividends and similar events. As of
September 28, 1996, there were options for 634,159 shares outstanding under the
1994 Plan, none of which were exercisable.
Awards under the 1994 Plan are determined by the Board of Directors (or a
committee designated by the Board of Directors) in its discretion. For this
reason, it is not possible to determine the benefits and amounts that will be
received by any individual participant or group of participants in the future.
1996 Incentive Stock Option Plan. In October 1996, the Company adopted and
the stockholders approved the 1996 Plan. The 1996 Plan covers all full-time
employees of SDI (approximately 260 employees as of October 28, 1996) and its
subsidiaries, including officers, department managers, supervisors, professional
staff, and hourly employees, and provides for automatic semi-annual grants of
stock options to all such employees, by position category, in the following
amounts, based upon the fair market value of the Company's Common Stock on each
semi-annual grant date, with an exercise price equal to the same fair market
value on such date (110% of fair market value in the case of 10% stockholders):
<TABLE>
<CAPTION>
GRANTS SEMI-ANNUAL
POSITION PER YEAR GRANT VALUE
--------------------------------------------------------- -------- -----------
<S> <C> <C>
President................................................ 2 $80,000
Vice-President........................................... 2 60,000
Manager.................................................. 2 30,000
Supervisors/Professionals
Grade 3............................................. 2 15,000
Grade 2............................................. 2 12,500
Grade 1............................................. 2 10,500
Hourly................................................... 2 2,500
</TABLE>
The stock options are intended to qualify as ISOs under the Code, except that to
the extent that the aggregate fair market value (determined as of the time of
the option grant) of all shares of Common Stock with respect to which ISOs are
first exercisable by an individual optionee in any calendar year (under all
plans of the Company and any parent or subsidiary) exceeds $100,000, the excess
of the options over $100,000 will be issued as nonstatutory stock options, not
qualifying as ISOs. In any fiscal year of the Company, no employee may be
granted options to purchase more than 300,000 shares of the Company's Common
Stock.
The 1996 Plan is a five year plan, which terminates December 31, 2001.
Options issued under the 1996 Plan become exercisable six months after the date
of grant and must be exercised no later than five years thereafter. Subject to
certain exceptions, the employee must remain in the continuous employment of the
58
<PAGE> 61
Company or any of its subsidiaries from the date of grant to and including the
date of exercise. Options are not transferable, except by will or pursuant to a
qualified domestic relations order, or as permitted under Section 422 of the
Code or under applicable Securities and Exchange Commission rules, and may be
exercised, during the optionee's lifetime, only by the optionee. No shares of
Common Stock may be issued until full payment has been made, and an optionee has
no right to any dividends or other rights of a stockholder with respect to
shares subject to an option until such time as the stock has actually been
issued in the optionee's name in accordance with the 1996 Plan. If an option
expires or terminates without having been exercised in full, the unpurchased
shares will continue to be available for award under the 1996 Plan.
The 1996 Plan is to be administered by a committee of directors appointed
by the Board from time to time and consisting of at least two members of the
Board each of whom must be both a "non-employee director," as defined in Rule
16(b)-3 promulgated under Section 16 of the Securities Exchange Act of 1934, and
an "outside director" as that term is used in Section 162 of the Code and the
regulations thereunder. Currently, in the absence of the appointment of a
committee by the Board, the Board is serving as the committee. The committee is
required to administer the 1996 Plan so as to comply at all times with Rule
16(b)-3 of the Exchange Act and Sections 162, 421, 422, and 424 of the Code.
The Board may amend, alter, or discontinue the 1996 Plan at any time and
from time to time. The total number of shares of Common Stock available for
award under the 1996 Plan is 1,403,000, subject to adjustment for future stock
splits, stock dividends and similar events. As of October 28, 1996, no options
had been issued under the 1996 Plan.
Set forth below is a chart summarizing the grants that will be made under
the 1996 Plan upon completion of the offerings:
1996 INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS(1)
------------------------------------------------------------------ --------------------
<S> <C>
Keith E. Busse.................................................... 5,000
President and Chief Executive Officer
Mark D. Millett................................................... 3,750
Vice President
Richard P. Teets, Jr.............................................. 3,750
Vice President
Tracy L. Shellabarger............................................. 3,750
Vice President and Chief Financial Officer
Executive Group................................................... 23,750
Non-Employee Director Group....................................... --
Non-Executive Officer Employee Group.............................. 64,531
</TABLE>
- ---------------
(1) The number of options is calculated on an assumed per share price of $16.00.
Certain Federal Income Tax Consequences of Options.
Incentive Stock Options. Certain federal income tax consequences to
optionees and the Company of ISOs granted under the 1994 and 1996 Plans are set
forth in the following summary.
An employee to whom an ISO is granted will not recognize income at the time
of grant or exercise of such ISO. No federal income tax deduction will be
allowable to the employee's employer upon the grant or exercise of such ISO.
However, upon the exercise of an ISO, any excess in the fair market price of the
Common Stock over the exercise price constitutes a tax preference item which may
have alternative minimum tax consequences for the employee. When the employee
sells such shares more than one year after the date of transfer of such shares
and more than two years after the date of grant of such ISO, the employee will
normally recognize a long-term capital gain or loss equal to the difference, if
any, between the sale prices of such shares and the exercise price. If the
employee does not hold such shares for the required period, when the employee
sells such shares, the employee will recognize ordinary compensation income and
possibly capital
59
<PAGE> 62
gain or loss in such amounts as are prescribed by the Code and the regulations
thereunder and the Company will generally be entitled to a federal income
deduction in the amount of such ordinary compensation issues.
Nonstatutory Stock Options. An employee to whom a nonstatutory stock
option ("NSO") is granted will not recognize income at the time of grant of such
option. When such employee exercises a NSO, the employee will recognize ordinary
compensation income equal to the excess, if any, of the fair market value, as of
the date of option exercise, of the shares the employee receives upon such
exercise over the exercise price paid. The tax basis of such shares to the
employee will be equal to the exercise price paid plus the amount, if any,
includible in the employee's gross income, and the employee's holding period for
such shares will commence on the date which the employee recognizes taxable
income in respect of such shares. Gain or loss upon a subsequent sale of any
Common Stock received upon the exercise of a NSO generally would be taxed as
capital gain or loss (long-term or short-term, depending upon the holding period
of the stock sold). Certain additional rules apply if the exercise price is paid
in shares previously owned by the participant. Subject to the applicable
provisions of the Code and regulations thereunder, the Company will generally be
entitled to a federal income tax deduction in respect of a NSO in an amount
equal to the ordinary compensation income recognized by the employee. This
deduction will be allowed, in general, for the taxable year of the Company in
which the employee recognizes such ordinary income.
Profit Sharing Plan. Steel Dynamics has also established a Profit Sharing
Plan, for eligible employees. The plan is a "qualified plan" for federal income
tax purposes. Under the Profit Sharing Plan, the Company allocates each year to
a trust fund such sum, if any, as the Board of Directors determines, up to an
amount equal to 15% of the wages paid to Profit Sharing Plan participants
("profit sharing pool"). The profit sharing pool is used to fund the Profit
Sharing Plan as well as a separate cash profit sharing bonus which is paid to
employees in March of the following year. The allocation between the Profit
Sharing Plan contribution and the cash bonus amount is determined by the Board
of Directors each year. Employees become eligible to participate in the Profit
Sharing Plan after they have completed 30 days of employment with the Company.
An employee is entitled to a Profit Sharing Plan allocation only if that
employee has worked at least 1,000 hours during the year. An employee becomes
fully vested over a period of seven years of service with the Company, subject
to prior vesting in the event of retirement, death or disability. Contributions
to the Profit Sharing Plan by Steel Dynamics are deductible by the Company and
the contributions and the income earned thereon are not taxable to an employee
until actually received by the employee at a later date.
Retirement Savings Plan. SDI has also established a Retirement Savings
Plan for eligible employees, which is also a "qualified plan" for federal income
tax purposes. Employees become eligible to participate in the Retirement Savings
Plan on the first day of the month following the date of employment with the
Company. Contributions to the Retirement Savings Plan by the employees may be
made on a pre-tax basis and the income earned on such contributions is not
taxable to an employee until actually received at a later date. Generally,
employees may contribute on a pre-tax basis up to 8% of their eligible
compensation. SDI matches employee contributions in an amount equal to a minimum
of 5% of the employee's pre-tax contribution, subject to certain applicable tax
law limitations and to profitability levels of the Company. Employees are
immediately 100% vested with respect to their pre-tax contributions and the
Company's matching contributions. Contributions by Steel Dynamics are deductible
by the Company and contributions and the income earned thereon are not taxable
to the employee until actually received.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full Board of Directors acts as a compensation committee. See
"-- Committees of the Board of Directors."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS.
The Company's Amended and Restated Articles of Incorporation (the
"Articles") limit the liability of directors by providing that the Company shall
indemnify an individual made a party to a proceeding, because the individual is
or was a director, against liability incurred in the proceeding if the
individual's conduct was in good faith, and if the individual reasonably
believed, in the case of "official conduct" with the Company, that
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<PAGE> 63
the individual's conduct was in its best interests (or at least that the
individual's conduct was not opposed to the Company's best interests), and, in
the case of any criminal proceeding, that the individual either had reasonable
cause to believe that his conduct was lawful, or had no reasonable cause to
believe that his conduct was unlawful. These subsections prohibit indemnity if a
director is found liable in a proceeding by the Company against the director (or
a stockholder derivative action), or in connection with a proceeding in which
the director has been adjudged liable for having improperly received a personal
benefit in his capacity as a director. Further, in a direct action by the
Company (or in a derivative action), indemnification is permitted but only to
the extent of reasonable expenses incurred by the director in connection with
the proceeding.
The underlying statutory standard for director liability in Indiana,
however, is broad, providing that a director is not liable for any action taken
as a director, or any failure to take any action, unless the director has
breached or failed to perform the duties of the director's office, and the
breach or failure to perform constitutes willful misconduct or recklessness.
61
<PAGE> 64
CERTAIN TRANSACTIONS
Since commencing commercial production of steel in January 1996, through
September 28, 1996, the Company has sold 201,500 tons of its hot bands to
Heidtman (and its affiliated companies) for $65.1 million, pursuant to a
six-year "off-take" agreement. See "Business -- The Company's Customers and
Markets." John Bates is the President and Chief Executive Officer of Heidtman
and is a member of Steel Dynamics' Board of Directors, designated by the Keylock
Investments Limited stockholder in which Heidtman and Mr. Bates own a
controlling interest, and by the Mazelina Anstalt stockholder (collectively, the
owners of 5,823,097 shares of the Company's Common Stock, or 15.2% of the total
outstanding shares prior to the offerings). Keylock Investments Limited was one
of the Company's initial investors, becoming a stockholder in September 1993.
Pursuant to the Company's off-take agreement with Heidtman, Heidtman has a
6-year obligation to purchase from the Company, and the Company is obligated to
sell to Heidtman, at least 30,000 tons of the Company's hot band products per
month. Heidtman also has priority purchase rights to the Company's secondary and
field claim material. The Company's pricing to Heidtman is determined by
reference to the lowest prices charged by other thin-slab mini-mills or
conventional mills for the same products, and the Company cannot charge Heidtman
higher prices than the lowest prices at which it offers its products to any
other customer. In addition, in 1995 the Company sold approximately 32
unimproved acres of its plant site to Heidtman for $96,000, for the construction
by Heidtman of a steel center processing and storage facility. See "Principal
and Selling Stockholders."
Pursuant to a six-year "off-take" agreement, the Company has sold 56,800
tons of its steel coil to Preussag for an aggregate of $18.5 million during the
nine months ended September 28, 1996. Under this agreement, the Company is
obligated to sell to Preussag, and Preussag is required to purchase, not less
than 12,000 tons per month of the Company's available products, for either
domestic or export use or resale, at market prices determined by reference to
the Company's price sheet and by reference to prevailing competitive market
prices charged to large customers by other mills within the Company's marketing
area. In addition, Preussag has been appointed as the Company's preferred
distributor for all export sales to customers outside the United States, Canada
and Mexico. See "Business -- The Company's Customers and Markets." Dr. Jurgen
Kolb, a director of the Company, is a member of the Executive Board of Preussag
Stahl AG and Preussag owns 6,089,865 shares of Common Stock, or 15.8% of the
total outstanding shares prior to the offerings. See "Principal and Selling
Stockholders."
Pursuant to a six-year scrap purchasing agreement with OmniSource, the
Company purchased an aggregate of 661,000 tons of steel scrap for $91.1 million
during the nine months ended September 28, 1996, and paid OmniSource a total of
$1.2 million in fees. See "Business -- Steel Scrap and Scrap Substitute
Resources." Leonard Rifkin is the Chairman of the Board and Chief Executive
Officer of OmniSource and is a member of Steel Dynamics' Board of Directors
designated by the Heavy Metal, L.C. stockholder (the owner of 6,233,926 shares
of the Company's Common Stock, or 16.2% of the total outstanding shares prior to
the offerings). Leonard Rifkin, together with members of his family, and
OmniSource collectively own a controlling interest in Heavy Metal, L.C. See
"Principal and Selling Stockholders." Heavy Metal, L.C. was one of the Company's
initial investors, becoming a stockholder in September 1993. Pursuant to the
OmniSource scrap purchasing agreement, OmniSource acts as the exclusive scrap
purchasing agent for the Company's steel scrap, which may involve sales of
OmniSource's own scrap, at the prevailing market prices which OmniSource can get
for the same product, or it may involve brokering of general market scrap, for
which the Company pays whatever is the lowest market price for which OmniSource
can purchase that product. OmniSource is paid a commission per gross ton of
scrap received by the Company at its mini-mill. In addition, OmniSource
maintains a scrap handling facility, with its own equipment and staff, on the
Company's plant site. OmniSource does not pay rent for this facility.
The Company has entered into a five-year "off-take" agreement with
Qualitech, pursuant to which the Company has agreed to purchase from Qualitech
approximately 300,000 tonnes of iron carbide that Qualitech intends to produce
commencing in 1998. See "Business -- Steel Scrap and Scrap Substitute
Resources." Steel Dynamics owns approximately 4.3% of the common stock of
Qualitech Steel Holdings, Inc. ("Holdings"), the parent company of Qualitech. In
addition, Keith E. Busse, Leonard Rifkin, and William Laverack, directors of the
Company, also serve on Holdings' 12-member board of directors. OmniSource and
Leonard
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<PAGE> 65
Rifkin, affiliates of Heavy Metal, L.C., one of the Company's stockholders, own
approximately 6% of Holdings' common stock, and Whitney Equity Partners, L.P.,
an affiliate of J.H. Whitney & Co., a stockholder of the Company (of which Mr.
Laverack is a general partner) owns approximately 10% of Holdings' common stock.
The Company's iron carbide supply contact with Qualitech represents
approximately 45% of Qualitech's estimated plant capacity, and the contract was
considered vital to Qualitech's successful financing of its iron carbide
project, which is presently under construction. OmniSource also has an iron
carbide off-take contract with Qualitech, for 120,000 tonnes of iron carbide
annually.
The Company has entered into a six year "second look" export sales
agreement with Sumitomo. See "Business -- The Company's Customers and Markets."
Sumitomo and its parent Sumitomo Corporation (Japan) own in the aggregate
1,582,620 shares of Common Stock or 4.1% of the total outstanding shares prior
to the offerings. The export sales agreement applies if Preussag declines to
handle the particular export sale. In addition, Sumitomo and IDI have entered
into a Sale of Excess Product Agreement, pursuant to which Sumitomo will
represent IDI, once it is producing DRI, in selling up to half of any of IDI's
excess DRI that is not needed by the company for its own use and consumption. No
export sales have been made to date under this agreement.
The Company's wholly owned subsidiary, IDI, has also entered into an
agreement with Sumitomo, pursuant to which IDI has agreed to sell to or through
Sumitomo up to 50% of any DRI that IDI manufactures starting in 1998 which Steel
Dynamics does not retain for its own consumption. Such sales would be at the
then prevailing market prices, either for Sumitomo's own account or on a sales
commission basis for sale to third parties. In addition, IDI has agreed to enter
into a license agreement with Sumitomo pursuant to which Sumitomo would be
authorized, on an exclusive worldwide basis, except for the United States and
Canada, and except for additional plants that IDI may wish to construct for its
own use or for SDI's use, to sublicense others or to use any proprietary
know-how or other intellectual property that constitutes the IDI Process or is
part of the IDI Project and which may be developed by IDI in connection with the
manufacture of DRI, or by Steel Dynamics either in connection with the
conversion of DRI into liquid pig iron or in connection with the use thereof in
the steelmaking process. Such license rights contemplate that Sumitomo would
build and construct plants using this technology for itself or for others within
the licensed territory. IDI would be entitled to receive a one-time license fee
from Sumitomo, based upon each plant's rated production capacity, plus a
negotiated royalty fee for the use of any IDI or SDI patents that may be
acquired by IDI or SDI in connection with the enterprise. Any underlying
royalties or fees that might have to be paid to third parties would be passed
through to Sumitomo or to its sub-licensees. IDI has also agreed to afford
Sumitomo an opportunity to provide its proposed DRI plant with its raw material
and equipment supplies, on a competitive basis that is intended to secure for
IDI the lowest and best prices for the supplies and products.
In September 1996, the Company closed two interrelated private placements
of Common Stock pursuant to agreements that were entered into during the first
and second quarters of 1996. In February 1996, the Company accepted
subscriptions from existing stockholders and others, all "accredited"
purchasers, for the purchase, at approximately $8.20 per share, of approximately
$11.9 million of Common Stock, as part of the Company's efforts to place an
aggregate of $25.0 million of Common Stock to be used in whole or in part to
finance its IDI Project. In the exercise or waiver of their limited preemptive
rights under the Stockholders Agreement existing stockholders and others, owning
collectively (prior to the purchase) an aggregate of 26,444,666 shares of the
Company's Common Stock, or 78.0% of the total then outstanding, agreed to
purchase that amount. The purchase price was determined by reference to the
arm's length Stock Purchase Agreement of December 1995 with Preussag, relating
to the purchase by Preussag of $50.0 million of Common Stock at approximately
$8.55 per share, which contained a provision that contemplated the Company's
sale to existing stockholders or to others of up to $10 million of its shares of
Common Stock at a purchase price of approximately $8.20 per share. Because of
the interrelatedness of the Company's placement of the balance of approximately
$13.0 million before the IDI Project could be undertaken, the approximately
$11.9 million private placement was not closed until September 1996, at which
time the Company also closed a $13.5 million private placement of its Common
Stock with Sumitomo and Sumitomo Corporation (Japan), which was agreed to by the
parties in April 1996, at a per share purchase price of approximately $10.51.
This
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<PAGE> 66
purchase price was determined at arm's length by the Company's Board of
Directors, in negotiations with Sumitomo.
During August and September, 1996, in connection with its Cold Mill
Project, the Company entered into two agreements with units of General Electric
Corporation, of which General Electric Capital Corporation, the owner of
5,750,029 of the Company's shares of Common Stock, or 15.0% of the total
outstanding shares prior to the offerings is a wholly-owned subsidiary, for the
purchase of equipment for the Cold Mill Project in the aggregate amount of
approximately $23.4 million. This contract was entered into as a result of a
competitive bidding process conducted by the Company in the same manner that it
has used in connection with the letting of other equipment and supply agreements
for its existing mini mill and for its Cold Mill Project.
The Company is intending to use a portion of the proceeds of the offerings
to prepay all $55.0 million principal amount of the Subordinated Notes, together
with accrued interest thereon and a prepayment premium. General Electric Capital
Corporation and Whitney Subordinated Debt Fund, L.P., which owned $15.0 million
principal amount and $18.5 million principal amount of the Subordinated Notes,
respectively, are also each stockholders of the Company, owning 15.0% and 1.4%
respectively, of the Company's shares of Common Stock prior to the offerings.
In July 1994, the Company sold Mr. Shellabarger, the Chief Financial
Officer and a director of the Company, 280,601 shares of Common Stock, and
accepted a $750,000 promissory note in partial payment of the purchase price.
Pursuant to the terms of his employment agreement, the note will be forgiven in
connection with the offerings. See "Management -- Employment Agreements."
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<PAGE> 67
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 28, 1996, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each director of the Company, (iii) each Named Executive Officer, (iv) each
Selling Stockholder and (v) all executive officers and directors as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of Common Stock beneficially owned
by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERINGS NUMBER OF OFFERINGS
-------------------- SHARES BEING ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------ ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Heavy Metal, L.C.(1)...................... 6,233,926 16.2% -- 6,233,926 13.0%
Preussag Stahl AG(2)...................... 6,089,865 15.8 -- 6,089,865 12.7
Bain Capital Entities(3).................. 5,128,889 13.3 -- 5,128,889 10.7
General Electric Capital Corporation(4)... 5,750,029 15.0 -- 5,750,029 12.0
Keylock Investments Limited(5)............ 3,017,139 7.9 -- 3,017,139 6.3
Mazelina Anstalt(6)....................... 2,805,958 7.3 -- 2,805,958 5.9
J.H. Whitney & Co.(7)..................... 1,753,591 4.6 -- 1,753,591 3.7
Sumitomo Corporation of America(8)........ 812,173 2.1 135,562 676,611 1.4
Sumitomo Corporation (Japan)(9)........... 770,447 2.0 -- 770,447 1.6
Keith E. Busse(10)........................ 1,823,909 4.7 140,300 1,683,609 3.5
Richard P. Teets, Jr...................... 1,122,406 2.9 -- 1,122,406 2.3
Mark D. Millett........................... 1,063,957 2.8 -- 1,063,957 2.2
Tracy L. Shellabarger..................... 280,601 .7 -- 280,601 .6
Leonard Rifkin(11)........................ 6,233,926 16.2 -- 6,233,926 13.0
OmniSource Corporation(12)................ 6,233,926 16.2 -- 6,233,926 13.0
John C. Bates(13)......................... 3,017,139 7.9 -- 3,017,139 6.3
Heidtman Steel Products, Inc.(14)......... 3,017,139 7.9 -- 3,017,139 6.3
Paul B. Edgerley(15)...................... 5,128,889 13.3 -- 5,128,889 10.7
William D. Strittmatter(16)............... 5,750,029 15.0 -- 5,750,029 12.0
William Laverack, Jr.(17)................. 1,753,591 4.6 -- 1,753,591 3.7
Dr. Jurgen Kolb(18)....................... 6,089,865 15.8 -- 6,089,865 12.7
Steel Dynamics, L.P.(19).................. 173,889 .5 13,780 160,109 .3
Lincoln National Life Insurance Company... 119,396 .3 59,698 59,698 .1
Lincoln National Income Fund, Inc......... 29,856 * 14,928 14,928 *
LDI, Ltd. ................................ 29,856 * 29,856 -- --
KLANS Associates.......................... 25,451 * 3,125 22,326 *
APT Holdings Corporation(20).............. 208,094 .5 71,501 136,593 .3
Directors and Executive Officers
as a Group (10 persons)(13, 15-18)...... 32,264,312 84.0 140,300 32,124,012 67.2
</TABLE>
- ------------
* Less than .1%.
(1) The address of this stockholder is 1650 21st Street, Santa Monica, CA
90404.
(2) The address of this stockholder is Eisenhuttenstrasse 99 D-38223, 38239
Salzgitter, Germany.
(3) The address for these stockholders is Two Copley Place, Boston, MA 02116.
Consists of 2,140,444 held of record by Bain Capital Fund IV, L.P. ("Fund
IV"), 2,449,533 held by Bain Capital Fund IV-B, L.P. ("Fund IV-B"), 412,575
held by BCIP Associates, L.P., and 126,337 held by BCIP Trust Associates,
L.P. (collectively, the "Bain Capital Entities"). If the U.S. Underwriters
exercise their over-allotment option in full, the shares beneficially owned
after the offerings by Fund IV would be 1,687,572, Fund IV-B would be
1,931,267, BCIP Associates, L.P. would be 325,285 and BCIP Trust
Associates, L.P. would be 99,608.
(4) The address of this stockholder is 1600 Summer Street, Fifth Floor,
Stamford, CT 06927.
(5) The address of this stockholder is 17 Dame Street, Dublin 2, Republic of
Ireland.
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<PAGE> 68
(6) The address of this stockholder is c/o Lic. for Gertrud Beck, Stadtle 36,
9490 Vaduz, Liechtenstein.
(7) The address of this stockholder is 177 Broad Street, Stamford, CT 06901.
Consists of 961,060 held of record by Whitney 1990 Equity Fund, L.P. (the
"Whitney Equity Fund"), 240,279 held of record by J.H. Whitney & Co., and
552,252 shares held of record by the Whitney Subordinated Debt Fund.
(8) The address of this stockholder is 2750 USX Tower, 1600 Grant Street,
Pittsburgh, PA 15219. In September 1996 Sumitomo Corporation entered into a
"second look" export distribution agreement with the Company, and in
October 1996 entered into a Sale of Excess Product Agreement with IDI. Two
representatives designated by Sumitomo Corporation serve on IDI's five
person Board of Directors. If the U.S. Underwriters exercise their
over-allotment option in full, the shares beneficially owned by Sumitomo
Corporation of America would be 513,750.
(9) The address of this stockholder is Josuika Building, 2-1-1 Hirotsubashi,
Chiyodo-ku, Tokyo, 101, Japan. Sumitomo Corporation is an affiliate of
Sumitomo Corporation of America. See footnote (8).
(10) Mr. Busse is the President and Chief Executive Officer and a director of
the Company, and is one of the Company's founders.
(11) Consists of 6,233,926 shares of Common Stock held of record by Heavy Metal,
L.C. that Mr. Rifkin may be deemed to beneficially own due to his
relationship with other beneficial owners of that entity. Mr. Rifkin is a
member of Heavy Metal, L.C., a member-managed limited liability company.
Three of Mr. Rifkin's adult sons also hold membership units, as does
OmniSource, of which Mr. Rifkin is Chairman of the Board and a director.
See "Certain Transactions." Mr. Rifkin disclaims beneficial ownership of
all but 587,018 of these shares.
(12) Consists of 6,233,926 shares of Common Stock held of record by Heavy Metal,
L.C. that OmniSource may be deemed to beneficially own due to its
relationship with Heavy Metal, L.C. OmniSource is a member of Heavy Metal,
L.C., a member-managed limited liability company. Leonard Rifkin,
OmniSource's Chairman of the Board and a director, is also a member of
Heavy Metal, L.C. OmniSource disclaims beneficial ownership of all but
1,716,439 of these shares.
(13) Consists of all 3,017,139 shares of Common Stock held of record by Keylock
Investments Limited that Mr. Bates may be deemed to beneficially own due to
his relationship with Keylock Investments Limited. Mr. Bates and Heidtman
own a controlling interest in Keylock Investments Limited.
(14) Consists of 3,017,139 shares of Common Stock held of record by Keylock
Investments Limited that Heidtman may be deemed to beneficially own due to
its relationship with Keylock Investments Limited. Heidtman and its
President, John F. Bates, own a controlling interest in Keylock Investments
Limited.
(15) Consists of all 5,128,889 shares of Common Stock held of record by the Bain
Entities that Mr. Edgerley may be deemed to beneficially own due to his
relationship with those entities. Mr. Edgerley is a Managing Director of
Bain Capital, Inc., which manages the Bain Capital Entities. Mr. Edgerley
disclaims beneficial ownership of these shares.
(16) Consists of all 5,750,029 shares of Common Stock held of record by General
Electric Capital Corporation that Mr. Strittmatter may be deemed to
beneficially own due to his relationship with that entity. Mr. Strittmatter
is a Vice President and Senior Credit Officer of General Electric Capital
Corporation. Mr. Strittmatter disclaims beneficial ownership of these
shares.
(17) Consists of all 1,753,591 shares of Common Stock held of record by the
Whitney Equity Fund, J.H. Whitney & Co., and Whitney Subordinated Debt Fund
that Mr. Laverack may be deemed to beneficially own due to his relationship
with those entities. Mr. Laverack is a general partner of J.H. Whitney &
Co., an affiliate of Whitney Equity Fund and Whitney Subordinated Debt
Fund. Mr. Laverack disclaims beneficial ownership of these shares.
(18) Consists of all 6,089,865 shares of Common Stock held of record by Preussag
that Mr. Kolb may be deemed to beneficially own due to his relationship
with that entity. Mr. Kolb is a member of the Executive Board of Preussag
Stahl AG. Mr. Kolb disclaims beneficial ownership of these shares.
(19) If the U.S. Underwriters exercise their over-allotment option in full,
Steel Dynamics, L.P. would sell its remaining shares of Common Stock.
(20) APT Holdings Corporation is an affiliate of Mellon Bank, N.A., one of the
Company's lenders and the agent under its Credit Agreement. If the U.S.
Underwriters exercise their over-allotment option in full, the shares
beneficially owned after the offerings by APT Holdings Corporation would be
68,158.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a brief description of the basic terms of and instruments
governing certain indebtedness of the Company. The following discussion does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the instruments governing the respective indebtedness, which
instruments are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
The Company entered into a Credit Agreement, dated as of June 30, 1994, as
amended (the "Credit Agreement"), with Mellon Bank, N.A. (the "Agent") and the
lenders party thereto (the "Lenders"), which provides for (i) up to an aggregate
of $300.0 million of senior term loans ("Senior Term Loans") and (ii) a $45.0
million revolving credit facility (the "Revolving Credit Facility") for working
capital purposes. Indebtedness outstanding under the Credit Agreement is secured
by a first priority lien on substantially all of the assets of the Company.
Of the $300.0 million in senior term loan commitments, $150.0 million was
designated for the construction of the Company's mini-mill and $150.0 million
was designated and remains available for the construction of the Cold Mill
Project. Borrowings under the Revolving Credit Facility are subject to a
borrowing base consisting of specified percentages of eligible inventory and
receivables.
The Revolving Credit Facility will mature on September 30, 2000. The Senior
Term Loans will amortize semi-annually from September 30, 1997 to March 31,
2002. Borrowings under the Revolving Credit Facility must be repaid to the
extent such borrowings exceed the borrowing base. In addition, the Company is
required to make prepayments under certain circumstances from excess cash flow,
asset sales, insurance proceeds, condemnation awards and issuances of debt or
equity.
Borrowings under the Revolving Credit Facility bear interest at the option
of the Company, at (i) the "Base Rate" plus an applicable margin, depending on
the status of the construction of the mini-mill and Cold Mill Project or (ii)
the "Euro-Rate" plus an applicable margin (the "Euro-Rate Option"). The Senior
Term Loans bear interest on the basis of the Euro-Rate Option. The "Base Rate"
for any day is defined as the greater of (A) the prime rate for such day or (B)
.50% plus the federal funds effective rate for such day. The "Euro-Rate" for any
day is defined as the rate for each funding segment determined by the Agent by
dividing the rate of interest quoted on the Reuter's screen ISDA page to be the
average of the rates per annum for deposits in dollars offered to major money
center banks in the London interbank market two business days prior to the first
day of the funding period in amounts comparable to the funding segment and with
maturities comparable to such funding period by 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate Reserve Percentage is the percentage as determined by
the Agent which is in effect on such day as prescribed by the Board of Governors
of the Federal Reserve System representing the maximum reserve requirement with
respect to eurocurrency funding of a member bank.
The Company's Credit Agreement restricts the Company's ability to incur
additional indebtedness, except (i) refinancings of indebtedness incurred under
the Credit Agreement and other existing indebtedness, (ii) licensing or royalty
fees payable to SMS Schloemann-Siemag AG and (iii) unsecured indebtedness in an
aggregate principal amount at any one time not greater than $5.0 million. In
addition, the Credit Agreement prohibits the Company from making capital
expenditures (other than specified permitted capital expenditures) in any fiscal
year in excess of the lesser of (i) $20.0 million and (ii) the sum of $12.0
million plus 25% of excess cash flow for the immediately preceding year plus 70%
of the amount of capital expenditures allowed but not made in the immediately
preceding fiscal year. The Company may make specified permitted capital
expenditures including up to $230.0 million for the Cold Mill Project, up to
$55.0 million for the Caster Project and an equity investment of up to $25.0
million for the IDI Project. The Company is also prohibited from creating liens
on its properties except (i) liens created in connection with its indebtedness
under the Credit Agreement and in connection with its existing indebtedness,
(ii) liens created and/or deposits made in the ordinary course of business for
taxes and assessments, workmen's compensation, unemployment insurance and other
social security obligations, bids, surety and appeal bonds and the like and
(iii) purchase money liens on assets acquired after completion of the Cold Mill
Project in an aggregate amounted not to exceed $5.0 million. The Credit
Agreement contains additional restrictive covenants, including among others,
covenants restricting the Company and its subsidiaries with respect to:
investments in additional equipment and business
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opportunities, entering into certain contracts, disposition of property or
assets, the payment of dividends, entering into sale-leaseback transactions,
entering into transactions with affiliates, mergers and consolidations, the
making of payments on and modification of certain indebtedness and modification
of certain agreements. In addition, the Credit Agreement requires the Company to
meet certain financial tests, including maintaining (a) its current ratio at or
above 1.3, (b) its leverage ratio at or below 2.25 for 1996, 2.10 for 1997, 1.90
for 1998, 1.40 for 1999 and 1.00 thereafter, (c) its tangible net worth at or
above the sum of (i) $45.0 million and (ii) 50% of cumulative net income at such
time and (d) its fixed charge coverage ratio at or above 1.00 for 1996, 1.15 for
1997 and 1998, and 1.25 thereafter.
The failure of the Company to satisfy any of the covenants will constitute
an event of default under the Credit Agreement, notwithstanding the Company's
ability to meet its debt service obligations. The Credit Agreement also contains
customary events of default, including the nonpayment of principal, interest,
fees and other amounts, change of control, change of management and
cross-defaults to certain other obligations of the Company and certain events
including bankruptcy, reorganization and insolvency of the Company, SMS
Schloemann-Siemag AG, Heidtman or OmniSource.
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DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Articles and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part, as
well as by the provisions of Indiana's law. Upon consummation of the offerings,
the Company's authorized capital stock will consist of 100,000,000 shares of
Common Stock, par value $.01 per share. As of October 30, 1996 there were
38,428,341 shares of Common Stock issued and outstanding, validly issued and
fully paid and non-assessable, that were held of record by 29 stockholders. As
of September 28, 1996, 634,159 shares of Common Stock were reserved for issuance
upon exercise of outstanding stock options.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders, including the
election of directors. The Articles do not provide for cumulative voting in the
election of directors and, thus, holders of a majority of the shares of Common
Stock may elect all of the directors standing for election. However, under the
Stockholders Agreement, stockholders of the Company having the power to vote in
the aggregate 79.4% of the shares of the Company's Common Stock outstanding
after the offerings, have agreed to vote their shares in the election of
directors for representatives of stockholder parties designated by them. All 10
of the Company's directors have been elected in this manner and will continue to
be so long as the Stockholders Agreement is in effect and the stockholders party
to the Stockholders Agreement hold a majority of the Company's outstanding
Common Stock. See "-- The Stockholders Agreement." Accordingly, these
stockholder parties will retain the power to elect the entire Board of Directors
of the Company.
All holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. Upon the liquidation,
dissolution or winding-up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company that are available
after the payment of all debts and liabilities. Holders of Common Stock have no
preemptive rights or rights to convert their Common Stock into any other
securities, nor are there any redemption or sinking fund provisions applicable
to the Common Stock.
All outstanding shares of Common Stock are, and the shares to be issued in
the offerings will be, validly issued, fully paid, and non-assessable.
CERTAIN PROVISIONS OF INDIANA LAW REGARDING TAKEOVERS
As an Indiana corporation, the Company is subject to certain provisions of
Indiana law which may discourage or render more difficult an unsolicited
takeover of the Company. There are two principal statutes relating to this issue
that constitute part of the BCL, the statute regulating "business combinations"
and the statute regulating "control share acquisitions."
Under Chapter 43 of the BCL relating to "business combinations" a
corporation (with 100 or more stockholders) may not engage in any "business
combination" with any "interested" stockholder for a period of five years
following the interested stockholder's "share acquisition date" unless the
business combination or the purchase of shares made by the interested
stockholder was approved by the corporation's board of directors prior to the
interested stockholder's share acquisition date. The term "business combination"
is broadly defined to apply to any merger or consolidation of the corporation
and the interested stockholder, as well as any sale, lease, exchange, mortgage,
pledge, transfer, or other disposition (in a single or a series of transactions)
to or with the interested stockholder (or any affiliate or associate thereof) of
any assets of the corporation if the transaction represents 10% or more of the
corporation's assets, outstanding shares of stock, or consolidated net income of
the corporation. Similarly, the issuance or transfer by the corporation of any
of its (or its subsidiary's) stock that has an aggregate market value equal to
5% or more of all the outstanding shares of stock to the interested stockholder
(or any affiliate or associate thereof) is a "business combination," except if
it is in connection with the distribution of a dividend or the exercise of
warrants paid or made pro rata to all stockholders. The term is applicable as
well to the adoption of any plan of liquidation or dissolution
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proposed by or under any understanding with an interested stockholder (or an
affiliate or associate thereof), and to any reclassification of securities,
recapitalization, merger or consolidation with any subsidiary, or any other
transaction proposed by or under any arrangement with the interested stockholder
(or any affiliate or associate thereof) that has the "effect" of increasing the
proportionate interest of the interested stockholder in the corporation.
An "interested stockholder," as defined, is any person (other than the
corporation or a subsidiary) that is the beneficial owner of 10% or more of the
voting power, or an affiliate or associate of the corporation that at any time
within the five prior years was the beneficial owner of 10% or more of the
voting power. For purposes of the statute, the "share acquisition date" is the
date upon which the person first becomes an interested stockholder of a
corporation. So long as the board of directors does not approve of the business
combination with the interested stockholder, the five year "blackout" period, in
which the business combination is prohibited, applies, and the board of
directors is required to render its decision within a 30-day period (or sooner
if required by the Securities Exchange Act of 1934 (the "Exchange Act")).
In addition to the absolute five-year business combination prohibition, the
statute also requires that, any business combination between the corporation and
an interested stockholder must satisfy additional statutory conditions. The
board of directors must have approved of the business combination before the
interested stockholder's share acquisition date, or a majority of the
outstanding voting stock not beneficially owned by the interested stockholder
must have approved the business combination at a meeting held no earlier than
five years after the interested stockholder's share acquisition date, or the
business combination transaction must meet certain per share values to all
stockholders (keyed to the highest per share price paid by the interested
stockholder within the prior five-year period). All consideration must also be
paid either in cash or in the same form as the interested stockholder has used
to acquire the largest number of shares acquired by it. Furthermore, the statute
requires an interested stockholder to purchase all remaining shares of stock, if
any are purchased, not just one class or series.
Under Chapter 42 of the BCL, the "control share acquisition" statute,
"control shares" (shares that, in the election of directors, could exercise or
direct the exercise of voting power of one-fifth, one-third or a majority or
more of all of the voting power) of any "issuing public corporation" (one
hundred or more stockholders, principal office or place of business, or
substantial assets within Indiana, or 10% of its stockholders resident in
Indiana) that are acquired in a "control share acquisition" by an "acquiring
person" will be accorded only such voting rights, after the acquisition, as are
specifically conferred by the stockholders, voting as a group, excluding all
"interested shares." If a person holding "interested shares" engages in a
control share acquisition of control shares, and the stockholders have not acted
to specifically grant those acquired shares the voting rights they had prior to
the control share acquisition, the acquired shares lose their voting rights. A
majority of the shares (excluding interested shares) must be voted to confer
voting rights upon the acquiring person. The only exemption from this statute is
if the corporation's articles of incorporation or its bylaws provide that this
statute does not apply to control share acquisitions of the corporation's
shares, and such provisions must exist prior to the occurrence of any "control
share acquisition." However, the Company does not have such a provision in
either its Articles or in its Bylaws. Furthermore, if the Articles or Bylaws so
provide (and the Articles and Bylaws do not so provide at this time), control
shares acquired in a control share acquisition with respect to which the shares
have not been accorded full voting rights by the stockholders can be redeemed by
the corporation at "fair value." But if in fact the stockholders of the
corporation do vote to accord full voting rights to the acquiring person's
control shares, and if the acquiring person has acquired control with a majority
or more of the voting power, all stockholders of the issuing public corporation
are allowed to invoke dissenters' rights, providing "fair value" to them
(defined as not less than the highest price paid per share by the acquiring
person in the control share acquisition. In order to secure stockholder
approval, as required, the acquiring person must deliver an acquiring person
"statement" to the corporation, setting forth pertinent information concerning
the identity of the acquiring person, the number of shares already owned, the
range of voting power that the control share acquisition seeks, and the terms of
the proposed acquisition. Thereafter, the directors for the issuing public
corporation, within ten days, are required to call a special meeting of the
stockholders to consider the voting rights issue, and the stockholders meeting
must be held within 50 days after receipt of the statement by the issuing public
corporation. The acquiring person can
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specifically request that the special stockholders meeting not be held sooner
than thirty days after delivery of the acquiring person's statement to the
issuing public corporation. The corporation's notice of the special stockholders
meeting must be accompanied by the acquiring person's statement, as well as a
statement by the Board of Directors of the corporation concerning its position
or recommendation (or that it is taking no position or making no recommendation)
with respect to the voting rights issue in the proposed control share
acquisition.
THE STOCKHOLDERS AGREEMENT
Under the Stockholders Agreement between the Company and various
stockholder groups identified therein as the "Bain Group," "GECC" (General
Electric Capital Corporation), the "Whitney Group," "Heavy Metal" (Heavy Metal,
L.C.), the "Keylock Group," "Low Cost" (Low Cost Limited Partnership), the
"Management Group" (Messrs. Busse, Millett, Teets, and Shellabarger),
"Preussag," "Sumitomo" and members of the "Subdebt Group," the sale, assignment,
transfer, encumbrance, or other disposition of both shares owned by the
stockholder signatories (the "Stockholder Shares") are subject to certain prior
rights and obligations as between the parties, as are certain corporate actions
proposed to be taken by the Company.
Election of Directors. For a period of 10 years or until a "public float"
has been realized (defined as the date upon which 25% of the outstanding Common
Stock of the Company has been sold pursuant to effective registration statements
under the Securities Act), each holder of Stockholder Shares has agreed to vote
all of its Stockholder Shares to maintain the authorized number of directors on
the Company's Board of Directors at an agreed level (currently 10 persons) and,
further, to elect to the Board one representative designated by the holders of a
majority of the Bain Shares, one representative designated by the holders of a
majority of the GECC Shares, one representative designated by the holders of a
majority of the Heavy Metal Shares, one representative designated by the holders
of a majority of the Keylock Shares, one representative designated by the
holders of a majority of the Keith Busse Shares, one representative designated
by the holders of a majority of the Mark Millett Shares, one representative
designated by the holders of a majority of the Richard Teets Shares, one
representative designated by the holders of a majority of the Busse, Millett,
and Teets Shares, one representative designated by the holders of a majority of
the Whitney Shares, and one representative designated by the holders of a
majority of the Preussag Shares.
Transfers of Common Stock: Participation Rights. No holder of Stockholder
Shares nor any holder of Warrants is entitled to sell, transfer, assign, pledge,
or otherwise dispose of (a "Transfer") any interest in any Stockholder Shares,
except in an "exempt transfer," unless 20 days prior to making any Transfer, the
transferring holder delivers an "Offer Notice" to all other holders of
Stockholder Shares, disclosing the applicable number of securities intended to
be transferred, the price at which the Transfer is proposed to be made, and
other relevant terms and conditions. All other holders of Stockholder Shares
then have 20 days within which to purchase their respective pro rata shares of
the offered securities. These transfer restrictions are not applicable to any
Transfer to an affiliate, to any "Public Sale" (as defined), to a sale of the
Company, or a transfer between members of the same group.
Tag-Along Rights. In the event of an approved Transfer, each holder of
Stockholder Shares which did not elect to purchase its pro rata share pursuant
to someone else's Offer Notice, may, instead, elect to sell its pro rata portion
together with the holder that originated the Offer Notice, thereby cutting that
person back in the number of shares.
Sale of the Company. In the event that the Company's board of directors
approves a sale of the Company, not otherwise prohibited, each holder of
Stockholder Shares is required to consent. This undertaking, however, ceases to
apply upon the earlier to occur of a sale of the Company or the realization of a
"public float."
Other Restrictions. Unless the holders of 70% of the outstanding
Stockholder Shares consent the Company may not do such things as pay dividends,
make distributions, buy back any of its stock, issue additional debt or equity
securities, make loans or advances to anyone, make investments in excess of $5.0
million, merge or consolidate with another company, make any business
acquisition exceeding $2.0 million, make any capital expenditures exceeding $5.0
million, adopt any stock option plan, permit a sale of the
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company, or hire, terminate, or enter into or amend any compensation arrangement
with any of the Company's senior management. These restrictions terminate when
the Company has realized a "public float."
THE REGISTRATION AGREEMENT
Under a Registration Agreement dated as of June 30, 1994, as amended,
between the Company and various stockholder groups identified therein as the
"Bain Stockholders," "General Electrical Capital Corporation," "Heavy Metal,
L.C.," the "Keylock Stockholders," the "Whitney Stockholders," the "Management
Stockholders," "Preussag," and "Sumitomo" (collectively the "Stockholders"), the
Stockholders were granted certain demand and piggyback registration rights.
Demand Registrations. The Bain Stockholders and General Electric Capital
Corporation are each entitled to request two demand registrations, and the Heavy
Metal, L.C., Keylock Stockholders and Preussag are entitled to request one
demand registration each. A demand registration must be for at least 50% of the
total Company shares held by the Stockholder making the demand.
Piggyback Registrations. Whenever the Company proposes to register any of
its securities under the Securities Act (other than pursuant to a demand
registration), the Company is required to notify all holders of "Registrable
Securities" and will include all Registrable Securities requested to be included
that may be prudently sold in the offering.
All expenses incident to the Company's compliance with its obligations
under the Registration Agreement will be paid by the Company, regardless of
whether in connection with a demand registration or a piggyback registration,
and the Company has agreed to reimburse the holders of Registrable Securities
for the reasonable fees and disbursements of one legal counsel chosen by all of
them in connection with a registration.
The obligations under the Registration Agreement terminate on the seventh
anniversary of a sale of the Company's Common Stock pursuant to an effective
registration statement under the Securities Act, subject to extension for an
additional six-month period under certain circumstances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offerings there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales may
occur, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities. See "Risk Factors -- Shares Eligible for Future Sale."
Upon completion of the offerings, the Company will have a total of
47,803,341 shares of Common Stock outstanding. Of these shares, the 9,843,750
shares of Common Stock sold in the offerings will be freely tradeable without
restriction under the Securities Act, except for any such shares which may be
acquired by an "affiliate" of the Company (an "Affiliate") as that term is
defined in Rule 144 under the Securities Act, which shares will be subject to
the resale limitations of Rule 144. The remaining 37,959,591 shares of Common
Stock outstanding will be "restricted securities" as the term is defined by Rule
144 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least two years has elapsed since
the later of the date the "restricted securities" were acquired from the Company
and the date they were acquired from an Affiliate, then the holder of such
restricted securities (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the then outstanding shares of the Common Stock (approximately 478,033 shares
immediately after the offerings) or the average weekly reported volume of
trading of the
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Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale with the Securities and Exchange Commission (the
"Commission"). The holder may only sell such shares through unsolicited brokers'
transactions. Sales under Rule 144 are also subject to certain requirements
pertaining to the manner of such sales, notices of such sales, and the
availability of current public information concerning the Company. Under Rule
144(k), if a period of at least three years has elapsed between the later of the
date restricted securities were acquired from the Company and the date they were
acquired from an Affiliate, as applicable, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the limitations described above. The
Commission has proposed shortening the applicable holding periods under Rule
144(d) and Rule 144(k) to one and two years, respectively (from the current
periods of two and three years). The Company cannot predict whether such
amendments will be adopted or the effect thereof on the trading market for its
Common Stock.
The Company, its directors and executive officers, the Selling
Stockholders, and certain other stockholders of the Company who in the aggregate
own substantially all of the outstanding shares of Common Stock immediately
prior to the offerings have entered into "lock-up" agreements with the
Underwriters, providing that they will not (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(provided that such shares or securities are either currently owned by such
person or are thereafter acquired from the Company) or (ii) enter into any swap
or other agreement that transfers to another, in whole or in part, any of the
economic consequences of ownership of such shares of Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated, other than (i) the sale to the
Underwriters of the shares of Common Stock offered hereby or (ii) the issuance
by the Company of shares of Common Stock upon the exercise of an option sold or
granted pursuant to existing benefit plans of the Company and outstanding on the
date of this Prospectus.
The preceding description does not include shares of Common Stock issuable
upon the exercise of options granted under the Company's 1994 Plan or the 1996
Plan. Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by nonaffiliates
beginning 90 days after the date of this Prospectus, subject only to the
manner-of-sale provisions of Rule 144, and by affiliates beginning 90 days after
the date of this Prospectus, subject to all provisions of Rule 144 except the
two-year minimum holding period. As of October 28, 1996, the Company had
reserved an aggregate of 634,159 shares of Common Stock for issuance upon the
exercise of options granted pursuant to the 1994 Plan and no options outstanding
under the 1996 Plan. As soon as practicable after the offerings, the Company
intends to register on Form S-8 under the Securities Act approximately 2,955,764
shares of Common Stock issuable under options subject to the Company's 1994 Plan
and 1996 Plan thus permitting, subject to the lock-up agreements described
above, the resale of such shares by nonaffiliates upon issuance in the public
market without restriction under the Securities Act.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, the term "Non-U.S. Holder" is
defined as any person who is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust, as such terms are defined in the Code. This discussion
does not address all aspects of United States federal income and estate taxes
and does not deal with foreign, state and local consequences that may be
relevant to such Non-U.S. Holders in light of their personal circumstances, or
to certain types of Non-U.S. Holders which may be subject to special treatment
under United States federal income tax laws (for example, insurance companies,
tax-exempt organizations, financial institutions and broker-dealers).
Furthermore, this discussion is based on provisions of the Code, existing and
proposed regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly with retroactive effect. PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present in
the United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). U.S. resident aliens are
subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of Common Stock, dividends paid to a Non-U.S.
Holder of Common Stock will be subject to withholding of United States federal
income tax at a 30% rate or such lower rate as may be provided by an applicable
income tax treaty between the United States and the country of which the
Non-U.S. Holder is a tax resident, unless (i) the dividends are effectively
connected with the conduct of a trade or business of the Non-U.S. Holder within
the United States and the Non-U.S. Holder provides the payor with proper
documentation or (ii) if a tax treaty applies, the dividends are attributable to
a U.S. permanent establishment maintained by the Non-U.S. Holder. In order to
claim the benefit of an applicable tax treaty rate, a Non-U.S. Holder may have
to file with the Company or its dividend paying agent an exemption or reduced
treaty rate certificate or letter in accordance with the terms of such treaty.
Dividends that are effectively connected with the conduct of a trade or business
within the United States or, if a tax treaty applies, are attributable to such a
United States permanent establishment, are subject to United States federal
income tax on a net income basis (that is, after allowance for applicable
deductions) at applicable graduated individual or corporate rates. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary) and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. However, under proposed United States Treasury regulations, in
the case of dividends paid after December 31, 1997 (December 31, 1999 in the
case of dividends paid to accounts in existence on or before the date that is 60
days after the proposed United States Treasury regulations are published as
final regulations), a Non-U.S. Holder generally would be subject to United
States withholding tax at a 31% rate under the backup withholding rules
described below, rather
74
<PAGE> 77
than at a 30% rate or a reduced rate under an income tax treaty, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary. Certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exemption.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS"), provided that the required information is
furnished to the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) (a) the gain is effectively connected with a trade or
business conducted by the Non-U.S. Holder within the United States, or (b) if a
tax treaty applies, the gain is attributable to a United States permanent
establishment maintained by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder who is an individual and holds the Common Stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
of the sale or other disposition and certain other conditions are met, (iii) the
Non-U.S. Holder is subject to tax pursuant to certain provisions of the Code
applicable to United States expatriates, or (iv) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes at any time within the shorter of the five-year period preceding such
disposition or the period such Non-U.S. Holder held the Common Stock. If the
Company were, or to become, a U.S. real property holding corporation, gains
realized upon a disposition of Common Stock by a Non-U.S. Holder which did not
directly or indirectly own more than 5% of the Common Stock during the shorter
of the periods described above generally would not be subject to United States
federal income tax so long as the Common Stock is "regularly traded" on an
established securities market. The Company believes that it has not been, is not
currently, and does not anticipate becoming, a "U.S. real property holding
corporation" for United States federal income tax purposes.
If a Non-U.S. Holder who is an individual falls under clause (i) above,
such individual generally will be taxed on the net gain derived from a sale
under regular graduated United States federal income tax rates. If an individual
Non-U.S. Holder falls under clause (ii) above, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by certain United States capital losses (notwithstanding the fact that such
individual is not considered a resident alien of the United States). Thus,
individual Non-U.S. Holders who have spent (or expect to spend) more than a de
minimis period of time in the United States in the taxable year in which they
contemplate a sale of Common Stock are urged to consult their tax advisors prior
to the sale as to the U.S. tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated United
States federal income tax rates and, in addition, will be subject to the branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty.
FEDERAL ESTATE TAX
Common Stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident (as defined for United States
federal estate tax purposes) at the time of death will be included in the
individual's gross estate for United States federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise and, therefore, may be
subject to United States federal estate tax.
75
<PAGE> 78
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under United States Treasury regulations, the Company must report annually
to the IRS and to each Non-U.S. Holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. These information
reporting requirements apply even if withholding was not required because the
dividends were effectively connected with a trade or business in the United
States of the Non-U.S. Holder or withholding was reduced or eliminated by an
applicable income tax treaty. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-U.S. Holder is a resident under the provisions of
an applicable income tax treaty or agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-U.S. Holders that are
subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-U.S. Holder at an address
outside of the United States. However, under proposed United States Treasury
regulations, in the case of dividends paid after December 31, 1997 (December 31,
1999 in the case of dividends paid to accounts in existence on or before the
date that is 60 days after the proposed United States Treasury regulations are
published as final regulations), a Non-U.S. Holder generally would be subject to
backup withholding at a 31% rate, unless certain certification procedures (or,
in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures) are complied with,
directly or through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.
In general, backup withholding and information reporting will not apply to
a payment of the gross proceeds of a sale of Common Stock effected at a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation or a
foreign person, 50% or more of whose gross income for certain periods is derived
from activities that are effectively connected with the conduct of a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (i) such broker
has documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met, or (ii) the beneficial owner
otherwise establishes an exemption. Temporary United States Treasury regulations
provide that the Treasury is considering whether backup withholding should be
required in such circumstances. Under proposed United States Treasury
regulations not currently in effect, backup withholding will not apply to such
payments absent actual knowledge that the payee is a United States person. The
IRS recently proposed regulations addressing certain withholding, certification
and information reporting rules (some of which have been mentioned above) which
could affect treatment of the payment of the proceeds discussed above. Non-U.S.
Holders should consult their tax advisors regarding the application of these
rules to their particular situations, the availability of an exemption
therefrom, the procedure for obtaining such an exemption, if available, and the
possible application of the proposed United States Treasury regulations
addressing the withholding and the information reporting rules.
Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's U.S. federal
income tax liability provided the required information is furnished to the IRS.
76
<PAGE> 79
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and Selling Stockholders have agreed to sell 9,375,000 and 468,750 shares,
respectively, of the Company's Common Stock and the U.S. Underwriters named
below, for whom Morgan Stanley & Co. Incorporated, PaineWebber Incorporated,
McDonald & Company Securities, Inc. and Salomon Brothers Inc are serving as U.S.
Representatives, have severally agreed to purchase, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited,
PaineWebber International (U.K.) Ltd., McDonald & Company Securities, Inc. and
Salomon Brothers International Limited are serving as International
Representatives, have severally agreed to purchase, the respective number of
shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated....................................
PaineWebber Incorporated.............................................
McDonald & Company Securities, Inc. .................................
Salomon Brothers Inc.................................................
---------
Subtotal............................................................. 7,875,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited...........................
PaineWebber International (U.K.) Ltd. ...............................
McDonald & Company Securities, Inc. .................................
Salomon Brothers International Limited...............................
---------
Subtotal............................................................. 1,968,750
---------
Total................................................................ 9,843,750
========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock offered
hereby (other than those covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (a) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and
77
<PAGE> 80
(b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to a United
States or Canadian Person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the U.S. Shares and the International
Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of shares of Common Stock
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer is
made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance that,
by purchasing such shares of Common Stock, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such shares of Common Stock in Canada or to, or for the
benefit of, any resident of Canada in contravention of the securities laws of
Canada or any province or territory thereof and that any offer of shares of
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province of Canada in which such offer
is made, and that such dealer will deliver to any other dealer to whom it sells
any of such shares of Common Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and, during the period of six months
after the date hereof, agreed that (a) it has not offered or sold and will not
offer or sell any shares of Common Stock in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purpose of their
business or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, or is a person to whom such
document may otherwise lawfully be issued or passed on.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Underwriters have informed the Company and the Selling Stockholders
that they do not intend sales to discretionary accounts to exceed 5% of the
total number of shares of Common Stock offered by them.
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<PAGE> 81
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol STLD.
Pursuant to the Underwriting Agreement, Sumitomo Corporation of America,
Steel Dynamics, L.P., APT Holdings Corporation and the Bain Capital Entities
have granted to the U.S. Underwriters an option, exercisable for 30 days from
the date of this Prospectus, to purchase up to 1,476,562 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as the number set
forth next to such U.S. Underwriter's name in the preceding table bears to the
total number of shares of Common Stock offered by the U.S. Underwriters hereby.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 492,187 shares offered hereby for
directors, officers, employees and their relatives. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby. Reserved shares purchased by
such individuals will, except as restricted by applicable securities laws, be
available for resale following the offerings.
The Company, its executive officers and directors, the Selling
Stockholders, and certain other stockholders of the Company who in the aggregate
own substantially all of the outstanding shares of Common Stock immediately
prior to the offerings, have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated, they will not, for a period of 180 days after
the date of this Prospectus, (a) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (provided that such shares
or securities are either currently owned by such person or are thereafter
acquired from the Company) or (b) enter into any swap or other agreement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of such shares of Common Stock, whether any such transaction described
in clause (a) or (b) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, other than (i) the sale to the
Underwriters of the shares of Common Stock offered hereby or (ii) the issuance
by the Company of shares of Common Stock upon the exercise of an option sold or
granted pursuant to existing benefit plans of the Company and outstanding on the
date of this Prospectus.
McDonald & Company Securities, Inc. ("McDonald & Company") has provided
investment banking, financial advisory and other services to the Company for
which it has received customary fees and reimbursement of its out-of-pocket
expenses. McDonald & Company and its affiliates are stockholders of the Company.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
PRICING OF OFFERINGS
Prior to the offerings, there has been no public market for the shares of
Common Stock. Consequently, the initial public offering price will be determined
by negotiation among the Company, the Selling Stockholders and the Underwriters.
Among the factors to be considered in determining the initial public offering
price will be the Company's record of operations, the Company's current
financial condition and future prospects, the experience of its management, the
economics of the industry in general, the general condition of the equity
securities market and the market prices of similar securities of companies
considered comparable to the Company and such other factors as may be deemed
relevant. There can be no assurance that a regular trading market for the shares
of Common Stock will develop after the offerings or, if developed, that a public
trading market can be sustained. There can also be no assurance that the prices
at which the
79
<PAGE> 82
Common Stock will sell in the public market after the offerings will not be
lower than the price at which it is issued by the Underwriters in the offerings.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Barrett & McNagny, Fort Wayne, Indiana. Robert S. Walters, a partner
at Barrett & McNagny, may be deemd to beneficially own 2.9% of the equity units
in Heavy Metal, L.C., a stockholder of the Company. Mr. Walters disclaims
beneficial ownership of all but 1.6% of such units. Certain legal matters will
be passed upon for the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and September 28, 1996 and for the period from September 7, 1993
(date of inception) through December 31, 1993, for each of the two years in the
period ended December 31, 1995 and for the nine-month period ended September 28,
1996, included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part and
which term shall encompass all amendments, exhibits and schedules thereto) on
Form S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement certain parts of which are omitted from the
Prospectus in accordance with the rules and regulations of the Commission, and
to which reference is made. For further information about the Company and the
securities offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in its entirety by such reference.
Upon completion of the offerings, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith, will be required to file reports, proxy
statements and other information with the Commission. The Registration
Statement, reports, proxy statements and other information filed by the Company
with the Commission, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
80
<PAGE> 83
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 28, 1996... F-3
Consolidated Statements of Operations for the Period from September 7, 1993 (date of
inception) through December 31, 1993, for each of the two years in the period ended
December 31, 1995, for the nine-month period ended September 28, 1996 and for the
unaudited nine-month period ended September 30, 1995................................ F-4
Consolidated Statements of Stockholders' Equity for the Period from September 7, 1993
(date of inception) through December 31, 1993, for each of the two years in the
period ended December 31, 1995, and for the nine-month period ended September 28,
1996................................................................................ F-5
Consolidated Statements of Cash Flows for the Period from September 7, 1993 (date of
inception) through December 31, 1993, for each of the two years in the period ended
December 31, 1995, for the nine-month period ended September 28, 1996 and for the
unaudited nine-month period ended September 30, 1995................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Steel Dynamics, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Steel
Dynamics, Inc. and subsidiary (the "Company") as of December 31, 1994 and 1995
and September 28, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from September 7, 1993 (date
of inception) through December 31, 1993, for each of the two years in the period
ended December 31, 1995 and for the nine-month period ended September 28, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Steel Dynamics, Inc. and
subsidiary as of December 31, 1994 and 1995 and September 28, 1996, and the
results of their operations and their cash flows for the period from September
7, 1993 (date of inception) through December 31, 1993, for each of the two years
in the period ended December 31, 1995 and for the nine-month period ended
September 28, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
October 28, 1996 (October 30, 1996 as to Note 12)
F-2
<PAGE> 85
STEEL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 28,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 28,108 $ 6,884 $ 30,564
Short-term investments.................................... 3,000
Accounts receivable, net of allowance for doubtful
accounts of $534 as of September 28, 1996.............. 125 20,225
Accounts receivable -- related parties.................... 14,842
Inventories............................................... 13,580 35,860
Other current assets...................................... 255 1,634 1,224
-------- -------- --------
Total current assets.............................. 28,363 22,223 105,715
PROPERTY, PLANT, AND EQUIPMENT, NET......................... 54,566 274,197 289,431
DEBT ISSUANCE COSTS, less accumulated amortization of $32
and $1,520 as of December 31, 1995 and September 28, 1996,
respectively.............................................. 11,140 12,211 14,265
RESTRICTED CASH............................................. 2,666 2,590
OTHER ASSETS................................................ 549 9,382 10,367
-------- -------- --------
TOTAL ASSETS...................................... $ 94,618 $ 320,679 $ 422,368
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 16,247 $ 24,478 $ 17,475
Accounts payable -- related parties....................... 3,424 14,389
Accrued interest.......................................... 29 2,660 1,929
Accrued foreign currency loss............................. 2,970 1,013 328
Other accrued expenses.................................... 887 3,078 6,906
Current maturities of long-term debt...................... 2,058 5,840
-------- -------- --------
Total current liabilities......................... 20,133 36,711 46,867
LONG-TERM DEBT, less current maturities..................... 11,949 220,996 251,865
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock voting, $.01 par value; 100,000,000
shares authorized; 28,060,145, 28,644,722 and
36,636,869 shares issued and outstanding as of December
31, 1994 and 1995 and September 28, 1996,
respectively........................................... 280 286 366
Class B common stock convertible non-voting, $.01 par
value; 500,000 shares authorized; no shares issued
Additional paid-in capital................................ 83,046 93,083 163,341
Amounts due from stockholders............................. (10,750) (469) (325)
Accumulated deficit....................................... (10,040) (29,928) (39,746)
-------- -------- --------
Total stockholders' equity........................ 62,536 62,972 123,636
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 94,618 $ 320,679 $ 422,368
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 86
STEEL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 7, 1993 ---------------------------------------
(DATE OF INCEPTION) YEAR ENDED SEPTEMBER 30, 1995
THROUGH DECEMBER 31, ------------------
DECEMBER 31, -------------------
1993 1994 1995 (UNAUDITED) SEPTEMBER 28, 1996
------------------- ------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Net sales:
Unrelated parties....... $ 137 $ 92,824
Related parties......... 81,795
--------- ---------
Total net sales...... 137 174,619
Cost of goods sold........ 3,169 158,257
------- ------- --------- --------- ---------
Gross profit (loss)....... (3,032) 16,362
Selling, general and
administrative
expenses................ $ 1,159 $ 4,192 13,580 $ 8,640 9,347
------- ------- --------- --------- ---------
Operating income (loss)... (1,159) (4,192) (16,612) (8,640) 7,015
Foreign currency gain
(loss).................. (4,952) (3,272) (2,658) 260
Interest expense.......... 2 43 564 139 18,050
Interest income........... 1 307 560 463 957
------- ------- --------- --------- ---------
Net loss.................. $(1,160) $(8,880) $ (19,888) $ (10,974) $ (9,818)
======= ======= ========= ========= =========
Net loss per share........ $ (.07) $ (.36) $ (.62) $ (.34) $ (.27)
======= ======= ========= ========= =========
Weighted average shares
outstanding............. 15,931 24,679 31,975 31,952 35,940
======= ======= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 87
STEEL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A COMMON
STOCK ADDITIONAL AMOUNTS TOTAL
---------------- PAID-IN DUE FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares........... 13,436 $134 $ 597 $ 731
Net loss..................... $ (1,160) (1,160)
------ ------ ---------- ------------ ----------- -------------
Balances at December 31,
1993....................... 13,436 134 597 (1,160) (429)
Issuance of shares........... 14,624 146 81,042 $(10,750) 70,438
Issuance of Class A common
stock warrants............. 1,407 1,407
Net loss..................... (8,880) (8,880)
------ ------ ---------- ------------ ----------- -------------
Balances at December 31,
1994....................... 28,060 280 83,046 (10,750) (10,040) 62,536
Issuance of shares........... 585 6 4,994 5,000
Issuance of Class A common
stock warrants............. 5,043 5,043
Collection of amounts due
from
Class A common
stockholders............... 10,000 10,000
Amortization of amount due
from officer............... 281 281
Net loss..................... (19,888) (19,888)
------ ------ ---------- ------------ ----------- -------------
Balances at December 31,
1995....................... 28,645 286 93,083 (469) (29,928) 62,972
Issuance of shares........... 7,992 80 70,258 70,338
Amortization of amount due
from officer............... 144 144
Net loss..................... (9,818) (9,818)
------ ------ ---------- ------------ ----------- -------------
Balances at September 28,
1996....................... 36,637 $366 $ 163,341 $ (325) $ (39,746) $ 123,636
====== ====== ======== ========= ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 88
STEEL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 7, 1993
(DATE OF INCEPTION) YEAR ENDED NINE MONTHS ENDED
THROUGH DECEMBER DECEMBER 31, ----------------------------
31, -------------------- SEPTEMBER 28,
1993 1994 1995 SEPTEMBER 30, 1996
------------------- -------- --------- 1995 -------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................... $(1,160) $ (8,880) $ (19,888) $ (10,974) $ (9,818)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 13 876 450 14,208
Foreign currency loss (gain)........ 4,952 3,272 2,658 (260)
Changes in certain assets and
liabilities:
Accounts receivable............... (125) (34,942)
Inventories....................... (13,580) (1,659) (22,280)
Other assets...................... (5) (251) (788) (1,947) 410
Accounts payable.................. 29 691 6,441 (12,054) 3,962
Accrued expenses.................. 120 796 4,822 2,525 3,095
------- -------- --------- --------- ---------
Net cash used in operating
activities................... (1,016) (2,679) (18,970) (21,001) (45,625)
------- -------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment........................... (198) (43,709) (224,449) (168,054) (29,286)
Proceeds from government grants........ 2,878 21,188 14,688 1,558
Purchase of short-term investments..... (7,000)
Maturities of short-term investments... 4,000
Other.................................. (549) (1,602) (718) (985)
------- -------- --------- --------- ---------
Net cash used in investing
activities................... (198) (41,380) (204,863) (154,084) (31,713)
FINANCING ACTIVITIES:
Proceeds from vendor/customer
advances............................ 800
Repayment of vendor/customer
advances............................ (800)
Issuance of long-term debt............. 13,352 188,430 141,010 35,157
Repayments of long-term debt........... (1,079)
Issuance of common stock............... 681 70,488 15,281 10,287 70,482
Debt issuance costs.................... (150) (10,990) (1,102) (1,019) (3,542)
------- -------- --------- --------- ---------
Net cash provided by financing
activities................... 1,331 72,050 202,609 150,278 101,018
------- -------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ 117 27,991 (21,224) (24,807) 23,680
Cash and cash equivalents at beginning of
period................................. 117 28,108 28,108 6,884
------- -------- --------- --------- ---------
Cash and cash equivalents at end of
period................................. $ 117 $ 28,108 $ 6,884 $ 3,301 $ 30,564
======= ======== ========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid for interest................. $ 2 $ 14 $ 8,000 $ 4,456 $ 18,900
======= ======== ========= ========= =========
Supplemental disclosure of noncash
information:
Electric utility transmission facility
loan and other equipment
obligation.......................... $ -- $ -- $ 24,349 $ -- $ --
======= ======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 89
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Interim financial information for the nine-month period ended September
30, 1995 is unaudited. The unaudited interim financial statements reflect all
adjustments, consisting of normal, recurring adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period. Information for the interim period is not necessarily indicative
of results to be achieved for the full year.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The accompanying consolidated financial statements
include the accounts of the Company and Iron Dynamics, Inc., a wholly owned
subsidiary. All significant intercompany transactions have been eliminated. The
Company operates on a four week, four week, five week accounting cycle.
Accordingly, the Company's interim periods end on the last day of the fourth or
fifth week within the month.
Business -- The Company, formed on September 7, 1993, operates in one
industry segment and operates a thin-slab cast steel mini-mill in the Midwest,
with the capacity to produce 1.4 million tons annually of hot-rolled steel
coils. The Company's products are sold primarily to the automotive, tubing,
construction and commercial equipment industries.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Inventories -- Inventories consist of approximately 97% and 93% of raw
materials and supplies, and 3% and 7% of finished products as of December 31,
1995 and September 28, 1996, respectively. Inventories are stated at the lower
of cost (first-in, first-out method) or market.
Property, Plant, and Equipment -- Property, plant, and equipment are stated
at cost of acquisition which includes capitalized interest on
construction-in-progress of $.3 million, $10.1 million and $.1 million in 1994,
1995 and 1996, respectively. Depreciation is provided on the units-of-production
method for manufacturing plant and equipment and the straight-line method over
the estimated useful lives of the assets ranging from 12 years to 30 years for
non-manufacturing equipment. Repairs and maintenance are expensed as incurred.
The Company recorded proceeds received from state and local government grants
and other capital cost reimbursements as reductions of the related capital
assets. Grants and reimbursements recorded as reductions of the related capital
cost, net of accumulated depreciation, totaled $24.0 million and $24.7 million
as of December 31, 1995 and September 28, 1996, respectively.
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, among other things, requires entities to review long-lived assets for
impairment whenever events or changes in circumstances indicate that their
carrying value may not be recoverable. Adoption of this standard had no effect
on the Company's financial position, results of operations or cash flows in
1996.
Stock Options -- Employee-based stock options are accounted for in
accordance with Accounting Principles Board Opinion No. 25 and related
Interpretations.
Debt Issuance Costs -- The costs related to the issuance of debt are
deferred and amortized to interest expense using a method that approximates the
effective interest method over the terms of the related debt.
Restricted Cash -- Restricted cash consists of cash held by a trustee in a
debt service fund for the repayment of principal and interest on the Company's
municipal bonds.
Revenue Recognition -- The Company records sales upon shipment and provides
an allowance for estimated costs associated with returns.
F-7
<PAGE> 90
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- Deferred tax assets and liabilities are computed based on
differences between the financial statement and income tax bases of assets and
liabilities using enacted income tax rates. Deferred income tax expense or
benefit is based on the change in deferred tax assets and liabilities from
period to period, subject to an ongoing assessment of realization of deferred
tax assets.
Concentrations of Credit Risk -- Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash, short-term investments and accounts receivable. The Company
places its cash with high quality financial institutions and limits the amount
of credit exposure from any one institution. Generally, the Company does not
require collateral or other security to support customer receivables.
Foreign Currency Transactions -- Transaction gains and losses incurred by
the Company for equipment purchases denominated in a foreign currency are
recorded in results of operations currently.
Net Loss Per Share -- Net loss per share is calculated by dividing net loss
by the weighted average number of shares of common stock outstanding including
the anti-dilutive effect of shares issued from September 23, 1995 through
September 23, 1996 using the treasury stock method. Common stock equivalents do
not have a dilutive effect on net loss per share.
Reclassifications -- Certain amounts in the 1994 and 1995 consolidated
financial statements have been reclassified to conform to the 1996 presentation.
2. PROPERTY, PLANT, AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------- 28,
1994 1995 1996
------- -------- -----------
<S> <C> <C> <C>
Land and improvements.............................. $ 2,497 $ 5,309 $ 4,752
Buildings and improvements......................... 24,849 26,939
Plant, machinery and equipment..................... 77 242,690 244,045
Construction-in-progress........................... 52,001 1,499 25,916
------- -------- --------
54,575 274,347 301,652
Less accumulated depreciation...................... 9 150 12,221
------- -------- --------
Property, plant, and equipment, net................ $54,566 $274,197 $ 289,431
======= ======== ========
</TABLE>
F-8
<PAGE> 91
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 28,
-------------------- -------------
1994 1995 1996
------- -------- -------------
<S> <C> <C> <C>
Senior secured notes payable, principal and
interest due semi-annually beginning in 1997
through 2002, interest is variable (including
the effect of the interest rate cap, the
weighted average rate was 8.6% and 8.0% as of
December 31, 1995 and September 28, 1996,
respectively)................................... $115,000 $ 150,000
8.01% municipal bond, principal and interest due
monthly through 2015............................ 21,400 21,100
Electric utility, transmission facility and other
equipment obligation at interest rates ranging
from 7% to 8%, collateralized by on-site
substation and related equipment, principal and
interest due monthly or quarterly through
2015............................................ $ 1,352 37,397 36,700
11% senior subordinated promissory notes payable,
principal and interest due quarterly through
2002............................................ 10,597 49,257 49,905
------- -------- --------
Total debt........................................ 11,949 223,054 257,705
Less current maturities........................... 2,058 5,840
------- -------- --------
Long-term debt.................................... $11,949 $220,996 $ 251,865
======= ======== ========
</TABLE>
The Company entered into a credit agreement, as amended, with a syndicate
bank group, on June 30, 1994. Subject to the terms and conditions of the credit
agreement, borrowings of $150 million under senior secured notes were used to
fund the construction of the steel mini-mill, $150.0 million was designated and
remains available for construction of the cold mill, and $45 million of
revolving credit is available for working capital purposes. At December 31, 1994
and 1995 and September 28, 1996 there were no amounts outstanding under the
revolving credit facility. The senior secured notes and revolving credit
facility are collateralized by substantially all assets of the Company other
than certain property, plant, and equipment securing the electric utility loan.
The Company is required to pay a commitment fee equal to a percentage ranging
from 0.125% to 0.50% annually depending upon the principal amount of the unused
borrowing capacity under the senior notes and the unused revolving credit
facility.
The credit agreement requires the Company to maintain tangible net worth of
at least $45 million plus 50% of cumulative net income, a minimum current ratio,
a maximum leverage ratio and a minimum fixed charge coverage ratio. The credit
agreement also limits indebtedness of the Company and the amount of capital
expenditures and prohibits the payment of dividends.
In 1995 the Company borrowed $21.4 million through a state government
municipal bond program, of which $2.7 million and $2.6 million as of December
31, 1995 and September 28, 1996, respectively, is held by a trustee in a debt
service reserve fund, and is recorded as restricted cash. At September 28, 1996,
a stand-by letter of credit amounting to $22.0 million relating to the municipal
bonds was outstanding.
The electric utility transmission facility loan of $7.8 million and $7.5
million at December 31, 1995 and September 28, 1996, respectively, represents
the Company's portion of the cost of the transmission facilities constructed by
the utility to service the Company's site. The corresponding cost is included in
other assets and is being amortized over twenty years on the straight-line
basis.
The electric utility loan of $13.0 million and $12.8 million at December
31, 1995 and September 28, 1996, respectively, represents the Company's portion
of the cost of the Company's substation constructed on-site. Interest and
principal payments are made equally on a monthly basis in an amount necessary to
repay the loan fifteen years from the date of commencement of operations.
F-9
<PAGE> 92
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The other equipment obligation represents deferred payments for the
purchase of certain equipment. The obligation is non-interest bearing and was
discounted at 7% over a term of five years.
The Company in June 1994 entered into an agreement with respect to senior
subordinated promissory notes ("Subordinated Notes") in the aggregate principal
amount of $55 million and warrants to purchase up to 1,641,827 shares of Class A
common stock (warrants for the purchase of 29,851 shares per $1 million of
Subordinated Notes) at an exercise price of $0.01 per share. In the event of
payment default on any senior secured notes or revolving credit facility, the
Company may not make any direct or indirect payment of or on account of the
principal of or interest on the Subordinated Notes until such payment default
shall have been remedied or waived or shall have ceased to exist. Subordinated
Notes in the principal amount of $55 million and warrants for the purchase of
1,641,827 shares of Class A common stock are outstanding at September 28, 1996.
The proceeds received from the issuance of the Subordinated Notes and warrants
are allocated to the Subordinated Notes and warrants based upon their estimated
fair values. The Subordinated Notes are recorded net of unamortized debt
discount of $1.4 million, $5.7 million and $5.1 million as of December 31, 1994
and 1995 and September 28, 1996, respectively. The debt discount is being
amortized as interest expense over the life of the Subordinated Notes, resulting
in an effective interest rate of 12.8%. A prepayment premium of up to 4% of the
Subordinated Notes outstanding is required in the event the Subordinated Notes
are redeemed prior to maturity. Stockholders of the Company held 71% of the
Subordinated Notes outstanding at December 31, 1994 and 1995 and September 28,
1996.
Maturities of outstanding debt as of September 28, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
--------------------------------------------------- -------
<S> <C>
1997............................................... $ 5,840
1998............................................... 47,228
1999............................................... 46,627
2000............................................... 57,863
2001............................................... 12,088
</TABLE>
4. INCOME TAXES
The effective income tax rate differs from the statutory federal income tax
rate for the period from September 7, 1993 (date of inception) through December
31, 1993, for the years ended December 31, 1994 and 1995 and for the nine months
ended September 28, 1996 because of the valuation allowances recorded.
The components of deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 28,
------------------- --------------
1994 1995 1996
------- ------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $ 69 $ 1,002 $ 16,802
Inventory, including tax over book
depreciation............................... 826 5,498
Other accrued expenses........................ 779 1,828 2,349
------- ------- --------
Total deferred tax assets....................... 1,674 8,328 19,151
Less valuation allowance........................ (1,667) (8,009) (11,931)
------- ------- --------
Net deferred tax assets......................... 7 319 7,220
Deferred tax liabilities:
Inventory, including tax over book
depreciation............................... (6,894)
Amortization of fees.......................... (102) (322)
Other......................................... (7) (217) (4)
------- ------- --------
Total deferred tax liabilities.................. (7) (319) (7,220)
------- ------- --------
Net deferred tax assets and liabilities......... $ -- $ -- $ --
======= ======= ========
</TABLE>
F-10
<PAGE> 93
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of September 28, 1996, the Company had available net operating loss
carryforwards for federal income tax purposes of approximately $42.0 million.
The carryforwards expire $.2 million in 2009, $2.3 million in 2010 and $39.5
million in 2011. Because of the Company's limited operating history, a valuation
allowance for net deferred tax assets has been provided.
5. COMMON STOCK
The Company's articles of incorporation provide preemptive rights in
certain circumstances to holders of Class A common stock and warrants to
purchase common stock. The Company is currently prohibited from declaring cash
dividends on the Class A common stock under its senior credit agreement. Each
share of Class B common stock is convertible into one share of Class A common
stock at the holder's option or upon consummation of a public offering pursuant
to the Company's articles of incorporation.
Warrants to purchase 149,645 shares of Class B common stock at an exercise
price of $3 per share were issued to an affiliate of the agent bank to the
credit agreement (see Note 3) pursuant to a warrant purchase agreement in 1994.
These warrants expire on June 30, 2004. At December 31, 1994 and 1995 and
September 28, 1996, there were 149,645 Class B common stock warrants
outstanding.
An officer of the Company has an employment agreement through July 1998
which requires the officer to perform duties commensurate with his role as chief
financial officer, and provides for a $750,000 note receivable from the officer
to purchase 280,601 shares of Class A common stock. The note was recorded as a
reduction of stockholders' equity at December 31, 1994, bears interest at 10%
and will be forgiven on the earlier of the fourth anniversary of the employment
agreement or the effective date of the Company's initial public offering.
Compensation expense is being recorded ratably over the term of the note.
1994 Incentive Stock Option Plan. The Company has adopted the 1994
Incentive Stock Option Plan ("1994 Plan") for certain key employees who are
responsible for management of the Company. A total of 611,712 and 1,102,765
shares of Class A common stock have been reserved for issuance under the 1994
Plan as of December 31, 1995 and September 28, 1996, respectively. Eligible
individuals under the 1994 Plan may be granted options to purchase the Company's
Class A common stock at an exercise price per share of at least 100% of fair
market value at the date of grant. Options under the 1994 Plan vest 100% five
years after the date of grant and have a maximum term of ten years. The
following summarizes the transactions under the 1994 Plan:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES -------------------------------------
AVAILABLE NUMBER PRICE PER AGGREGATE
FOR GRANT OF SHARES SHARE PRICE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN
THOUSANDS)
Authorized in December 1994....................... 611,711
Options granted................................... (241,317) 241,317 $ 3 $ 800
------- ------ -------
Balance, December 31, 1994........................ 370,394 241,317 800
Options granted................................... (272,183) 272,183 3 902
Options granted................................... (58,926) 58,927 5 290
------- ------ -------
Balance, December 31, 1995........................ 39,285 572,427 1,992
Options forfeited................................. 8,418 (8,418) 3 (28)
Additional shares authorized...................... 491,053
Options granted................................... (2,806) 2,806 8 24
Options granted................................... (67,344) 67,344 11 708
------- ------ -------
Balance, September 28, 1996....................... 468,606 634,159 $ 2,696
======= ====== ==========
</TABLE>
At September 28, 1996, no options were exercisable under the plan.
F-11
<PAGE> 94
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 Incentive Stock Option Plan. The Company on October 28, 1996 adopted
the 1996 Incentive Stock Option Plan ("1996 Plan") for all employees of the
Company. A total of 1,403,000 shares of common stock has been reserved for
issuance under the 1996 Plan. Eligible employees under the 1996 Plan may be
granted options to purchase the Company's common stock at an exercise price per
share of at least 100% of fair market value at the grant of date. Options under
the 1996 Plan vest 100% six months after the date of grant and have a maximum
term of five years.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for the 1994 Plan. No
compensation cost has been recognized for the 1994 Plan because the stock option
price is equal to fair value at the grant date. Had compensation cost for the
1994 Plan been determined based on the fair value at the grant dates for awards
under the plan consistent with the method of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net loss and net loss per share would
have increased to the pro forma amounts indicated below (in thousands, except
per share data):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
Net loss
As reported............................. $(19,888) $(9,818)
Pro forma............................... (19,972) (9,872)
Net loss per share
As reported............................. $ (.62) $ (.27)
Pro forma............................... (.63) (.28)
</TABLE>
The fair value of the option grants are estimated on the date of grant
using an option pricing model with the following assumptions: no dividend yield,
risk-free interest rates of 5.7% to 7.1%, expected volatility of 30% and
expected lives of five to eight years. The pro forma amounts are not
representative of the effects on reported net income (loss) for future years.
6. COMMITMENTS
The Company has executed a raw material supply contract with OmniSource
Corporation ("OmniSource") for the purchase of steel scrap resources (see Note
8). Under the terms of the contract, OmniSource will locate and secure at the
lowest then-available market price steel scrap for the Company in grades and
quantities sufficient for the Company to meet substantially all of its
production requirements. The initial term of the contract is through October
2001. The Company retains the right to acquire scrap from other sources if
certain business conditions are present.
The Company has executed finished goods off-take contracts with Heidtman
Steel Products ("Heidtman") and Preussag Stahl, AG ("Preussag") (see Note 8).
Under the terms of the contracts, the Company retains the right to sell its
hot-rolled coils in the open market; however, the Company is required to sell
and Heidtman and Preussag are required to purchase a minimum of 30,000 and
12,000 tons, respectively, each month at the then-current market price the
Company is charging for similar products. The Company is required to provide
Heidtman and Preussag with a volume discount for all tons purchased each month
in which Heidtman and Preussag purchase the minimum tons from the Company. The
initial term of the contracts for Heidtman and Preussag are through December
2001.
The Company purchases its electricity pursuant to a contract which extends
through 2005. Under the contract the Company is subject to a monthly minimum
charge. At September 28, 1996, the Company's fixed and determinable purchase
obligations for electricity are $7.5 million annually from 1997 through 2001.
Purchases under the electricity contract were $.5 million in 1995 and $12.2
million in 1996.
F-12
<PAGE> 95
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company began construction of its cold mill in August 1996 and had
construction related commitments of $126.3 million as of September 28, 1996.
7. LEGAL PROCEEDINGS
The Company, from time to time, is subject to claims relating to the
conduct of its business. In the opinion of management any such matters presently
outstanding will not have a material adverse effect upon the Company's financial
position or future results of operations.
8. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company sells hot-rolled coils to Heidtman and affiliates of Preussag
and purchases steel scrap resources from OmniSource. Heidtman, Preussag and
OmniSource are stockholders of the Company. The Company had sales of $65.1
million and $18.5 million during the nine-months ended September 28, 1996 to
Heidtman and affiliates of Preussag, respectively. The Company as of September
28, 1996 had outstanding accounts receivable of $11.3 million and $3.5 million
from Heidtman and affiliates of Preussag, respectively. The Company had
purchases (including fees) of $7.2 million and $92.3 million from OmniSource in
1995 and the nine-months ended September 28, 1996, respectively. The Company as
of December 31, 1995 and September 28, 1996 had accounts payable to OmniSource
of $3.4 million and $14.4 million, respectively. During 1996, sales to Heidtman
and Preussag represented 37% and 10%, respectively, of the Company's total net
sales.
In 1995, the Company sold approximately 32 unimproved acres of its plant
site to Heidtman for $96,000, for the construction by Heidtman of a steel
processing and storage facility. In addition, the Company permits OmniSource to
maintain a scrap handling facility, with its own equipment and staff, on the
Company's plant site. OmniSource does not pay rent for this facility.
The on-site substation was purchased by the Company for approximately $12.8
million in 1995 from General Electric Corporation, the parent of General
Electric Capital Corporation, a stockholder of the Company, and has commitments
to purchase additional equipment for approximately $23.4 million.
9. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
approximated fair value as of December 31, 1994 and 1995 and September 28, 1996,
because of the relatively short maturity of these instruments. The carrying
value of long-term debt, including the current portion, approximated fair value
as of December 31, 1994 and 1995 and September 28, 1996, respectively. The fair
values of the Company's long-term debt are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates.
As required by the credit agreement, in August 1994 the Company entered
into an interest rate cap agreement with the agent bank whereby the maximum base
rate on fifty percent of the principal amount, up to $75 million, of the
Company's projected outstanding senior term loans during the period from June
30, 1995 through December 31, 1996 is 7.0%. The Company is exposed to credit
loss in the event of nonperformance by the counterparty to its interest rate cap
agreement. The Company anticipates that the counterparty will be able to fully
satisfy its obligation under the interest rate cap agreement. The fair value of
the interest rate cap agreement was $1.1 million at December 31, 1994 and the
interest rate cap agreement had nominal values at December 31, 1995 and
September 28, 1996. The fair value of the interest rate cap agreement was
estimated by obtaining a quote from a broker and represents the cash requirement
if the existing contract had been settled at period end. The premium paid for
the interest rate cap agreement is included in other current assets and is being
amortized to interest expense over the term of the interest rate cap agreement.
F-13
<PAGE> 96
STEEL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS
The Company sponsors a tax-deferred retirement savings plan for all
employees of the Company under which eligible employees may elect to contribute
on a pre-tax basis up to 8% of their eligible compensation. The Company provides
matching contributions equal to 5% of the participants' contributions to the
savings plan. Employer contributions are not significant for any periods
presented.
11. STOCK SPLIT
On October 28, 1996, the board of directors approved a 28.06 for one-stock
split. Share and per share data has been restated to give effect to the stock
split for all periods presented.
12. SUBSEQUENT EVENT
On October 30, 1996, all of the Company's outstanding warrants to purchase
1,791,472 shares of common stock were exercised for an aggregate price of
$400,560.
F-14
<PAGE> 97
[GRAPHIC DEPICTING PICTURES OF STEEL
DYNAMICS' STEEL MILL
[LOGO] SDI
STEEL DYNAMICS, INC.]
<PAGE> 98
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued November 13, 1996
9,843,750 Shares
Steel Dynamics, Inc.
COMMON STOCK
------------------------
OF THE 9,843,750 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 9,375,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 468,750 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THE SHARES OF COMMON STOCK
BY THE SELLING STOCKHOLDERS. OF THE 9,843,750 SHARES OF COMMON STOCK
BEING OFFERED, 1,968,750 SHARES ARE OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND
7,875,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES
AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." PRIOR
TO THE OFFERINGS, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $15 AND $17. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "STLD."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total(3)............................ $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $875,000.
(3) Certain stockholders have granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 1,476,562 additional Shares of Common Stock at the price to
public less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about , 1996 at the office of Morgan Stanley
& Co. Incorporated, New York, N.Y., against payment therefor in immediately
available funds.
------------------------
<TABLE>
<S> <C>
MORGAN STANLEY & CO. PAINEWEBBER INTERNATIONAL
International
McDONALD & COMPANY SALOMON BROTHERS INTERNATIONAL LIMITED
Securities, Inc.
</TABLE>
, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates,
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 61,466
NASD filing fee........................................................... 19,744
Nasdaq National Market listing fee........................................ 50,000
Printing and engraving expenses........................................... 254,000
Blue Sky qualification fees and expenses.................................. 22,500
Legal fees and expenses................................................... 275,000
Accounting fees and expenses.............................................. 160,000
Transfer Agent and Registrar fees......................................... 25,000
Miscellaneous expenses and administrative costs........................... 7,290
--------
Total........................................................... $875,000
========
</TABLE>
ITEM 14 INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Chapter 37 of the Indiana Business Corporation Law ("BCL"),
Article IX of the Registrant's Amended and Restated Articles of Incorporation
provides that the Company shall indemnify a director or officer against
liability (which includes expenses and costs of defense) incurred in any
proceeding, if that individual was made a party to the proceeding because the
individual is or was a director or officer of the Company (or, at the Company's
request, was serving as a director, officer, partner, trustee, employee, or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, whether or not for profit), so long as the
individual's conduct was in good faith and with the reasonable belief (in
connection with the individual's "official capacity") that the conduct was in
the Company's best interests, or (in all other cases) that the conduct was at
least not opposed to the Company's best interests. In the case of any criminal
proceeding, the duty to indemnify applies so long as the individual either had
reasonable cause to believe that the conduct was lawful, or had no reasonable
cause to believe that the conduct was unlawful. Conduct with respect to an
employee benefit plan in connection with a matter the individual believed to be
in the best interests of the participants in and beneficiaries of the plan is
deemed conduct that satisfies the indemnification standard that the individual
reasonably believed that the conduct was at least not opposed to the Company's
best interests. The Company may advance or reimburse for reasonable expenses
incurred by a person entitled to indemnification, in advance of final
disposition, if the individual furnishes the Company with a written affirmation
of his or her good faith belief that the applicable standard of conduct was
observed, accompanied by a written undertaking to repay the advance if it is
ultimately determined that the applicable standards were not met.
In all cases, whether in connection with advancement of expenses during a
proceeding, or afterward, the Company may not grant indemnification unless
authorized in the specific case after a determination has been made that
indemnification is permissible under the circumstances. The determination may be
made either by the Company's Board of Directors, by majority vote of a quorum
consisting of directors not at the time parties to the proceeding, or, if a
quorum cannot be so obtained, then by majority vote of a committee duly
designated by the Board of Directors consisting solely of two or more directors
not at the time parties to the proceeding. Alternatively, the determination can
be made by special legal counsel selected by the Board of Directors or the
committee, or by the stockholders (excluding shares owned by or voted under the
control of persons who are
II-1
<PAGE> 100
at the time parties to the proceeding). In the event that a person seeking
indemnification believes that it has not been properly provided may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. In such a proceeding, a court is empowered to grant
indemnification if it determines that the person is fairly and reasonably
entitled to indemnification in view of all of the relevant circumstances,
whether or not the person met the standard of conduct for indemnification.
The Company may purchase and maintain insurance on behalf of a director,
officer, employee, or agent of the Company, insuring that individual against
liability arising from his or her status as a director, officer, employee, or
agent, whether or not the Company would have the power to indemnify the
individual against the same liability under Article IX. Article IX does not
preclude the Company to provide indemnification in any other manner.
Reference is hereby made to Section 9 of the Underwriting Agreement between
the Company, the Selling Stockholders and the Underwriters, a form of which has
been filed as Exhibit 1.1 to this Registration Statement, for a description of
indemnification arrangements between the Company, the Selling Stockholders and
the Underwriters.
The indemnification provisions set forth in Article IX of the Amended and
Restated Articles of Incorporation, as well as the authority vested in the Board
of Directors by Chapter 37 of the BCL to grant indemnification beyond that which
is described in Article IX, may be sufficiently broad to provide indemnification
of the Registrant's directors and officers for liabilities arising under the
Securities Act.
ITEM 15 RECENT SALES OF UNREGISTERED SECURITIES
From the Registrant's inception in September 1993 through September 28,
1996, the Registrant has issued and sold the following securities (without
giving effect to the 28.06:1 stock split of the Registrant's Common Stock):
1. At the time of incorporation in September 1993, more than three
years ago, Registrant issued and sold an aggregate of 150,000 shares of
Common Stock to its founding stockholders Keith E. Busse, Mark D. Millett,
and Richard P. Teets, Jr., at a purchase price of $0.30 per share, for an
aggregate purchase price of $45,000, pursuant to restricted stock purchase
agreements.
2. In September 1993, more than three years ago, Registrant issued and
sold an aggregate of 20,000 shares of Common Stock to Steelink Co., of
which Peter Brickfield, Esq., a consultant and advisor to the Company, is a
partner, at a purchase price of $0.30 per share, for an aggregate purchase
price of $6,000, pursuant to a restricted stock purchase agreement.
3. In September 1993, more than three years ago, Registrant issued and
sold an aggregate of 308,820 shares of Common Stock to "seed money"
accredited investors, at a purchase price of $2.20 per share, for an
aggregate purchase price of $680,000. Heavy Metal, L.C. purchased $340,000,
Keylock Investments Limited purchased $170,850, and Mazelina Anstalt
purchased $169,150 (the latter two aggregating $340,000, the same as Heavy
Metal, L.C.). All three were sophisticated, accredited investors. There was
no formal stock purchase agreement for this initial transaction.
4. On June 30, 1994, Registrant issued and sold an aggregate of
511,180 shares of Common Stock to accredited financial investors, for a
total of $55,379,792. The purchasers consisted of Bain Capital Fund IV,
L.P., Bain Capital Fund IV-B, L.P., BCIP Associates (Bain), and BCIP Trust
Associates, L.P. (Bain), which together purchased 180,599 shares for
$19,906,948, for a per share purchase price of $110.22; General Electric
Capital Corporation, which purchased 180,610 shares for $19,906,948, for
the same per share purchase price of $110.22 as Bain; J.H. Whitney & Co.,
which purchased 7,258 shares for $800,000 and Whitney 1990 Equity Fund,
L.P., which purchased 29,033 shares for $3,200,000, for a per share
purchase price of $110.22; Low Cost Limited Partnership, which purchased
5,000 shares for which it paid $551,104, a per share purchase price of the
same $110.22; and Klans Associates, which purchased 907 shares for
$100,000, for a per share purchase price of $110.25. In addition, Heavy
Metal, L.C. purchased 61,170 shares for $6,742,157, for a per share
purchase price of $90.61 and Keylock
II-2
<PAGE> 101
Investments Limited and Mazelina Anstalt purchased 46,590 shares, for which
it paid $4,172,135, for a per share purchase price of $89.55. In total,
511,180 shares were purchased for $55,379,792, for a per share average
purchase price of $108.34.
5. On June 30, 1994, Registrant issued and sold $55,000,000 aggregate
principal amount of senior subordinated promissory notes and warrants to
purchase up to 58,511 shares of Common Stock at an exercise price of $.01
per share to Whitney Subordinated Debt Fund, General Electric Capital
Corporation, Sumitomo Corporation of America, Steel Dynamics, L.P., Lincoln
National Life Insurance Company, Lincoln National Income Fund, Inc. and
LDI, Ltd. for an aggregate purchase price of $55,000,000.
6. In connection with the Credit Agreement, on June 30, 1994.
Registrant issued warrants to purchase 5,333 shares of Common Stock at an
exercise price of $75 per share to APT Holdings Corporation.
7. On July 26, 1994, pursuant to an Employment Agreement of even date
entered into between the Company and Tracy L. Shellabarger, the Company
sold 10,000 of its shares of Common Stock to Mr. Shellabarger for a
purchase price of $75.01 per share, for an aggregate purchase price of
$750,100. Mr. Shellabarger paid cash of $100 and executed a promissory note
for $750,000, with interest only payable at 7% percent per annum. Pursuant
to the terms of the Employment Agreement, the principal amount of the
promissory note will be forgiven concurrently with the effectiveness of the
Registration Statement in connection with the offerings.
8. On December 14, 1995 and March 11 and April 22, 1996, Registrant
issued and sold an aggregate of 208,333 shares of Common Stock to Preussag
Stahl, AG, a German steelmaker, and an accredited investor, at a purchase
price of $240.00 per share, for an aggregate purchase price of $50 million,
pursuant to a restricted stock purchase agreement.
9. On September 10, 1996, pursuant to subscriptions made in December
1995 (and accepted by the Company in February 1996), the Company issued and
sold an aggregate of 51,558 shares of Common Stock to existing stockholders
or their affiliates, pursuant to exercise of their limited pre-emptive
rights under the Stockholders Agreement, at a purchase price of $230.00 per
share, for an aggregate purchase price of $11,858,400; and, as part of the
same equity financing, issued and sold to Sumitomo Corporation (Japan) and
Sumitomo Corporation of America, an accredited investor, pursuant to a
commitment entered into in April 1996, an aggregate of 45,763 shares of
Common Stock, at a purchase price of $295.00 per share, for an aggregate
purchase price of $13,500,085, pursuant to a stock purchase agreement.
10. On October 30, 1996, all of the outstanding warrants were
converted into 63,844 shares of Common Stock for an aggregate price of
$400,560.
The issuances described in this Item 15 were deemed exempt from
registration under the Securities Act of 1933, as amended (the "Act"), in
reliance upon Section 4(2) of the Act as transactions by an issuer not involving
any public offering. In addition, the recipients of securities in each such
transaction were accredited investors, mostly institutional investors, and each
represented its intentions to acquire the securities for investment only and not
with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the stock certificates issued in each such
transaction. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
II-3
<PAGE> 102
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits: The following exhibits are filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Steel Dynamics, Inc.
3.2 Bylaws of Steel Dynamics, Inc.
5.1 Legal Opinion of Barrett & McNagny.
10.1a Amended and Restated Credit Agreement between Steel Dynamics, Inc. and Mellon
Bank, N.A., et al. (including Amendments Nos. 1 through 5 thereto).
10.1b Amendment No. 5 to Credit Agreement.
10.1c Amendment No. 6 to Credit Agreement.
10.1d Amendment No. 7 to Credit Agreement.
10.2 Loan Agreement between Indiana Development Finance Authority and Steel
Dynamics, Inc. re Taxable Economic Development Revenue Bonds. Trust Indenture
between Indiana Development Finance Authority and NBD Bank, N.A., as Trustee
re Loan Agreement between Indiana Development Finance Authority and Steel
Dynamics, Inc.
10.3 Contract for Electric Service between Steel Dynamics, Inc. and Indiana
Michigan Power Company.
+10.4 Industrial Gases Supply Agreement between Steel Dynamics, Inc. and Air
Products and Chemicals, Inc. dated August 5, 1994.
10.5 Interruptible Gas Supply Contract between Steel Dynamics, Inc. and Northern
Indiana Trading Co. dated February 27, 1995.
10.6 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana Fuel
& Light Company, Inc. dated April 3, 1995.
10.7 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana
Trading Co. dated April 3, 1995.
10.8 Gas Services Agreement between Steel Dynamics, Inc. and Crossroads Pipeline
Company dated April 3, 1995.
10.9 Panhandle Eastern Pipeline Agreement dated July 22, 1996.
10.10 Natural Gas Purchase Agreement between Steel Dynamics, Inc. and PanEnergy
Trading and Market Services, Inc. dated August 8, 1996.
10.11 Agreement for Wastewater Services between the City of Butler, Indiana and
Steel Dynamics, Inc. dated September 5, 1995.
10.12 Slag Processing Agreement between Steel Dynamics, Inc. and Butler Mill Service
Company dated February 3, 1995.
+10.13 Agreement to Provide Scrap Purchasing Services between Steel Dynamics, Inc.
and OmniSource Corporation dated October 29, 1993.
10.14 Purchasing Agreement between Steel Dynamics, Inc. and Heidtman Steel Products,
Inc. dated October 29, 1993.
+10.15 Iron Carbide Off Take Agreement between Steel Dynamics, Inc. and Qualitech
Steel Corporation dated June 29, 1996.
10.16 Purchasing, Domestic Sales and Export Distribution Agreement between Steel
Dynamics, Inc. and Preussag Stahl AG dated December 14, 1995.
10.17 Reciprocal Patent and Technical Information Transfer and License Agreement
between Steel Dynamics, Inc. and Preussag Stahl AG dated December 14, 1995.
</TABLE>
II-4
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------------------
<C> <S>
10.18 1994 Incentive Stock Option Agreement, as amended.
10.19* 1996 Incentive Stock Option Agreement.
10.20 Employment Agreement between Steel Dynamics, Inc. and Keith Busse.
10.21 Employment Agreement between Steel Dynamics, Inc. and Mark D. Millett.
10.22 Employment Agreement between Steel Dynamics, Inc. and Richard P. Teets, Jr.
10.23* 1996 Officer and Manager Cash and Stock Bonus Plan
10.24 Employment Agreement between Steel Dynamics, Inc. and Tracy L. Shellabarger.
Tracy L. Shellabarger Promissory Note and Stock Pledge Agreement.
10.25 "Second Look" Export Distribution Agreement between Steel Dynamics, Inc. and
Sumitomo Corporation of America.
10.26 Sale of Excess Product Agreement between Iron Dynamics, Inc. and Sumitomo
Corporation of America.
10.27 Stockholders Agreement dated June 30, 1994.
10.28 Amendment No. 1 to Stockholders Agreement.
10.29 Amendment No. 2 to Stockholders Agreement.
10.30 Amendment No. 3 to Stockholders Agreement.
10.31 Registration Agreement dated June 30, 1994.
10.32 Amendment No. 1 to Registration Agreement.
10.33 Amendment No. 2 to Registration Agreement.
10.34 Amendment No. 3 to Registration Agreement.
10.35 Stock Purchase Agreement with Preussag Stahl AG dated December 14, 1995.
10.36 Stock Purchase Agreement with Sumitomo Corporation of America and Sumitomo
Corporation dated September 10, 1996.
10.37 Stock Purchase Agreement with Bain Capital, General Electric Capital
Corporation, Heavy Metal, L.C., Keylock Investments Limited, Mesalina Anstalt,
et. al, dated June 30, 1994.
11.1 Computation of Net Loss Per Share.
21.1 List of the Registrant's Subsidiaries.
23.1 Consent of Barrett & McNagny (included in Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included in signature pages).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ Confidential treatment has been requested for certain portions of these
documents, which have been blacked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information has been
filed separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.
* Filed herewith.
(b) Financial Statement Schedules:
All schedules are omitted because they are either not applicable or the
required information is included in the consolidated financial statements or
notes thereto.
II-5
<PAGE> 104
ITEM 17 UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the BCL, the Registrant's Amended and Restated Articles of
Incorporation, or any other provision, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
such action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(b) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-6
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Butler, Indiana, on this 13th day of November, 1996.
STEEL DYNAMICS, INC.
By: /s/ KEITH E. BUSSE
------------------------------------
Keith E. Busse
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------- ------------------------------------- ------------------
<C> <S> <C>
President & Chief Executive Officer November 13, 1996
* and Director
- ----------------------------------- (Principal Executive Officer)
Keith E. Busse
Vice President & Chief Financial November 13, 1996
* Officer and Director
- ----------------------------------- (Principal Financial and Accounting
Tracy L. Shellabarger Officer)
Vice President of Melting and Casting November 13, 1996
* and Director
- -----------------------------------
Mark D. Millett
Vice President of Rolling and November 13, 1996
* Finishing and Director
- -----------------------------------
Richard P. Teets, Jr.
Director November 13, 1996
*
- -----------------------------------
Paul B. Edgerley
Director November 13, 1996
*
- -----------------------------------
William D. Strittmatter
Director November 13, 1996
*
- -----------------------------------
Leonard Rifkin
Director November 13, 1996
*
- -----------------------------------
John C. Bates
Director November 13, 1996
*
- -----------------------------------
William Laverack, Jr.
Director November 13, 1996
*
- -----------------------------------
Jurgen Kolb
*By /s/ KEITH E. BUSSE
- -----------------------------------
Keith E. Busse
Attorney-In-Fact
</TABLE>
II-7
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ------------ ------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement...........................................
3.1 Amended and Restated Articles of Incorporation of Steel Dynamics, Inc....
3.2 Bylaws of Steel Dynamics, Inc............................................
5.1 Legal Opinion of Barrett & McNagny.......................................
10.1a Amended and Restated Credit Agreement between Steel Dynamics, Inc. and
Mellon Bank, N.A., et al. (including Amendments Nos. 1 through 5
thereto).................................................................
10.1b Amendment No. 5 to Credit Agreement......................................
10.1c Amendment No. 6 to Credit Agreement......................................
10.1d Amendment No. 7 to Credit Agreement......................................
10.2 Loan Agreement between Indiana Development Finance Authority and Steel
Dynamics, Inc. re Taxable Economic Development Revenue Bonds. Trust
Indenture between Indiana Development Finance Authority and NBD Bank,
N.A., as Trustee re Loan Agreement between Indiana Development Finance
Authority and Steel Dynamics, Inc........................................
10.3 Contract for Electric Service between Steel Dynamics, Inc. and Indiana
Michigan Power Company...................................................
+10.4 Industrial Gases Supply Agreement between Steel Dynamics, Inc. and Air
Products and Chemicals, Inc. dated August 5, 1994........................
10.5 Interruptible Gas Supply Contract between Steel Dynamics, Inc. and
Northern Indiana Trading Co. dated February 27, 1995
10.6 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana
Fuel & Light Company, Inc. dated April 3, 1995...........................
10.7 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana
Trading Co. dated April 3, 1995..........................................
10.8 Gas Services Agreement between Steel Dynamics, Inc. and Crossroads
Pipeline Company dated April 3, 1995.....................................
10.9 Panhandle Eastern Pipeline Agreement dated July 22, 1996.................
10.10 Natural Gas Purchase Agreement between Steel Dynamics, Inc. and PanEnergy
Trading and Market Services, Inc. dated August 8, 1996...................
10.11 Agreement for Wastewater Services between the City of Butler, Indiana and
Steel Dynamics, Inc. dated September 5, 1995.............................
10.12 Slag Processing Agreement between Steel Dynamics, Inc. and Butler Mill
Service Company dated February 3, 1995...................................
+10.13 Agreement to Provide Scrap Purchasing Services between Steel Dynamics,
Inc. and OmniSource Corporation dated October 29, 1993...................
10.14 Purchasing Agreement between Steel Dynamics, Inc. and Heidtman Steel
Products, Inc. dated October 29, 1993....................................
+10.15 Iron Carbide Off Take Agreement between Steel Dynamics, Inc. and
Qualitech Steel Corporation dated June 29, 1996..........................
10.16 Purchasing, Domestic Sales and Export Distribution Agreement between
Steel Dynamics, Inc. and Preussag Stahl AG dated December 14, 1995.......
10.17 Reciprocal Patent and Technical Information Transfer and License
Agreement between Steel Dynamics, Inc. and Preussag Stahl AG dated
December 14, 1995........................................................
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ------------ ------------------------------------------------------------------------- ----
<C> <S> <C>
10.18 1994 Incentive Stock Option Agreement, as amended........................
10.19* 1996 Incentive Stock Option Agreement....................................
10.20 Employment Agreement between Steel Dynamics, Inc. and Keith Busse........
10.21 Employment Agreement between Steel Dynamics, Inc. and Mark D. Millett....
10.22 Employment Agreement between Steel Dynamics, Inc. and Richard P. Teets,
Jr.......................................................................
10.23* 1996 Officer and Manager Cash and Stock Bonus Plan.......................
10.24 Employment Agreement between Steel Dynamics, Inc. and Tracy L.
Shellabarger. Tracy L. Shellabarger Promissory Note and Stock Pledge
Agreement................................................................
10.25 "Second Look" Export Distribution Agreement between Steel Dynamics, Inc.
and Sumitomo Corporation of America......................................
10.26 Sale of Excess Product Agreement between Iron Dynamics, Inc. and Sumitomo
Corporation of America...................................................
10.27 Stockholders Agreement dated June 30, 1994...............................
10.28 Amendment No. 1 to Stockholders Agreement................................
10.29 Amendment No. 2 to Stockholders Agreement................................
10.30 Amendment No. 3 to Stockholders Agreement................................
10.31 Registration Agreement dated June 30, 1994...............................
10.32 Amendment No. 1 to Registration Agreement................................
10.33 Amendment No. 2 to Registration Agreement................................
10.34 Amendment No. 3 to Registration Agreement................................
10.35 Stock Purchase Agreement with Preussag Stahl AG dated December 14,
1995.....................................................................
10.36 Stock Purchase Agreement with Sumitomo Corporation of America and
Sumitomo Corporation dated September 10, 1996............................
10.37 Stock Purchase Agreement with Bain Capital, General Electric Capital
Corporation, Heavy Metal, L.C., Keylock Investments Limited, Mesalina
Anstalt, et.al. dated June 30, 1994......................................
11.1 Computation of Net Loss Per Share........................................
21.1 List of the Registrant's Subsidiaries....................................
23.1 Consent of Barrett & McNagny (included in Exhibit 5.1)...................
23.2* Consent of Deloitte & Touche LLP.........................................
24.1 Power of Attorney (included in signature pages)..........................
27.1 Financial Data Schedule..................................................
</TABLE>
- ---------------
+ Confidential treatment has been requested for certain portions of these
documents, which have been blacked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information has been
filed separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.
* Filed herewith.
<PAGE> 1
Exhibit 10.19
STEEL DYNAMICS, INC.
1996 INCENTIVE STOCK OPTION PLAN
I. PURPOSE AND SCOPE OF PLAN.
1.1 Steel Dynamics, Inc. (the "Company") wishes to provide all Employees
of the Company and its Subsidiaries, each of whom is a key employee and each of
whom is in a position to materially affect the profitability and growth of the
Company and its Subsidiaries, an opportunity to acquire an ownership interest in
the Company and in the stockholder values which everyone is working to create,
and in so doing to encourage and motivate each such person to more fully
identify his or her increased welfare and well-being with that of the Company.
These objectives will be attained through periodic grants to such Employees of
options to purchase shares of the Company's common stock ("Stock").
1.2 Directors who are also Employees are eligible to participate in this
1996 Incentive Stock Option Plan (the "Plan").
1.3 The awards offered hereunder are not in lieu of but are supplemental
to any salary or other forms of compensation for services.
II. EFFECTIVE DATE AND TERM OF PLAN.
2.1 The Plan shall be effective on October 28, 1996; subject, however, to
the approval within twelve (12) months after the Effective Date by the Company's
stockholders. From and after the Effective Date, subject to Section 2.2 the Plan
shall remain in effect until all Stock subject to the Plan has been purchased or
acquired according to the Plan's provisions; provided, however, that in no event
may any options be granted under the Plan on or after five (5) years from and
after the Effective Date, or December 31, 2001.
2.2 The Board of Directors or the Committee described in Section 5.1, as
the case may be, may at any time suspend or terminate the Plan. An option may
not be granted while the Plan is suspended or after it is terminated, but any
rights and obligations under any option granted while the Plan is in effect
shall not be deemed altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted. The
power of the Board of Directors or the Committee, as the case may be, to
administer and construe any option granted prior to suspension or termination of
the Plan under Section 5.3 shall nevertheless continue after any such suspension
or termination.
III. DEFINITIONS.
When any word or phrase appears in this Plan with the initial letter
capitalized, and the word or phrase does not commence a sentence, that word or
phrase, unless a clearly different meaning is
<PAGE> 2
required by the context, shall generally be given a meaning ascribed to it in
this Section or elsewhere if the word or phrase is defined within quotation
marks. The following words or phrases shall have the following meanings:
3.1 "Board" means the Board of Directors of the Company.
3.2 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
3.3 "Committee" means the Committee of the Board described in Article V.
3.4 "Company" means Steel Dynamics, Inc., an Indiana corporation, and its
Subsidiaries.
3.5 "Disability" means termination of employment with the Company or any
of its Subsidiaries as a result of an Employee's inability to perform
substantially his or her duties and responsibilities to the Company or any of
its Subsidiaries by reason of a physical or mental disability or infirmity (i)
for a continuous period of six (6) months, or (ii) at such earlier time as such
Employee submits medical evidence satisfactory to the Committee, or the
Committee otherwise determines, that such Employee has a physical or mental
disability or infirmity that will prevent such Employee from substantially
performing his or her duties and responsibilities for six months or longer.
3.6 "Effective Date" means the date determined under Section 2.1.
3.7 "Employees" means full time employees of the Company and its
Subsidiaries, including officers, managers, supervisors, professionals, and
hourly employees, who have been employed for not less than 1,000 hours prior to
the first applicable Grant Date.
3.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
3.9 "Fair Market Value" means, as of any date, the value of the Stock
determined as follows:
(i) If the Stock is listed on any established stock exchange or a
national market system, including without limitation the
NASDAQ National Market of the National Association of
Securities Dealers, Inc. Automated Quotation (NASDAQ) System,
the Fair Market Value of a share of Stock shall be the closing
sales price for such Stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in the Stock) on
the last market trading day prior to the Grant Date, as
reported in the Wall Street Journal or such other source as
the Committee deems reliable;
2
<PAGE> 3
(ii) If the Stock is quoted on the NASDAQ System (but not on the
NASDAQ National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices were not
reported, the Fair Market Value of a share of Common Stock
shall be the mean between the high bid and low asked prices
for the Stock on the last market trading day prior to the
Grant Date, as reported in the Wall Street Journal or such
other source as the Committee deems reliable;
(iii) In the absence of an established market for the Stock, the
Fair Market Value shall be determined in good faith by the
Committee, and for purposes of the first Grant Date described
in Section 6.2 Fair Market Value shall be deemed to be the
price of a share of Common Stock established by the Company's
underwriters on the effective date of the Company's
Registration Statement and reflected in the pricing amendment
filed with the Securities and Exchange Commission in
connection therewith.
3.10 "Grant Date" means the date upon which an Option has been granted as
prescribed in Section 6.2.
3.11 "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
3.12 "Nonstatutory Stock Option" means an Option not intended to qualify
or otherwise not qualifying as an Incentive Stock Option.
3.13 "Option" means a stock option granted pursuant to the Plan.
3.14 "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
3.15 "Optionee" means an Employee who holds an outstanding Option.
3.16 "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
3.17 "Plan" means the Steel Dynamics, Inc. 1996 Incentive Stock Option
Plan.
3.18 "Rules" means the regulations promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
3.19 "Securities Act" means the Securities Act of 1933, as amended from
time to time.
3
<PAGE> 4
3.20 "Stock" means the $0.01 par value common stock of the Company and
such other securities of the Company as may be substituted for Stock pursuant to
the terms of the Plan.
3.21 "Subsidiary" means any corporation that qualifies as a subsidiary of
a corporation under the definition of "subsidiary corporation" contained in
Section 424(f) of the Code.
IV. SHARES OF STOCK SUBJECT TO THE PLAN.
4.1 The total number of shares of Stock of the Company reserved and
available for distribution pursuant to Options granted hereunder shall not
exceed, in the aggregate, 1,403,000 shares of the authorized Stock of the
Company, subject to adjustment described below. Any shares issued by the Company
through the assumption or substitution of outstanding grants from an acquired
company shall not reduce the shares available for Options under the Plan.
4.2 Stock which may be acquired under the Plan may be either authorized
but unissued shares or shares of issued Stock held by the Company's treasury, or
both, at the discretion of the Committee. Whenever any outstanding Option or
portion thereof expires, is canceled, is forfeited or is otherwise terminated
for any reason without having been exercised or without having been fully
vested, the shares allocable to the expired, canceled, forfeited or otherwise
terminated portion of the Option may again be the subject of Options granted
hereunder.
4.3 In the event of any stock dividend, stock split, combination or
exchange of shares, recapitalization or other change in the capital structure of
the Company, corporate separation or division (including, but not limited to,
split-up, split-off, spin-off or distribution to Company stockholders other than
a normal cash dividend), sale by the Company of all or a substantial portion of
its assets, rights offering, merger, consolidation, reorganization or partial or
complete liquidation, or any other corporate transaction or event having an
effect similar to any of the foregoing, the aggregate number of shares reserved
for issuance under the Plan, the number and Option price of shares subject to
outstanding Options, and any other characteristics or terms of the Options as
the Committee shall deem necessary or appropriate to reflect equitably the
effects of such changes to the Optionees, shall be appropriately substituted for
new shares or adjusted, as determined by the Committee in its discretion.
Notwithstanding the foregoing, each such adjustment, if any, with respect to any
Option shall comply with the rules of Section 424(a) of the Code, and in no
event shall any adjustment be made which would render any Option granted
hereunder anything other than an incentive stock option for purposes of Section
422 of the Code, except as otherwise contemplated by Section 6.4(d), or without
the consent of the Optionee.
V. ADMINISTRATION.
5.1 The Plan shall be administered by a committee of directors (the
"Committee") of the Company appointed by the Board from time to time and
consisting of at least two (2) members of the Board, each of whom shall be both
(i) a "non-employee director" as such term is defined in Rule 16b-3 promulgated
under Section 16 of the Exchange Act or any successor provision, and
4
<PAGE> 5
(ii) an "outside director" as that term is used in Section 162 of the Code and
the regulations promulgated thereunder. In the absence of an appointment of a
Committee, the Board shall serve as the Committee.
5.2 The Committee shall administer the Plan so as to comply at all times
with Rule 16b-3 of the Exchange Act, and Sections 162, 421, 422, and 424 of the
Code. Any Option Agreement shall contain such provisions as are necessary or
appropriate to assure such compliance. To the extent that any provision hereof
is found not to be in compliance with any such Rule or requirement, such
provisions shall be deemed to be modified so as to be in compliance with such
Rule or requirement, or if such modification is not possible, shall be deemed to
be null and void, as it relates to such employee, Option, or Option Agreement.
Subject to the foregoing, the Board may from time to time increase the size of
the Committee and appoint additional members, remove members (with or without
cause), substitute new members, and fill vacancies (however caused). A majority
of the members of the Committee shall constitute a quorum, and the actions of a
majority of the members of the Committee at a meeting at which a quorum is
present shall be the actions of the Committee.
5.3 The Committee has the exclusive power, authority and discretion to:
(a) Determine the terms and conditions, not inconsistent with the
terms hereof, of any Option granted hereunder;
(b) Adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan as it shall from time to time deem
advisable;
(c) Interpret the terms and provisions of the Plan and any Option
granted and any Option Agreements relating thereto;
(d) Accelerate or waive any term, condition, or restriction, but
solely in such a manner as not to render any Option otherwise qualified
hereunder nonqualified;
(e) Subject to the requirements of Rule 16b-3, Regulation T, the
Code, and other federal, state and local tax and securities laws, the
Committee shall determine the methods by which the exercise price of an
Option may be paid, including the form of payment, and the methods by
which shares of Stock shall be delivered or deemed to be delivered to
Employees. Without limiting the power and discretion conferred on the
Committee pursuant to the preceding sentence, the Committee may, in the
exercise of its discretion, but need not, allow an Optionee to pay the
exercise price of an Option by delivering previously issued shares of the
Company's Stock or by directing the Company to withhold from the shares of
Stock that would otherwise be issued upon exercise of the Option that
number of shares having a Fair Market Value on the exercise date equal to
the exercise price, all as determined pursuant to rules and procedures
established by the Committee.
5
<PAGE> 6
(f) Prescribe the form of each Option Agreement, which need not be
identical for each Optionee; and
(g) Supervise the administration of the Plan and decide all other
matters that must be determined in connection with an Option or this Plan.
5.4 The Committee's interpretation of the Plan, any Options granted under
the Plan, any Option Agreement, and all decisions and determinations by the
Committee with respect to the Plan shall be final, binding, and conclusive on
all parties.
5.5 The Board or the Committee, as the case may be, may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the Board or the Committee in engaging such counsel,
consultant or agent shall be paid by the Company.
VI. STOCK OPTIONS.
6.1 All Employees are eligible to receive grants of Options hereunder.
6.2 Subject to the provisions of this Plan, the first Grant Date for
Options to Employees shall coincide with the date and time upon and at which the
Company's Registration Statement on Form S-1 is declared effective by the
Securities and Exchange Commission. The second Grant Date shall be May 15, 1997.
Thereafter, grants of Options to Employees shall occur twice annually, on
November 15 for the six (6) month period May 15 through November 14, and on May
15 for the six (6) month period November 15 through May 14. Options on each
Grant Date shall be provided to each Employee in the following position
categories and in the following amounts, based upon the Fair Market Value of the
Stock for that particular Grant Date, as determined under the provisions of
Section 3.9 (any fractional share of Stock to be rounded up to the next whole
share):
Position Grants Per Year Semi-Annual Grant Value
-------- --------------- -----------------------
President 2 $80,000.00
Vice-President 2 60,000.00
Manager 2 30,000.00
Supervisors/Professionals
Grade 3 2 15,000.00
Grade 2 2 12,500.00
Grade 1 2 10,000.00
Hourly 2 2,500.00
6.3 The Options granted hereunder shall be evidenced by an Option
Certificate issued on behalf of the Company by an officer designated by the
Committee, which Option Certificate shall
6
<PAGE> 7
be subject to the terms of an Option Agreement to be executed by the Company and
the Optionee. Once executed, and unless otherwise provided by the Committee, the
terms of the Option Agreement shall be deemed incorporated into all future
Option Certificates. The Option Agreement shall describe the Options and shall
state that the Options reflected in all Option Certificates issued pursuant
thereto shall be subject to all of the terms and provisions of the Plan. The
Option Agreement may also contain such other terms and provisions, consistent
with the Plan, as the Committee may approve.
6.4 Subject to the Committee's authority under Section 5.3, Options
granted under the Plan shall be governed by the following additional terms and
conditions:
(a) EXERCISE PRICE. The price per share under any Option granted
hereunder shall be at one hundred percent (100%) of the Fair Market Value
(110% in the case of an Incentive Stock Option granted to an Employee who,
at the time the Option is granted, owns Stock of the Company or any
Subsidiary or Parent of the Company possessing more that ten percent (10%)
of the total combined voting power of all classes of stock of the Company
or of any Subsidiary or Parent of the Company) on the date of grant,
determined in the manner required by Section 3.9
(b) TERM OF OPTION: EXERCISE. The time within which any Option
granted hereunder shall be exercisable shall be not earlier than six (6)
months nor later than five (5) years from the applicable Grant Date,
subject to Sections 6.4(j), (k) and (l). The Optionee must remain in the
continuous employment of the Company or any of its subsidiaries from the
date of the grant of the Option to and including the date of exercise of
the Option in order to be entitled to exercise such Option. Options
granted hereunder shall be exercisable in such manner and at such dates
as the Committee may specify or otherwise permit. Any options granted
prior to the approval of this Plan by the Company's stockholders shall
not be exercisable until such time as the Plan has been so approved.
Continuous employment shall not be deemed to be interrupted by transfers
between the Company and one or more of its Subsidiaries. The Committee
shall, at its discretion, determine the effect of approved leaves of
absence and all other matters having to do with "continuous employment."
Where an Optionee dies or is disabled while employed by the Company or
any of its Subsidiaries, his or her Options may be exercised following
such death or disability in accordance with the provisions of Sections
6.4(j) and (k) hereof.
(c) TYPE OF OPTION. Each Option granted hereunder shall be
designated in the Option Agreement as either an Incentive Stock Option or
as a Nonstatutory Stock Option, in order to take into account that the
limitations described in Section 6.4(d) and/or elsewhere herein are or may
be exceeded by the cumulative total of the grants contemplated by Section
6.2 to a specific person, such that the Options covered by such excess
grants are rendered Nonstatutory Stock Options.
7
<PAGE> 8
(d) INDIVIDUAL DOLLAR LIMITATIONS. The aggregate Fair Market Value
(determined as of the time of Option Grant) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by an
Optionee in any calendar year may not exceed $100,000.00. To the extent
that the aggregate Fair Market Value of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000.00, such Options shall be treated as
Nonstatutory Stock Options, and such Nonstatutory Stock Options, at the
time of grant, shall be specifically so designated.
(e) INDIVIDUAL SHARE LIMITATIONS. In any fiscal year of the Company,
no Employee shall be granted Options to purchase more than three hundred
thousand (300,000) shares.
(f) PAYMENT. No shares of Stock shall be issued until full payment
therefor has been made. An Optionee shall not have any rights to dividends
or other rights of a stockholder with respect to shares subject to an
Option until such time as such Stock is issued in the name of the Optionee
following exercise of the Option in accordance with the Plan.
(g) NOTICE. Each Option shall be exercised by giving written notice
to the Company at its principal office, in the manner prescribed by the
Committee, and by completing the Notice of Exercise form on the reverse
side of the Option Certificate and delivering the same to the Company as
required, together with the purchase price as specified in the Option, by
cash, certified or bank check payable to the order of the Company, or as
otherwise provided pursuant to Section 5.3(e),
Unless the Committee determines that such restrictions are no
longer applicable because the Stock being issued is registered under the
Securities Act of 1933, as amended (the "Act") and a prospectus in respect
thereof is current, each such notice shall contain representations on
behalf of the Optionee, as prescribed by the Committee, that he or she
acknowledges that the Company is selling the shares being acquired by him
or her under a claim of exemption from registration under the Act, as a
transaction not involving any public offering; that he or she represents
and warrants that the shares are being acquired with a view to
"investments" and not with a view to distribution or resale; and that he
or she agrees not to transfer, encumber or dispose of the shares unless:
(i) a registration statement with respect to the shares shall be effective
under the Act, together with proof satisfactory to the Company that there
has been compliance with applicable state laws, or (ii) the Company shall
have received an opinion of counsel in form and content satisfactory to
the Company to the effect that the transfer qualifies under Rule 144 or
some other disclosure exemption from registration and that no violation of
the Act or applicable state securities laws will be involved in such
transfer, and/or such other documentation in connection therewith as the
Company's counsel may require.
8
<PAGE> 9
(h) The Company may endorse such legend or legends upon the
certificates for Stock issued pursuant to a grant hereunder, and may issue
such "stop transfer" instructions to its transfer agent in respect of such
Stock as, in its discretion, it determines necessary or appropriate to
prevent a violation of, or to perfect an exemption from, the registration
requirements of the Act, to implement the provisions of the Plan and any
Option Agreement hereunder, or to permit the Company to determine the
occurrence of a disqualifying disposition, as described in Section 421(b)
of the Code, of Stock transferred upon execution of an Option granted
under the Plan.
(i) NONTRANSFERABILITY OF OPTIONS. No Options shall be transferable
by the Optionee otherwise than by will, by the laws of descent and
distribution, pursuant to a Qualified Domestic Relations Order ("QDRO"),
or as permitted under the Rules, and all Options shall be exercisable,
during the Optionee's lifetime, only by the Optionee. No right or interest
of an Employee in any Option may be pledged, encumbered, or hypothecated
to or in favor of any party other than the Company or a Subsidiary, or
shall be subject to any lien, obligation, or liability of such Employee to
any other party other than the Company or a Subsidiary.
(j) TERMINATION BY REASON OF DEATH. Unless otherwise determined by
the Committee at or after grant, if an Optionee's employment by the
Company terminates by reason of death, any Option held by such Optionee
may thereafter be exercised, to the extent then exercisable or on such
accelerated basis as the Committee may determine at or after grant, by the
legal representative of the estate or by the legatee of the Optionee under
the will of the Optionee, for a period of one hundred eighty (180) days
(or such shorter period as the Committee may specify at grant) from the
date of such death or until the expiration of the stated term of such
Option, whichever period is shorter.
(k) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined
by the Committee at or after grant, if an Optionee's employment by the
Company terminates by reason of Disability, any Option held by such
Optionee may thereafter be exercised by the Optionee, to the extent it was
exercisable at the time of termination, or on such accelerated basis as
the Committee may determine at or after grant, for a period of ninety
(90) days (or such shorter period as the Committee may specify at grant)
from the date of such termination of employment or until the expiration
of the stated term of such Option, whichever period is shorter; provided,
however, that, if the Optionee dies within such twelve month (or such
shorter period as the Committee shall specify at grant), any unexercised
Option held by such Optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period of one
hundred eighty (180) days from the date of such death or until the
expiration of the stated term of such Option, whichever period is shorter.
(l) RESIGNATION BY OPTIONEE; TERMINATION BY COMPANY WITHOUT CAUSE.
Unless otherwise determined by the Committee at or after grant, if an
Optionee voluntarily resigns from his employment with the Company,
or is terminated by the Company other than for Cause (as herein defined),
any
9
<PAGE> 10
Option held by such Optionee may thereafter be exercised by the Optionee,
to the extent it was exercisable at the time of such resignation or
termination or on such accelerated basis as the Committee may determine at
or after grant, for a period of ninety (90) days (or such shorter period
as Committee may specify at grant) from the date of such resignation or
termination of employment or the expiration of the stated term of such
Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such ninety (90)-day period, any unexercised Option
held by such Optionee shall thereafter be exercisable, to the extent to
which it was exercisable at the time of death, for a period of one hundred
eighty (180) days from the date of such death or until the expiration of
the stated term of such Option, whichever period is shorter. "Cause" shall
mean either (i) if the Optionee has an employment agreement with the
Company, the definition of Cause included in such employment agreement, or
(ii) if the Optionee does not have an employment agreement with the
Company, the termination of the Optionee's employment with the Company
because of (i) the willful failure by the Optionee (other than by reason
of incapacity due to physical or mental illness) to perform any material
duty in connection with the Optionee's employment with the Company, (ii)
the conviction of the Optionee of a felony or the Optionee's plea of no
contest to a felony, or (iii) the perpetration by the Optionee of a
material dishonest act or fraud against the Company or any Parent or
Subsidiary thereof.
(m) OTHER TERMINATION. Unless otherwise determined by the Committee
at or after grant, if an Optionee's employment by the Company terminates
for any reason other than death, disability, Optionee's resignation, or
termination by the Company other than for Cause, the Option shall
thereupon terminate.
VII. AMENDMENTS AND TERMINATION.
7.1 PLAN AMENDMENT. The Board may amend, alter or discontinue the Plan at
any time and from time to time, but no amendment, alteration, or discontinuation
shall be made (i) which would impair the rights of an Optionee under an Option
award previously granted, without the Optionee's consent, or (ii) which, if such
approval is not obtained, would require stockholder approval under the Rules.
7.2 INCENTIVE STOCK OPTION AMENDMENT. The Committee may amend the terms of
any Option granted, prospectively or retroactively, but no such amendment shall
impair the rights of any Optionee without the Optionee's consent. The Committee
may also substitute new Options for previously granted Options, including
previously granted Options having higher option prices. Subject to the above
provisions, the Board shall have broad authority to amend the Plan to take into
account changes in applicable tax laws, securities laws and accounting rules, as
well as other developments.
VIII. UNFUNDED STATUS OF PLAN.
8.1 The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to an Optionee by the
Company, nothing contained herein shall give any such Optionee any rights that
are greater than those of a general creditor of the Company. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Stock;
provided, however, that, unless the Committee otherwise determines with the
consent of the affected Optionee, the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
10
<PAGE> 11
IX. GENERAL PROVISIONS.
9.1 NONGUARANTY OF EMPLOYMENT. The adoption of the Plan shall not confer
upon any Optionee any right to continued employment with the Company nor shall
it interfere in any way with the right of the Company to terminate its
relationship with any of its employees at any time.
9.2 WITHHOLDING OF TAXES. No later than the date as of which an amount
first becomes includible in the gross income of the Optionee for federal income
tax purposes with respect to any Option under the Plan, the Optionee shall pay
to the Company or make arrangements satisfactory to the Committee regarding the
payment of any federal state or local taxes of any kind required by law to be
withheld with respect to such amount. The obligations of the Company under the
Plan shall be conditioned on such payment or arrangements and the Company shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Optionee.
9.3 NO STOCKHOLDER RIGHTS. No Option shall give the Employee any of the
rights of a stockholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Option.
9.4 EXPENSES. The expenses of administering the Plan shall be borne by the
Company and its Subsidiaries.
9.5 FRACTIONAL SHARES. No fractional shares of Stock shall be issued, and
the Committee shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up.
9.6 GOVERNING LAW. To the extent not governed by federal law, the Plan and
all Option Agreements shall be construed in accordance with and governed by the
laws of the State of Indiana.
IN WITNESS WHEREOF, Steel Dynamics, Inc., acting by and through its duly
authorized officers, has executed this instrument as of the 28th day of October,
1996.
STEEL DYNAMICS, INC.
By__________________________________________
Its ________________________________________
DATE ADOPTED BY BOARD OF DIRECTORS: October 28, 1996
DATE APPROVED BY STOCKHOLDERS: October 28, 1996
TERMINATION DATE: December 31, 2001
11
<PAGE> 12
STEEL DYNAMICS, INC.
1996 INCENTIVE STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. The Company, through its Plan Committee, will from
time to time grant to the Optionee named in Option Certificates issued hereunder
(the "Optionee"), an Option (the "Option") to purchase the number of shares of
Stock, as set forth in the Option Certificate, at the Exercise Price per share
set forth therein (the "Exercise Price"), subject to all of the terms and
conditions of the Plan (which is incorporated herein and therein by reference)
and of the Option Certificate. In the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement, or
of any Option Certificate, the terms and conditions of the Plan shall prevail.
2. NATURE OF OPTION. If designated in the Option Certificate as an
Incentive Stock Option, the Option is intended to qualify as an "incentive stock
option" under Section 422 of the Code. However, if and to the extent that Option
exceeds the $100,000.00 Rule of Code Section 422(d), it shall be treated as a
Nonstatutory Stock Option, regardless of how otherwise denominated.
3. EXERCISE OF OPTION.
(a) METHOD OF EXERCISE. The Option shall be exercisable at any time
after six (6) months from the Grant Date and shall expire on the fifth
anniversary of the Grant Date. The Option shall be exercisable by delivery
of a Notice of Exercise form on the reverse of the Option Certificate(the
"Exercise Notice"), which shall confirm the election to exercise the
Option. The Exercise Notice shall be signed by the Optionee, and the
Option Certificate, so endorsed, shall be delivered in person or by
certified mail to the Company's Administration Building, ATTENTION:
Secretary/1996 ISO, 4500 County Road 59, Butler, Indiana 46721. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price.
This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice, accompanied by such
aggregate Exercise Price, and, if applicable, upon Optionee's execution of
such other agreements and conditions as may be required by the Company in
accordance with the provisions of the Plan. Upon compliance by Optionee
with these conditions, and subject at all times to the requirements of
applicable laws, rules, regulations, and approvals by governmental
agencies, including compliance with relevant securities
<PAGE> 13
and tax law regulations, and the requirements of any stock exchange or
quotation service upon which the Company's Stock is then listed, the
Company will deliver a certificate or certificates evidencing the
Optionee's ownership of the Stock to the Optionee at the Company's
Administration Building or at such other place as may be mutually
acceptable to the Company and Optionee.
4. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be in
cash or in any other manner approved at such time by the Committee, and the
Optionee is entitled to inquire about any then available alternate means of
payment prescribed by the Committee. The Company shall not be obligated to
deliver certificates for the Stock to Optionee until payment has been fully
made. All obligations of the Company hereunder shall be subject to the rights of
the Company, as set forth in the Plan, to withhold amounts required to be
withheld for any taxes.
5. FAILURE TO ACCEPT DELIVERY. If the Optionee fails to accept delivery
of, or to pay for any of the shares of Stock specified in the Exercise Notice,
upon tender of delivery by the Company, the Optionee's rights to purchase such
undelivered shares may be terminated, at the sole discretion of the Committee.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
7. ADJUSTMENTS. If any changes made to the Stock (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, or exchange of shares, or any other change in the
capital structure made without receipt of additional consideration), then,
unless such event or change results in the termination of all outstanding grants
under the Plan, the Committee shall preserve the value of the Option by making
appropriate adjustments to the number of shares, the Exercise Price, or
otherwise, except that any fractional shares resulting from such adjustment
shall be eliminated by rounding any portion of a share equal to .500 or greater
upward, and any portion of a share equal to or less than .500 downward, in each
case to the nearest whole number.
8. NO GUARANTY OF EMPLOYMENT RIGHTS. Neither the granting of the Option
nor any other action taken with respect to the Option or to the Plan shall be
deemed to confer upon the Optionee any right to continue in the employ of the
Company or shall affect in any manner the right of the Company to terminate the
Optionee's Employment at any time and for any reason.
9. NO STOCKHOLDER RIGHTS. Neither the Optionee, nor any person entitled to
exercise the Optionee's rights in the event of the Optionee's death, shall have
any of the rights and privileges
2
<PAGE> 14
of a stockholder with respect to the shares of Stock subject to the Option,
except to the extent that certificates for such shares shall have actually been
issued subsequent to exercise of the Option as provided herein.
10. TAX CONSEQUENCES. Some of the federal and state tax consequences
relating to this Option, as of the date of this Option grant, are set forth
below:
THIS SUMMARY IS NECESSARILY INCOMPLETE AND THE TAX LAWS
AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
ALWAYS CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) INCENTIVE STOCK OPTION. If this option qualifies as an
Incentive Stock Option, the Optionee will have no regular federal
income tax or state income tax liability upon its exercise, although
the excess, if any, of the Fair Market Value of the Exercised Shares
on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for
federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise.
(ii) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax and state income tax liability upon exercise of a
Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate
Exercise Price. The Company may be required to withhold from the
Optionee's compensation or collect from the Optionee and pay to the
applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver shares of
Stock if such withholding amounts are not delivered at the time of
exercise.
(b) DISPOSITION OF SHARES AFTER EXERCISE.
(i) INCENTIVE STOCK OPTION. If the Optionee holds the shares
acquired by the exercise of Incentive Stock Options for at least one
(1) year after exercise and two (2) years after the Date of Grant,
any gain realized on disposition of the shares will be treated as
long-term capital gain for federal
3
<PAGE> 15
income tax purposes. If the Optionee disposes of such shares within
one (1) year after exercise or two (2) years after the Date of
Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the lesser of (A) the difference between
the Fair Market Value of the shares acquired on the date of exercise
and the aggregate Exercise Price, or (B) the difference between the
sale price of such shares and the aggregate Exercise Price.
(ii) NONSTATUTORY STOCK OPTION. If the Optionee holds shares
acquired by the exercise of Nonstatutory Stock Options for at least
one (1) year, any gain realized on disposition of the shares will be
treated as long-term capital gain for federal income tax purposes.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
SHARES. If the Optionee sells or otherwise disposes of any of the shares
acquired pursuant to an Incentive Stock Option on or before the later of
two (2) years after the Date of Grant or one (1) year after the Exercise
Date, the Optionee shall immediately notify the Company in writing of such
disposition. The Optionee agrees that he or she may be subject to income
tax withholding by the Company on the compensation income recognized from
such early disposition of Incentive Stock Option shares by payment in cash
or out of current earnings paid to the Optionee.
(d) CANCELLATION OR AMENDMENT. The Option may be canceled or amended
by the Committee, in whole or in part, at any time that the Committee
determines, in its sole discretion, that the cancellation or amendment is
necessary or advisable in light of any change after the Date of Grant in
the Code or the regulations issued thereunder, or in any federal or state
securities law or other law or regulation, which change by its terms is
effective retroactively to a date on or before the Date of Grant;
provided, however, that no such cancellation or amendment shall, without
the Optionee's consent, apply to or affect Options that were exercised on
or before the date on which the Committee makes such determination.
11. NOTICE. Any notice to the Company or to the Committee provided for in
this Option Agreement or in any Option Certificate shall be addressed to it in
care of the Secretary of the Company, 4500 County Road 59, Butler, Indiana
46721, and any notice to the Optionee shall be addressed to the Optionee at the
current address shown in the payroll records of the Company, or to such other
address as the Optionee may designate to the Company in writing. Any such notice
shall be delivered by hand, sent by telecopy, or enclosed in a properly sealed
envelope addressed in the foregoing manner, certified and deposited, postage
prepaid, in a post office or postal depository maintained by the United States
Postal Service.
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<PAGE> 16
12. ENTIRE AGREEMENT. The Plan and this Option Agreement constitute the
entire agreements of the parties with respect to the subject matter hereof and
supersede in their entirety all prior understandings and agreements of the
Company and Optionee with respect thereto. Neither the Plan nor this Option
Agreement may be modified except if it is in writing, signed by the party
against whom the modification is intended to be enforced.
13. APPLICABLE LAW. The validity, construction, interpretation and effect
of this instrument shall be governed by and in accordance with the laws of the
State of Indiana.
OPTIONEE: STEEL DYNAMICS, INC.
____________________________________ By _________________________________
Signature
____________________________________ Title ________________________________
Printed Name
____________________________________ Date ________________________________
Residence Address
____________________________________
Date _______________________________
5
<PAGE> 17
STEEL DYNAMICS, INC.
(an Indiana corporation)
________________ _______________
Grant Date Certificate No.
1996 INCENTIVE STOCK OPTION PLAN (THE "PLAN")
OPTION CERTIFICATE
____________________________________
Optionee
______________________ $______________________ $___________________
Number of Shares Per Share Exercise Price Total Purchase Price
______________________ ____________________
Date Exercisable [ ] Incentive Stock Option Expiration Date
[ ] Nonstatutory Stock Option
Steel Dynamics, Inc. (the "Company") hereby grants to the Optionee an option
to purchase the number of shares of the Company's Common Stock ($0.01 par
value), subject to adjustment as provided in Section 4.3 of the Plan, at the Per
Share Exercise Price shown above. The Option is exercisable, at any time from
the date shown in the "Date Exercisable" box through and including the date
shown in the "Expiration Date" box, and must be exercised by completing and
executing the Exercise Notice form on the reverse side hereof and delivering
this Option Certificate so executed, to the Company at its Administration
Building; Attention: Secretary/1996 ISO, 4500 County Road 59, Butler Indiana
46721, together with full payment in cash (unless otherwise provided) for the
aggregate purchase price for the shares to be purchased.
The Option granted hereby is subject in all respects to all of the terms and
conditions set forth and described in the Company's 1996 Incentive Stock Option
Plan, as well as the Stock Option Agreement executed by Optionee in connection
therewith, all of which terms and conditions are deemed incorporated herein as
fully as if set forth in full text. Copies of the foregoing documents are on
file in the Company's offices designated above and may be inspected by Optionee
during business hours.
In Witness Whereof, Steel Dynamics, Inc. has caused this Stock Option
Certificate to be duly executed, for delivery to Optionee, as of the foregoing
Grant Date.
STEEL DYNAMICS, INC.
By: ____________________________
Keith E. Busse, President
<PAGE> 18
NOTICE OF EXERCISE
The undersigned Optionee hereby exercises this Option, described on the
front side, and elects to purchase the shares of the Company's Common Stock
covered by the Option at the Per Share Exercise Price, and subject to all of the
other terms and conditions set forth and described in the Plan, the Stock Option
Agreement, and this Option Certificate.
I hereby tender full payment, as required, for all of the shares. The
undersigned acknowledges that he or she has received, read, and understands the
terms of the Plan and the Stock Option Agreement, and the undersigned
understands that he or she may have different tax consequences as a result of
the length of time these shares are held prior to their disposition. The
undersigned represents that he or she has either consulted with an accountant or
tax advisor in connection with the purchase or disposition of these shares, or
is otherwise familiar with the tax consequences of the same, and that he or she
is not relying upon the Company for any tax advice.
Please forward the stock certificate to the undersigned at _________________
(Address)
______________________________, _____________________, _______, _____________.
(City) (State) (Zip)
Social Security No.
___________________________ ________________________________________
(Must be filled in) (Signature of Optionee)
___________________________
(Date)
<PAGE> 1
Exhibit 10.23
STEEL DYNAMICS, INC.
OFFICER AND MANAGER
CASH AND STOCK BONUS PLAN
1. PURPOSE. The purpose of the Plan is to provide incentives for
Officers and Managers of the Company to increase the profitability and growth of
the Company and to provide Officers and Managers an opportunity for an ownership
interest in the Company.
2. EFFECTIVE DATE AND TERM OF PLAN. The Effective Date of the Plan is
October 28, 1996, the date the Plan was adopted and approved of by the Board and
shareholders of the Company. Plan will commence at the beginning of the
Company's fiscal year beginning January 1, 1997, and no cash or stock bonuses
under this Plan will accrue until after the conclusion of the Company's 1997
fiscal year. The Plan shall terminate on October 27, 2001,
unless earlier terminated by the Board.
3. DEFINITIONS.
3.1 "Adjusted Distribution Pool" has the meaning assigned to
such term in Section 6.2.
3.2 "Adjusted Pre-Tax Net Income" means, for any Year, net
income of the Company, before taxes, extraordinary items and bonuses
payable to Participants under this Plan, as determined by the Company's
outside auditors; provided, however, that, to the extent reasonably
determinable, the effect upon Adjusted Pre-Tax Net Income of income and
start-up expenses associated with significant capital expenditures, for
a period not to exceed twelve (12) months following start-up, shall be
excluded from and not taken into account in determining such Adjusted
Pre-Tax Net Income.
3.3 "Base Salary" means, with respect to a Participant, the
regular annual salary paid in a Year for services rendered without
including any bonus (paid under this Plan or otherwise) or severance
pay.
3.4 "Board" means the Board of Directors of the Company.
3.5 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
3.6 "Committee" means the Committee of the Board described in
Section 5.
3.7 "Company" means Steel Dynamics, Inc., an Indiana
corporation, and its subsidiaries.
3.8 "Distribution Pool" means, for any Year, an amount
determined by multiplying [Adjusted Pre-Tax Net Income, minus an amount
equal to ten percent (10%) of "Stockholders Equity" as determined by
Company's audited Consolidated Balance Sheets] by five percent (5%).
<PAGE> 2
3.9 "Effective Date" has the meaning assigned to such term in
Section 2.
3.10 "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
3.11 "Fair Market Value" means, as of any date, the value of
the Stock determined as follows:
(i) If the Stock is listed on any established
stock exchange or a national market system,
including without limitation the NASDAQ
National Market of the National Association
of Securities Dealers, Inc. Automated
Quotation (NASDAQ) System, the Fair Market
Value of a share of Stock shall be the
closing sales price for such Stock (or the
closing bid, if no sales were reported) as
quoted on such system or exchange (or the
exchange with the greatest volume of trading
in the Stock) on the last market trading day
prior to the day of determination, as
reported in the Wall Street Journal or such
other source as the Committee deems
reliable;
(ii) If the Stock is quoted on the NASDAQ System
(but not on the NASDAQ National Market
thereof) or is regularly quoted by a
recognized securities dealer but selling
prices were not reported, the Fair Market
Value of a share of Common Stock shall be
the mean between the high bid and low asked
prices for the Stock on the last market
trading day prior to the day of
determination, as reported in the Wall
Street Journal or such other source as the
Committee deems reliable;
(iii) In the absence of an established market for
the Stock, the Fair Market Value shall be
determined in good faith by the Committee.
3.12 "Manager" means any manager of the Company who is a
Participant.
3.13 "Officer" means any officer of the Company who is a
Participant.
3.14 "Participant" means those Officers and Managers selected
from time to time to participate in the Plan by the Committee. The
initial Participants selected by the Committee are listed in the
attached Exhibit A.
3.15 "Participant's Adjusted Base Salary" means with respect
to any Officer who is a Participant, two (2) times the Officer's Base
Salary, and with respect to any Manager who is a Participant, the
Manager's Base Salary.
3.16 "Participant's Bonus Percentage" means, in any Year with
respect to a Participant, a fraction, the numerator of which is equal
to the Participant's Adjusted Base
2
<PAGE> 3
Salary and the denominator of which is equal to the sum of all the
Participants' Adjusted Base Salaries.
3.17 "Plan" means the Steel Dynamics, Inc. Officer and Manager
Cash and Stock Bonus Plan.
3.18 "Restricted Stock" means Stock issued pursuant to the
Plan as contemplated by Section 6.2.
3.19 "Retirement" means voluntary retirement by a Participant
who is at least 60 years old.
3.20 "Stock" means the $0.01 par value common stock of the
Company.
3.21 "Ten Percent Return on Stockholders' Equity" means for
any Year an amount determined by multiplying "Stockholder's Equity" as
determined by the Company's audited Consolidated Balance Sheets by ten
percent (10%).
3.22 "Vested Shares" has the meaning assigned to such term in
Section 7.
3.23 "Year" means the Company's fiscal year, with the first
Year beginning on January 1, 1997.
4. SHARES OF STOCK SUBJECT TO THE PLAN.
4.1 The total number of shares of Stock of the Company
reserved and available for distribution pursuant to the Plan shall not
exceed, in the aggregate, 450,000 shares of the authorized Stock of the
Company, subject to adjustment as described below.
4.2 Stock which may be acquired under the Plan may be either
authorized but unissued shares or shares of issued Stock held by the
Company's treasury, or both, at the discretion of the Committee.
Whenever any Stock is forfeited under the Plan, the shares forfeited
may again be issued hereunder.
4.3 In the event of any stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division
(including, but not limited to, split-up, split-off, spin-off or
distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its
assets, rights offering, merger, consolidation, reorganization or
partial or complete liquidation, or any other corporate transaction or
event having an effect similar to any of the foregoing, the aggregate
number of shares reserved for issuance under the Plan, as the Committee
shall deem necessary or appropriate to reflect equitably the effects of
such changes, shall be appropriately substituted for new shares or
adjusted, as determined by the Committee in its discretion.
3
<PAGE> 4
5. ADMINISTRATION. The Plan shall be administered by a committee of
directors (the "Committee") of the Company appointed by the Board from time to
time and consisting of at least two (2) members of the Board, each of whom shall
be both (i) a "non-employee director" as such term is defined in Rule 16b-3
promulgated under Section 16 of the Exchange Act or any successor provision, and
(ii) an "outside director" as that term is used in Section 162 of the Code and
the regulations promulgated thereunder. In the absence of an appointment of a
Committee, the Board shall serve as the Committee.
The Committee shall administer the Plan so as to comply at all times
with Rule 16b-3 of the Exchange Act, and Sections 162 of the Code. To the extent
that any provision hereof is found not to be in compliance with any such Rule or
requirement, such provisions shall be deemed to be modified so as to be in
compliance with such Rule or requirement, or if such modification is not
possible, shall be deemed to be null and void. Subject to the foregoing, the
Board may from time to time increase the size of the Committee and appoint
additional members, remove members (with or without cause), substitute new
members, and fill vacancies (however caused). A majority of the members of the
Committee shall constitute a quorum, and the actions of a majority of the
members of the Committee at a meeting at which a quorum is present shall be the
actions of the Committee.
The Committee has the exclusive power, authority and discretion to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable and to interpret
the terms and provisions of the Plan. The Committee may require that a
Participant sign a contract or agreement evidencing the terms and conditions of
the Participant's rights to receive a bonus under this Plan. The Committee's
interpretation of the Plan shall be final, binding and conclusive on all
parties.
The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Committee
in engaging such counsel, consultant or agent shall be paid by the Company.
The Committee shall have the right, in its sole discretion, to waive
the forfeiture provisions found in Section 7 below.
6. CASH AND STOCK BONUS. Subject to the terms, conditions and
limitations set forth in this Plan, each Year the Participants may, if the
Distribution Pool is a positive number, receive a cash and stock bonus as
follows:
6.1 CASH BONUS. Each Participant shall receive a cash bonus in
an amount equal to the product of (i) the Participant's Bonus
Percentage and (ii) the Distribution Pool; provided, however, that with
respect to an Officer, the cash bonus shall not exceed two times the
Officer's Base Salary, and with respect to a Manager, the cash bonus
shall not exceed the Manager's Base Salary; provided, further, that
with respect to Keith E. Busse, Mark D. Millett, Richard P. Teets, Jr.,
and Tracy L. Shellabarger, there shall be
4
<PAGE> 5
deducted from the amount of the cash bonus payable to them hereunder
the amount of any cash bonus payable to them under any employment
agreement ("Employment Agreement") in existence on the Effective Date
of this Plan.
6.2 STOCK BONUS. The excess of the Distribution Pool over the
sum of (i) the aggregate cash bonuses payable under Section 6.1 to all
Participants and (ii) the amounts deducted from the cash bonuses
otherwise payable to Keith E. Busse, Mark D. Millett, Richard P. Teets,
Jr. and Tracy L. Shellabarger hereunder for bonuses payable under their
Employment Agreements (the "Adjusted Distribution Pool"), if any, shall
be distributed to the Participants in the form of Restricted Stock, as
follows: Each Participant shall receive that number of shares of
Restricted Stock having, at the time of issuance, a Fair Market Value
equal to the product of (i) the Participant's Bonus Percentage and (ii)
the Adjusted Distribution Pool; provided that, with respect to an
Officer, the aggregate Fair Market Value of the Restricted Stock so
issued shall not exceed the Officer's Base Salary, and with respect to
a Manager, the aggregate Fair Market Value of the Restricted Stock so
issued shall not exceed 50% of the Manager's Base Salary.
7. FORFEITURE AND VESTING OF RESTRICTED STOCK. Restricted Stock issued
to a Participant shall vest and become nonforfeitable over four (4) years, as
follows: Commencing on January 1 following the Year with respect to which the
Restricted Stock was issued, the Restricted Stock will vest and become
nonforfeitable (the "Vested Shares") at the rate of 25% of such shares of
Restricted Stock for each full year following the Year with respect to which the
Restricted Stock was issued. Upon termination of the Participant's employment
for any reason other than Retirement, all shares of Restricted Stock of the
Participant which are not Vested Shares at the time of termination of employment
shall be forfeited and returned to the Company, and the Participant shall no
longer be the owner of or have any interest whatsoever in the forfeitable
Restricted Stock.
The Committee, in its sole discretion, may waive the forfeiture
provisions of this Section 7 with respect to the Restricted Stock of a
Participant whose employment has terminated for reasons other than Retirement.
8. RESTRICTION ON TRANSFER OF RESTRICTED STOCK. Restricted Stock that
is forfeitable under the terms of this Plan may not be transferred, assigned,
sold, pledged, hypothecated, or otherwise disposed of in any manner and shall
not be subject to levy, attachment, or other legal process.
9. CERTIFICATES. Restricted Stock issued under this Plan shall be
registered in the name of each Participant. Stock certificates so issued shall
be held by the Company. Stock certificates shall bear such restrictive legends
as the Committee may prescribe.
Subject to all the terms, conditions, and limitations of this Plan,
including provisions concerning forfeiture and restrictions on transfer, the
Participant shall be the owner of the Restricted Stock with full dividend and
voting rights. Upon the request of a Participant, separate stock certificates
shall be issued and delivered to the Participant with respect to Vested Shares.
5
<PAGE> 6
10. GENERAL PROVISIONS.
10.1 NONGUARANTY OF EMPLOYMENT. The adoption of the Plan shall
not confer upon any Participant any right to continued employment with
the Company nor shall it interfere in any way with the right of the
Company to terminate its relationship with any Participant at any time.
10.2 WITHHOLDING OF TAXES. No later than the date as of which
an amount first becomes includible in the gross income of a Participant
for federal income tax purposes with respect to any Restricted Stock
under the Plan, the Participant shall pay to the Company or make
arrangements satisfactory to the Committee regarding the payment of any
federal state or local taxes of any kind required by law to be withheld
with respect to such amount. The obligations of the Company under the
Plan shall be conditioned on such payment or arrangements and the
Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the
Participant.
10.3 EXPENSES. The expenses of administering the Plan shall be
borne by the Company.
10.4 FRACTIONAL SHARES. No fractional shares of Stock shall be
issued, and the Committee shall determine, in its discretion, whether
cash shall be given in lieu of fractional shares or whether such
fractional shares shall be eliminated by rounding up.
10.5 GOVERNING LAW. To the extent not governed by federal law,
the Plan shall be construed in accordance with and governed by the laws
of the State of Indiana.
IN WITNESS WHEREOF, Steel Dynamics, Inc., acting by and through its
duly authorized officers, has executed this instrument as of the 28th day of
October, 1996.
STEEL DYNAMICS, INC.
By______________________________________
Its ____________________________________
DATE ADOPTED BY BOARD OF DIRECTORS: October 28, 1996
DATE APPROVED BY STOCKHOLDERS: October 28, 1996
TERMINATION DATE: October 27, 2001
6
<PAGE> 7
EXHIBIT A
OFFICERS
President Keith E. Busse
Vice-President Mark D. Millett
Vice-President Richard P. Teets, Jr.
Vice-President Tracy L. Shellabarger
MANAGERS
Sales and Marketing John W. Nolan
Cold Mill Glenn Pushis
Materials and Transportation Craig T. Longardner
Engineering and Services Robert E. Soden
7
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to registration statement No.
333-12521 of Steel Dynamics, Inc. of our report dated October 28, 1996 (October
30, 1996 as to Note 12), appearing in the prospectus, which is a part of such
registration statement, and to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such prospectus.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
November 11, 1996
