<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STEEL DYNAMICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
INDIANA 3312 35-1929476
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
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:
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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
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<CAPTION>
============================================================================================================
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value.............................. $254,178,750 $77,023.86
============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
------------------------
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 July 21, 1997
8,400,000 Shares
Steel Dynamics, Inc.
COMMON STOCK
------------------------
OF THE 8,400,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,255,971 SHARES
ARE BEING SOLD BY THE COMPANY AND 7,144,029 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 8,400,000 SHARES OF COMMON STOCK BEING OFFERED,
6,720,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY
THE U.S. UNDERWRITERS AND 1,680,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON STOCK IS TRADED ON THE NASDAQ STOCK MARKET, UNDER THE
SYMBOL "STLD." ON JULY 17, 1997, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ STOCK MARKET WAS $26 3/8 PER SHARE.
------------------------
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>
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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>
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(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 $600,000.
(3) The Company and certain of the Selling Stockholders have granted the
U.S. Underwriters an option, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 1,260,000 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, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein 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 , 1997, at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
McDONALD & COMPANY SECURITIES, INC.
SALOMON BROTHERS INC
, 1997
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
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.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 10
Use of Proceeds....................................................................... 17
Price Range of Common Stock and Dividend Policy....................................... 17
Dilution.............................................................................. 18
Capitalization........................................................................ 19
Selected Consolidated Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 29
Management............................................................................ 52
Certain Transactions.................................................................. 61
Principal and Selling Stockholders.................................................... 64
Description of Certain Indebtedness................................................... 67
Description of Capital Stock.......................................................... 69
Shares Eligible for Future Sale....................................................... 71
Certain United States Federal Tax Consequences for Non-United States Holders.......... 72
Underwriters.......................................................................... 76
Legal Matters......................................................................... 79
Experts............................................................................... 79
Available Information................................................................. 79
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., an Indiana corporation, 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 assumes
that the U.S. Underwriters' over-allotment option is not exercised. 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 be the low cost producer of a broad range of
high quality flat-rolled steel products, including hot-rolled, cold-rolled and
galvanized sheet, as well as other specialty steel products, 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. In October 1994, Steel Dynamics commenced
construction of the mini-mill 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
1.2 million tons by the end of June 1997, or 85% of its capacity of 1.4 million
tons, making the mini-mill's start-up and ramp-up the fastest to date 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 fourth quarter of 1997. Steel Dynamics is also in the process of
adding a second melting furnace, a second caster and tunnel furnace, and an
additional coiler to expand its annual production capacity of hot-rolled steel
from 1.4 million tons to approximately 2.4 million tons (the "Caster Project").
The Caster Project is expected to be completed in the first half of 1998.
In addition, the Company's wholly-owned subsidiary, Iron Dynamics, Inc.
("Iron Dynamics" or "IDI"), intends to construct a 600,000 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
refining into 500,000 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
4
<PAGE> 7
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 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 sought to assure itself of a secure supply of both steel
scrap and scrap substitute material. 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
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. The Company expects to produce additional
scrap substitute material in 1998 upon completion of the 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 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") and its 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. The Company believes that its per ton
manufacturing costs are already among the lowest in the industry.
- Emphasize Value-Added Products and Increase Product Breadth. Steel
Dynamics has produced and believes that it will be able to consistently
produce thinner gauge (down to .040") steel in hot-rolled form with
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 anticipated 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 further 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
represented approximately 58% of the Company's total manufacturing costs
for the six months ended June 30, 1997. 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 entered into an iron carbide "off-take" contract with Qualitech.
Third, Steel Dynamics is pursuing the IDI Project to produce DRI as
another 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 entered into "off-take"
sales and distribution agreements with Heidtman and Preussag, through
2001, 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.
5
<PAGE> 8
- 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 invest approximately $85.0 million to finance its
Caster Project. The Caster Project, which is expected to be completed in
the first half of 1998, is expected to increase the annual production
capacity of the Company's mini-mill from 1.4 to approximately 2.4 million
tons of hot-rolled steel. 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, which may include foreign investments, to
secure the long-term future growth and profitability of SDI. The Company
is conducting certain preliminary engineering and feasibility analyses
for a possible 750,000 ton capacity structural steel facility to
manufacture wide flange beams and other structural shapes, utilizing near
net shape casting technology in conjunction with a state-of-the-art bloom
caster. There is no assurance, however, that such a facility will be
approved by the Company for further development efforts once these
preliminary studies have been completed, or, if further developed, that
the facility will be able to be financed and built. Steel Dynamics will
also 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
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Common Stock offered:
By the Company......................................... 1,255,971 shares
By the Selling Stockholders............................ 7,144,029 shares
Total............................................... 8,400,000 shares
Common Stock offered:
United States offering................................. 6,720,000 shares
International offering................................. 1,680,000 shares
Total............................................... 8,400,000 shares
Common Stock to be outstanding after the offerings(1).... 49,122,294 shares
Use of proceeds.......................................... The net proceeds to the Company will
be used for the purchase and
installation of a seventh stand for
the Company's hot-rolling mill and
for general corporate purposes. 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 Stock Market symbol............................... "STLD"
</TABLE>
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(1) Based on 47,866,323 shares of Common Stock outstanding on June 30, 1997.
Excludes 885,784 shares of Common Stock issuable upon exercise of stock
options outstanding on June 30, 1997, at a weighted average exercise price
of $9.42 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)
Possible Volatility of Stock Prices, (xiv) Shares Eligible for Future Sale, (xv)
Anti-Takeover Provisions, (xvi) Dilution and (xvii) Forward Looking Statements.
7
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary consolidated financial and operating
data for the dates and periods indicated. The quarterly and six month summary
statement of operations data and balance sheet data as of June 30, 1997 are
derived from 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. The consolidated
financial data as of and for the year ended December 31, 1996 are derived from
the Company's audited consolidated financial statements. 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 and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED(1) SIX MONTHS
--------------------------------------------------------------------- YEAR ENDED ENDED
MARCH 30, JUNE 29, SEPTEMBER 28, DECEMBER 31, MARCH 31, JUNE 30, DECEMBER 31, JUNE 30,
1996 1996 1996 1996 1997 1997 1996 1997
--------- -------- ------------- ------------ --------- -------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ 32,287 $ 66,375 $ 75,957 $ 77,998 $ 98,059 $102,718 $252,617 $200,777
Cost of goods sold............ 35,185 60,408 62,664 62,306 73,910 76,270 220,563 150,180
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit (loss).......... (2,898) 5,967 13,293 15,692 24,149 26,448 32,054 50,597
Selling, general and
administrative expenses...... 2,809 3,084 3,454 4,492 5,339 7,140 13,838 12,479
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations................. (5,707) 2,883 9,839 11,200 18,810 19,308 18,216 38,118
Foreign currency gain
(loss)....................... 153 106 -- 68 92 169 328 261
Interest expense.............. (5,837) (6,291) (5,922) (4,634) (2,401) (1,594) (22,684) (3,995)
Interest income............... 93 486 378 624 752 512 1,581 1,264
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary loss and
taxes...................... (11,298) (2,816) 4,295 7,258 17,253 18,395 (2,559) 35,648
Extraordinary loss(2)......... -- -- -- (7,271) -- -- (7,271) --
Provision for taxes........... -- -- -- -- 2,668 2,826 -- 5,494
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............. $(11,298) $ (2,816) $ 4,295 $ (13) $ 14,585 $ 15,569 $ (9,830) $ 30,154
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share... $ (0.35) $ (0.08) $ 0.11 $ (0.00) $ 0.30 $ 0.33 $ (0.28) $ 0.63
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 32,274 35,200 39,045 41,808 47,838 47,855 34,571 47,851
OTHER DATA:
Shipments (net tons).......... 114,914 218,640 228,568 231,726 280,446 295,272 793,848 575,718
Hot band production (net
tons)(3)..................... 127,930 213,391 227,428 245,813 275,035 292,302 814,562 567,337
Prime tons produced........... 94,405 191,034 212,562 229,908 261,957 278,286 727,909 540,243
Prime ton percentage.......... 73.8 % 89.5% 93.5% 93.5% 95.2 % 95.2% 89.4% 95.2%
Yield percentage(4)........... 83.8 % 87.0% 88.5% 88.6% 89.2 % 89.7% 87.4% 89.5%
Average sales price per prime
ton.......................... $ 313 $ 320 $ 344 $ 350 $ 360 $ 358 $ 336 $ 359
Effective capacity
utilization(5)............... 35.1 % 58.6% 67.7% 73.2% 79.1 % 83.0% 58.2% 81.1%
Man-hours per net ton
produced..................... 0.90 0.69 0.66 0.61 0.57 0.57 0.70 0.57
Number of employees (end of
period)...................... 238 255 263 293 329 359 293 359
Operating profit (loss) per
net ton shipped.............. $ (49.66) $ 13.19 $ 43.05 $ 48.34 $ 72.25 $ 72.08 $ 22.95 $ 72.16
Depreciation and
amortization................. 3,367 5,211 5,341 5,165 5,691 5,917 19,084 11,608
Net cash provided by (used
in):
Operating activities......... (27,737) (16,199) (1,689) (6,009) 38,042 10,463 (51,634) 48,505
Investing activities......... (4,815) (31,782) 4,884 (51,433) (46,331) (35,137) (83,146) (81,468)
Financing activities......... 36,356 40,119 24,543 84,338 (992) (1,212) 185,356 (2,204)
EBITDA(6)..................... (2,340) 8,094 15,180 16,366 24,501 25,225 37,300 49,726
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(7)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................... $ 22,293 $ 53,494
Working capital......................................................................................... 60,676 91,877
Property, plant and equipment, net...................................................................... 410,272 410,272
Total assets............................................................................................ 552,603 583,804
Long-term debt (including current portion).............................................................. 205,461 205,461
Stockholders' equity.................................................................................... 294,953 326,154
</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.
(2) Represents the loss on early retirement of the Company's subordinated notes
of approximately $7.3 million in the fourth quarter of 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company will incur an extraordinary loss of approximately
$10.5 million (net of tax benefit of $2.2 million) in the third quarter of
1997 as a result of the refinancing of the Company's Credit Agreement. See
"Description of Certain Indebtedness."
(3) Hot band production refers to the total production of finished coiled
product. Prime tons refer to hot bands produced which meet or exceed
metallurgical and quality standards for surface, shape and metallurgical
properties.
(4) Yield percentage refers to tons of finished products divided by tons of raw
materials.
(5) Effective capacity utilization is the ratio of tons produced for the
operational month to the operational month's capacity based upon an annual
capacity of 1.4 million tons.
(6) EBITDA represents operating income before depreciation and amortization.
Based upon 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 Statement of Cash Flows, including the notes
thereto, appearing elsewhere in this Prospectus.
(7) As adjusted to give effect to the offerings (assuming a public offering
price of $26.375 per share).
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 primary grade
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 June 1997, the Company was operating at an
annualized production rate of 1.2 million tons, or 85% 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
or future 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 primary grade 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 had net income of $30.2 million for the six
months ended June 30, 1997, the Company had net losses for each year since its
formation in 1993 and had an accumulated deficit of $9.6 million as of June 30,
1997. 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 1996,
spot prices for hot bands increased from a low of $330 per ton to a high of $360
per ton. 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 or energy
industry or in the Company's
10
<PAGE> 13
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. Through June 30, 1997, 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 may also require additional financing in the
event it decides to enter into strategic alliances, make acquisitions, or build
additional plants. 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
obtained on terms acceptable to the Company and within the limitations contained
in the Company's Credit Agreement (as defined) or any future financing,
including the IDI Financing. See "Description of Certain Indebtedness" and "Risk
Factors -- Restrictive Covenants."
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 fourth quarter of 1997, will total approximately $200.0
million, of which approximately $136.3 million has been expended thereon through
June 30, 1997, (ii) the IDI Project, which is expected to be completed in 1998,
will total approximately $95.0 million and (iii) the Caster Project, which is
expected to be completed in the first half of 1998, will total approximately
$85.0 million (excluding working capital and start-up costs), of which
approximately $14.9 million has been expended thereon through June 30, 1997.
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 intends to use cash on hand, funds from operations, borrowings
under the Company's Credit Agreement and borrowings by IDI to finance the
construction and startup of the Expansion Projects. 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." In addition, the Company
expects to finance $60.0 million of the IDI Project with a separate IDI credit
facility (the "IDI Financing"). The IDI Financing is dependent upon securing and
closing a $50.0 million standby construction and term loan, together with a
$10.0 million revolving credit facility to fund current operations. See
"Description of Certain Indebtedness -- The IDI Financing." Although IDI expects
to secure a commitment for and close the IDI Financing during the third quarter
of 1997, no assurances can be given that such a commitment will in fact be
secured, or, even if secured, that IDI will be able to satisfy all of the
11
<PAGE> 14
terms and conditions established by the lenders in order to close the IDI
Financing. Failure to obtain and close the IDI Financing could delay or prevent
the IDI Project, which could have a material adverse effect on the Company.
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 the Company's business, results of operations and financial condition.
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.
U.S. The Company's products compete with many integrated steel 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
12
<PAGE> 15
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 Gallatin Steel Company's mini-mill in Ghent, Kentucky, 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.
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 116
million tons in 1996. 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, to
approximately 89% in 1993, to 93% in 1994 and 1995, and to 91% in 1996. 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 7.3
million tons in 1996, and industry sources expect this cumulative flat-rolled
mini-mill capacity to reach 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, an
affiliate of Delta Steel is expected to produce hot-rolled galvanized product,
and 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, other relevant U.S. trade
laws are weakened, world demand for steel eases or 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.
RISKS RELATED TO SCRAP SUBSTITUTES
The processes that the Company currently plans to use in the IDI Project to
produce DRI and to further refine it into liquid pig iron (the "IDI Process")
has not been previously used commercially for this purpose.
13
<PAGE> 16
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
or that the DRI will not be able to be further refined into liquid pig iron 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 500,000
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, the Company may be required under the terms of the
IDI Financing to purchase all of IDI's scrap substitute output capacity, even if
the material is substandard and/or overpriced relative to other available scrap
substitutes or steel scrap, and the impact could be materially adverse to the
Company. 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, sales to these customers
increase as a percentage of the Company's total net sales. For the year ended
December 31, 1996, these customers accounted for 36% and 12%, respectively, of
the Company's total net sales, and the Company's top five customers accounted
for approximately 65% of its total net sales. For the six months ended June 30,
1997, Heidtman and Preussag accounted for 32% and 10%, respectively, of the
Company's total net sales, and the Company's top five customers accounted for
approximately 63% 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 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
14
<PAGE> 17
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.
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. Under
the Company's amended and restated Credit Agreement dated as of June 30, 1997
(the "Credit Agreement"), the Company may pay dividends in an aggregate
cumulative amount not exceeding cumulative net income for the period from
January 1, 1997 through the most recently completed fiscal quarter preceding
such payment. See "Dividend Policy" and "Description of Certain Indebtedness."
RESTRICTIVE COVENANTS
The Credit Agreement restricts the Company's ability to incur additional
indebtedness, make capital expenditures, make loans or advances to, or make an
investment in other entities, and create liens on its properties. The Credit
Agreement contains additional restrictive covenants, including among others,
covenants restricting the Company and its subsidiary with respect to disposing
of property or assets, paying dividends, entering into sale-leaseback
transactions, providing guarantees, entering into transactions with affiliates,
mergers and consolidations and the modification of certain agreements. In
addition, the Credit Agreement requires the Company to meet certain financial
tests. 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
developments. See "Description of Certain Indebtedness."
POSSIBLE VOLATILITY OF STOCK PRICES
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.
15
<PAGE> 18
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
49,122,294 shares of Common Stock outstanding including 27,997,931 restricted
shares held by persons who may be deemed affiliates of the Company). The
restricted shares may in the future be sold without registration under the
Securities Act of 1933 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 90 days
after the date of this Prospectus. Certain of the Company's existing
stockholders also have registration rights with respect to their Common Stock.
In addition, the Company has filed registration statements 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 June 30, 1997, options to purchase 885,784
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"), 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. See "Description of Capital Stock -- Certain
Provisions of Indiana Law Regarding Takeovers."
DILUTION
Investors in the Common Stock offered hereby will experience an immediate
dilution of $19.98 per share in the net tangible book value of their shares of
Common Stock. See "Dilution."
FORWARD LOOKING STATEMENTS
This Prospectus contains a number of statements regarding the Company's
expectations, intent, or beliefs about future events. These statements are
intended as "forward-looking statements" under the Private Securities Litigation
Act of 1995. Where any such forward-looking statement is made, whether in the
"Business" section, in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section, or elsewhere in this Prospectus,
it is intended to convey the Company's good faith expectations about the
subject, based upon its reasonable beliefs concerning the pertinent facts and
assumptions. The Company cautions that, while it believes such facts or
assumptions to be reasonable and makes them in good faith, assumed facts or
expectations about future events may and often do vary from actual results, the
differences between the assumptions and actual results can be material, and
there can be no assurance that the forward-looking statement will be realized.
The factors and considerations described in this section of the Prospectus as
"Risk Factors" and throughout the Prospectus are intended to caution that any
such forward-looking statements are subject, among other things, to the risks
and uncertainties described in these "Risk Factors" and assumptions regarding
future competitive, economic, technological and market conditions, the accurate
prediction of which may be difficult and may involve the assessment of events
beyond the Company's control. Actual achievements and events may differ
materially from those expressed or implied in such forward-looking statements.
16
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the offerings are estimated to be
approximately $31.2 million (assuming an offering price of $26.375 per share),
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders.
The Company intends to use the net proceeds of the offerings for capital
expenditures, including the addition of a seventh rolling mill stand to the
Company's hot strip mill, and for general corporate purposes. Pending such use,
the Company expects to pay down its revolving credit obligations (which
obligations had an interest rate of 7.28% on July 17, 1997 and which mature in
June 2002) or 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."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded in the over-the-counter market and
since November 22, 1996 has been quoted on the Nasdaq National Market System
(the "Nasdaq Stock Market") under the symbol "STLD." The following table sets
forth for the periods indicated the high and low closing sale prices as reported
by Nasdaq:
<TABLE>
<CAPTION>
COMMON
STOCK PRICE
---------------
HIGH LOW
------ ----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Fourth Quarter (beginning November 22, 1996)................ $21 $16 3/4
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................... 25 3/8 17 3/8
Second Quarter.............................................. 26 3/8 16 1/2
Third Quarter (through July 17, 1997)....................... 28 3/4 24 3/4
</TABLE>
A recent reported last sale price for the Company's Common Stock as
reported on the Nasdaq Stock Market is set forth on the cover page of this
Prospectus. On June 30, 1997, there were approximately 300 holders of record and
approximately 6,250 beneficial owners of the Company's Common Stock.
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. Under the terms of
the Company's Credit Agreement, the Company may make stock payments, including
payment of dividends, in an aggregate cumulative amount not exceeding cumulative
net income for the period from January 1, 1997 through the most recently
completed fiscal quarter preceding such payment.
17
<PAGE> 20
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
approximately $283.4 million or approximately $5.92 per share of Common Stock.
Net tangible book value per share is determined by dividing the net tangible
book value (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. After giving effect to the sale by the
Company of 1,255,971 shares of Common Stock offered hereby (at an assumed public
offering price of $26.375 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 June 30, 1997, would have been approximately $314.6 million or $6.40 per
share, representing an immediate increase in net tangible book value of $.48 per
share to the existing stockholders and an immediate dilution to investors
purchasing shares in the offerings of $19.98 per share. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price......................................... $ 26.375
-------
Net tangible book value per share at June 30, 1997.................. $5.92
------
-
Increase per share attributable to sale of Common Stock in the
offerings........................................................ .48
------
-
Pro forma net tangible book value per share after the offerings....... 6.40
-------
Dilution per share to new investors................................... $ 19.98
=======
</TABLE>
The foregoing table does not give effect to the exercise of options to
purchase 885,784 shares of Common Stock outstanding on June 30, 1997, at a
weighted average exercise price of $9.42 per share. If all such outstanding
options were exercised, the dilution to new investors would be $19.92 per share.
The following table sets forth on a pro forma basis as of June 30, 1997,
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 and by investors
purchasing the shares of Common Stock offered by the Company hereby.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION WEIGHTED
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 47,866,323 97.4% $308,801,171 90.3% $ 6.45
New investors................... 1,255,971 2.6 33,126,235 9.7 26.375
---------- ------ ------------ -----
Total................. 49,122,294 100.0% $341,927,406 100%
========== ====== ============ =====
</TABLE>
- ------------
(1) Sales by the Selling Stockholders in the offerings 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 7,144,029. See "Principal and
Selling Stockholders."
18
<PAGE> 21
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
June 30, 1997, and as adjusted to give effect to the offerings (assuming a
public offering price of $26.375). 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>
JUNE 30, 1997
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE
INFORMATION)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 22,293 $ 53,494
======= =======
Current maturities of long-term debt................................... $ 5,931 $ 5,931
======= =======
Long-term debt, excluding current maturities:
Senior term loans.................................................... $150,000 $150,000
Other(1)............................................................. 49,530 49,530
------- -------
Total long-term debt.............................................. $199,530 $199,530
Stockholders' equity:
Common Stock, $.01 par value per share, 100,000,000 shares
authorized, 47,866,323 shares outstanding, 49,122,294 shares
issued and outstanding, as adjusted(2)............................ $ 479 $ 492
Additional paid-in capital............................................. 304,078 335,266
Accumulated deficit.................................................... (9,604) (9,604)
------- -------
Total stockholders' equity........................................ 294,953 326,154
------- -------
Total capitalization......................................... $494,483 $525,684
======= =======
</TABLE>
- ------------
(1) For a description of other long-term debt, see Note 3 to the Company's
consolidated financial statements appearing elsewhere in this Prospectus.
(2) Excludes 885,784 shares of Common Stock issuable upon exercise of stock
options outstanding on June 30, 1997 at a weighted average exercise price of
$9.42 per share.
19
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the dates and 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, 1995 and 1996, and for each of the
three years in the period ended December 31, 1996, were derived from the
Company's consolidated financial statements which have been audited by Deloitte
& Touche LLP. The selected consolidated financial data for the six months ended
June 29, 1996 and June 30, 1997 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 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
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
THROUGH ----------------------------- -----------------------------
DECEMBER 31, 1993 1994 1995 1996 JUNE 29, 1996 JUNE 30, 1997
------------------- ------- -------- -------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ -- $ -- $ 137 $252,617 $ 98,662 $ 200,777
Cost of goods sold.................. -- -- 3,169 220,563 95,591 150,180
------- ------- -------- -------- -------- --------
Gross profit (loss)............... -- -- (3,032) 32,054 3,071 50,597
Selling, general and administrative
expenses.......................... 1,159 4,192 13,580 13,838 5,894 12,479
------- ------- -------- -------- -------- --------
Income (loss) from operations..... (1,159) (4,192) (16,612) 18,216 (2,823) 38,118
Foreign currency gain (loss)........ -- (4,952) (3,272) 328 260 261
Interest expense(1)................. (2) (43) (564) (22,684) (12,128) (3,995)
Interest income..................... 1 307 560 1,581 579 1,264
------- ------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary loss............ (1,160) (8,880) (19,888) (2,559) (14,112) 35,648
Provision for income taxes.......... -- -- -- -- -- 5,494
------- ------- -------- -------- -------- --------
Income (loss) before extraordinary
loss.............................. (1,160) (8,880) (19,888) (2,559) (14,112) 30,154
Extraordinary loss(2)............... -- -- -- (7,271) -- --
------- ------- -------- -------- -------- --------
Net income (loss)................. $(1,160) $(8,880) $(19,888) $ (9,830) $ (14,112) $ 30,154
======= ======= ======== ======== ======== ========
Income (loss) per share before
extraordinary loss(3)............. $ (0.07) $ (0.36) $ (0.62) $ (0.07) $ (0.41) $ 0.63
Per share effect of extraordinary
loss.............................. -- -- -- (0.21) -- --
------- ------- -------- -------- -------- --------
Net income (loss) per share(3).... $ (0.07) $ (0.36) $ (0.62) $ (0.28) $ (0.41) $ 0.63
======= ======= ======== ======== ======== ========
Weighted average common shares
outstanding(3).................... 15,931 24,679 31,975 34,571 34,695 47,851
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents........... $ 117 $28,108 $ 6,884 $ 57,460 $ 27,823 $ 22,293
Working capital (deficit)........... (29) 8,230 (14,488) 96,142 44,293 60,676
Property, plant and equipment,
net............................... 200 54,566 274,197 339,263 277,463 410,272
Total assets........................ 521 94,618 320,679 522,291 389,484 552,603
Long-term debt (including current
maturities)....................... 800 11,949 223,054 207,343 258,514 205,461
Stockholders' equity (deficiency)... (429) 62,536 62,972 264,566 93,961 294,953
</TABLE>
(footnotes on following page)
20
<PAGE> 23
- ------------
(1) Excludes interest capitalized during the construction of the mini-mill and
cold mill related to costs that 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 years ended December 31, 1994, 1995 and 1996 was $.3 million, $10.1
million and $1.0 million, respectively. Capitalized interest for the six
months ended June 29, 1996 and June 30, 1997 was $60,000 and $3.8 million,
respectively.
(2) Represents the loss on early retirement of the Company's subordinated notes
of approximately $7.3 million in the fourth quarter of 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company will incur an extraordinary loss of approximately
$10.5 million (net of tax benefit of $2.2 million) in the third quarter of
1997 as a result of the refinancing of the Company's Credit Agreement. See
"Description of Certain Indebtedness."
(3) Net income (loss) per share 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 six months ended June 29, 1996 were calculated by
dividing the 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. Net loss per share for the year ended December 31, 1996 excludes the
anti-dilutive effect of common stock equivalents.
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
in September 1993 by executives and managers who pioneered the development of
thin-slab/flat-rolled compact strip production 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 high
quality flat-rolled steel products, including hot-rolled, cold-rolled and
galvanized sheet, as well as other specialty steel products, 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.
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 fourth quarter of
1997. Steel Dynamics also plans to add a second melting furnace, a second caster
and tunnel furnace, and an additional coiler to expand its annual production
capacity of hot-rolled steel from 1.4 million tons to approximately 2.4 million
tons. The Caster Project is expected to be completed in the first half of 1998.
In addition, the Company intends to construct a 600,000 tonne annual capacity
plant for the manufacture of DRI, which the Company expects to be completed in
1998. The DRI, after further refining into 500,000 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, 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 is expected to be provided through the IDI Project.
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.
22
<PAGE> 25
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 105.3 million tons in 1996, an increase of 4% from an average
during the prior three-year period of approximately 101.1 million tons. This
increase was due primarily to an improvement of general economic conditions and
increased demand for durable goods. 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 1994 through 1996:
<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>
1994........................... 108,200 100,579 93.0% 95,084
1995........................... 112,400 104,930 93.4 97,494
1996........................... 116,100 105,309 90.7 100,878
</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, by approximately $40 and $20 per ton,
respectively, before recovering by $10 per ton in the fourth quarter. Since the
first quarter of 1996 and through the second quarter of 1997, however, spot
prices for hot bands recovered an additional $40 per ton. 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 production and
shipments as well as improving pricing. In addition, the Company's products are
sold out through the end of the third quarter of 1997 (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 fourth quarter 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 for those products.
Of the Company's shipments through June 30, 1997, approximately 42% have
been purchased by Heidtman and 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 was 81 at the end of June 1997. SDI is also
continually seeking to enter new markets and 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 Goods Sold. All direct and indirect manufacturing costs are
included in costs of goods sold. The principal elements comprising Steel
Dynamics' costs of goods sold are steel scrap and scrap substitutes,
electricity, natural gas, oxygen and argon, electrodes, alloys, depreciation and
direct and indirect labor and benefits. During the start up of the cold mill
beginning in the fourth quarter of 1997, and prior to the Caster Project
commencing production, the Company will purchase hot bands from third parties.
The Company
23
<PAGE> 26
expects that the price paid for such hot bands will likely be greater than the
Company's cost to produce them once the Caster Project commences production.
Steel scrap and scrap substitutes represent the most significant component
of the Company's total cost of goods 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 has 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 entered into
an iron carbide "off-take" contract with Qualitech. Third, the Company is
pursuing the IDI Project to produce 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." At full production, the blended rate under the contract is
expected to be between $.024 and $.025 per kilowatt hour. 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's natural
gas contract, at a cost of $1.91 per decatherm, expires at the end of July 1997,
and the Company's current intention is to purchase its natural gas needs on the
spot market thereafter until such time as it determines that extended term
contracts are attractively priced. 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. 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 raw materials, such as electrodes and alloys, from various sources and
their availability and price are subject to market conditions. Air Products uses
its plant to supply other customers as well as the Company.
For manufacturing plant and equipment, the Company uses the
units-of-production method of depreciation.
The current work force of the Company consists of 359 employees as of June
30, 1997, of which 276 were employed in the hot strip mill, 79 were employed in
connection with the Cold Mill Project, and four were employed by IDI. For the
six months ended June 30, 1997, the Company's employment costs per ton shipped
(excluding Cold Mill and IDI Project employees) were approximately $16. 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 Expansion Projects.
Interest Expense. During the construction of the mini-mill, the cold mill
and the second caster, the costs related to construction expenditures are
considered to be assets qualifying for interest capitalization under SFAS No.
34, Capitalization of Interest Cost. Capitalized interest for the year ended
December 31, 1994, 1995 and 1996 was $.3 million, $10.1 million, and $1.0
million, respectively. For the six months ended
24
<PAGE> 27
June 30, 1997, capitalized interest was $3.8 million, compared to $60,000 for
the six months ended June 29, 1996. Management expects that a majority of the
interest on the indebtedness incurred to finance the construction of the
Expansion Projects will be capitalized.
Extraordinary Loss. The Company used a portion of the net proceeds from
its initial public offering in November 1996 to prepay its subordinated notes.
This prepayment resulted in an extraordinary loss of approximately $7.3 million
for 1996, principally associated with the unamortized debt discount costs
relating to the notes. The Company will incur an extraordinary loss of
approximately $10.5 million (net of tax benefit of $2.2 million) in the third
quarter of 1997 attributable to prepayment penalties and a write-off of
financing costs relating to the refinancing of the Company's Credit Agreement.
See "Description of Certain Indebtedness."
RESULTS OF OPERATIONS
Founded in September 1993, SDI commenced primary grade steel production 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 $252.6 million for 1996. SDI
commenced primary grade steel production on January 2, 1996, and has continued
to increase its net sales as its production of prime tons increased. As of the
end of June 1997, the Company was operating at an annualized production rate of
1.2 million tons, or 85% of full capacity. In addition, the average sales price
per prime ton increased from $302 for January 1996 to $357 for June 1997. For
1993, 1994 and 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. For the six months
ended June 29, 1996 and June 30, 1997, net sales were approximately $98.7
million and $200.8 million, respectively.
Cost of Goods Sold. Cost of goods sold totaled approximately $220.6
million, or 87% of net sales, for 1996. For the six months ended June 29, 1996
and June 30, 1997, cost of goods sold were approximately $95.6 million and
$150.2 million, respectively. As the Company continues to increase the number of
prime tons sold, the Company expects that cost of goods sold will continue to
increase but, as a percentage of net sales, the cost of goods sold will
decrease. For 1995, cost of goods sold was $3.2 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $4.2 million, $13.6 million, and
$13.8 million for 1994, 1995, and 1996, respectively. For the six months ended
June 29, 1996 and June 30, 1997, selling, general, and administrative expense
was approximately $5.9 million and $12.5 million, respectively. The increase in
expenses for the first six months of 1997 was due primarily to approximately
$3.2 million of start-up costs for the Cold Mill and Caster Projects and
approximately $1.8 million of profit sharing expenses.
Interest Expense. Interest expense totaled approximately $43,000,
$564,000, and $22.7 million for 1994, 1995, and 1996, respectively. For the six
months ended June 29, 1996 and June 30, 1997, interest expense was $12.1 million
and $4.0 million, respectively. The low level of interest expense during 1994
and 1995 reflects the effect of capitalizing interest relating to construction
costs. The lower interest expense for the first six months of 1997 was primarily
due to lower debt levels resulting from the repayment of subordinated debt with
the net proceeds from the initial public offering and, to a lesser extent, lower
interest rates.
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 to hedge against foreign currency movements until the first quarter of 1997
when the Company purchased German marks forward contracts approximately equal to
the unsettled liability. No commitments for equipment purchases denominated in a
foreign currency existed as of June 30, 1997. Foreign currency loss totaled
approximately $5.0 million and $3.3 million for 1994 and 1995, respectively. In
1996, the
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<PAGE> 28
foreign currency gain totaled $328,000. For the six months ended June 29, 1996
and June 30, 1997, foreign currency gains were $260,000 and $261,000,
respectively. The Company's strategy for managing foreign currency risk will
depend on facts and circumstances of the related transaction, and the Company
will consider risk management strategies as appropriate.
Interest Income. Interest income totaled approximately $307,000, $560,000,
and $1.6 million for 1994, 1995, and 1996, respectively, and approximately
$579,000 and $1.3 million for the six months ended June 29, 1996 and June 30,
1997, respectively.
Extraordinary Loss. The Company used a portion of the net proceeds from
its initial public offering in November 1996 to prepay its subordinated notes.
This prepayment resulted in an extraordinary loss of approximately $7.3 million,
principally associated with the unamortized debt discount costs relating to the
notes.
Taxes. At December 31, 1996, the Company had available net operating
losses that can be carried forward for federal income tax purposes of
approximately $49.4 million of which $200,000 expire in 2009, $2.3 million
expire in 2010 and $46.9 million expire in 2011. Because of the Company's
limited operating history, a valuation allowance has been established for a
portion of the deferred tax asset. The Company will continually assess the need
for a valuation allowance for the deferred tax asset based on expectations of
future taxable income. For the six months ended June 29, 1996, the Company had a
net deferred tax asset that was offset entirely by a valuation allowance. For
the six months ended June 30, 1997, the Company has computed income taxes based
upon the expected annual effective tax rate, which gives effect to the
utilization of available net operating loss carryforwards.
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 1993 through 1995. During 1996, the Company used net cash of approximately
$51.6 million in operating activities. The use of cash in operating activities
for 1996 primarily related to the build-up of raw material inventory as a result
of favorable pricing and the substantial increase in accounts receivable as a
result of sales increases. Net cash used in investing activities totaled
approximately $246.4 million from 1993 through 1995 and approximately $83.1
million for 1996. Investing activities primarily consisted of capital
expenditures of approximately $352.1 million through 1996 for the construction
of the Company's existing facilities and the beginning of the Cold Mill Project.
Cash provided by financing activities totaled approximately $276.0 million from
1993 through 1995 and approximately $185.3 million for 1996. The increase in
cash provided by financing activities primarily relates to the approximately
$140.2 million raised in November 1996 from the Company's initial public
offering, and from private placements of the Company's common stock earlier in
1996.
For the six months ended June 29, 1996, net cash used in operating
activities amounted to $44.4 million, net cash used in investing activities was
$18.2 million and cash provided by financing activities was $76.5 million. For
the six months ended June 30, 1997, net cash provided by operating activities
was $48.5 million, net cash used in investing activities was $81.5 million and
cash used in financing activities was $2.2 million.
The Company issued $55.0 million principal amount of subordinated notes
(together with warrants to purchase common stock) to finance a portion of the
construction of the mini-mill. The subordinated notes were repaid in full in
November 1996 with a portion of the net proceeds from the Company's initial
public offering.
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<PAGE> 29
As of June 30, 1997, the Company entered into the Credit Agreement, which
replaced its previous $345.0 million credit facility. The Credit Agreement
consists of a $450.0 million credit facility, composed of a $250.0 million
five-year revolving credit facility (subject to a borrowing base), a $100.0
million 364-day revolving credit facility (subject to extension if approved by
all of the lenders, or, if not, converted into a five-year term loan amortizable
in equal quarterly installments during the final two years of the five-year term
loan period), and a $100.0 million term loan amortizable in equal quarterly
installments during the final two years of the term loan period, commencing
September 30, 2002. The Credit Agreement is secured by substantially all of the
Company's assets (other than as permitted to be excluded in order to secure the
IDI Financing).
In addition, the Company has received a proposed term sheet for a $60.0
million IDI credit facility (the "IDI Financing") to finance a portion of the
IDI Project. This anticipated credit facility would be secured by essentially
all of the assets of IDI. The lending banks have also requested that Steel
Dynamics cause to be provided an "Assurance Package," consisting of a package of
coordinated completion and performance guarantees (including failure to achieve
an agreed level of performance by a specified date), together with remedies,
acceptable to the lenders, for up to 100% of the cost of the amount financed.
While it is anticipated that IDI will receive a commitment for the IDI
financing, there can be no assurance that such a commitment will be secured or,
even if secured, that the IDI Financing will be consummated. See "Description of
Certain Indebtedness -- The Credit Agreement" and "-- The IDI Financing."
Borrowings under the Credit Agreement bear and anticipated borrowings under
the IDI Financing will bear interest at floating rates. The Company entered into
an interest rate swap agreement on a notional amount of $100 million pursuant to
which the Company has agreed to make fixed rate payments at 6.935% and will
receive LIBOR payments for the seven year term tranche of the Credit Agreement.
The maturity date of the interest rate swap agreement is July 2, 2001. The
counterparty has the right to extend the maturity date to July 1, 2004 at
predetermined interest rates. As of June 30, 1997, the Company had $199.5
million of indebtedness outstanding, including $150.0 million under the Credit
Agreement, $22.3 million of cash and cash equivalents, and $300.0 million of
availability under the Credit Agreement (subject to borrowing base
restrictions).
The Company intends to use cash on hand, funds from operations and
borrowings under the Credit Agreement and the IDI Financing, if and when
consummated, to finance completion of the construction and start-up of the
Expansion Projects ($200.0 million for the Cold Mill Project; $85.0 million for
the Caster Project (exclusive of start-up expenses); and $95.0 million for the
IDI Project.) See "Risk Factors -- Significant Capital Requirements." The
Company intends to use the proceeds from the offerings to fund an addition to
the hot strip mill of a seventh rolling stand, and will use the balance of the
net proceeds for general corporate purposes.
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 1994, 1995 and 1996 were approximately $595,000, $15.9
million, and $790,000, respectively, and operating expenses relating to
environmental matters were approximately $0, $30,000, and $3.1 million, for the
same periods. The Company has planned expenditures relating to environmental
matters of approximately $4.1 million and $4.8 million for 1997 and 1998,
respectively, principally associated with the addition of equipment required in
connection with the Expansion Projects. Steel Dynamics believes that compliance
with current 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."
INFLATION
SDI does not believe that inflation has had a material effect on its
results of operations.
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<PAGE> 30
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, SFAS No. 128, Earnings per Share, was issued which
establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. Management has determined that the adoption of SFAS No. 128 will not
have a material effect on the Company's consolidated financial statements.
In June 1997 SFAS No. 130, Comprehensive Income, was issued which becomes
effective in 1998 and requires reclassification of earlier financial statements
for comparative purposes. SFAS No. 130 requires that changes in the amounts of
certain items, including foreign currency translation adjustments and gains and
losses on certain securities be shown in the financial statements. SFAS No. 130
does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. Management has not yet
determined the effect, if any, of SFAS No. 130 on the Company's consolidated
financial statements.
Also in June 1997, SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, was issued. This Statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined the effect, if any, of SFAS No. 131
on the Company's consolidated financial statements.
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 compact strip production 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 be the low cost producer of a broad range of high quality
flat-rolled steel products, including hot-rolled, cold-rolled and galvanized
sheet, as well as other specialty steel products, 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. In October 1994, Steel Dynamics commenced
construction of the mini-mill 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
1.2 million tons by the end of June 1997, or 85% of its capacity of 1.4 million
tons, making the mini-mill's start-up and ramp-up the fastest to date 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 fourth quarter of
1997. Steel Dynamics 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 is expected to be completed in the first half of 1998.
In addition, the Company's wholly-owned subsidiary, Iron Dynamics, intends
to construct a 600,000 tonne annual capacity plant for the manufacture of direct
reduced iron, which the Company expects to be completed in 1998. The DRI, after
further refining into 500,000 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 sought to assure itself of a secure supply of both steel
scrap and scrap substitute material. 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. The Company
expects to produce additional scrap substitute material in 1998 upon completion
of the IDI Project.
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<PAGE> 32
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 and its 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. The Company believes that its per ton manufacturing costs are
already among the lowest in the industry.
- Emphasize Value-Added Products and Increase Product Breadth. Steel
Dynamics has produced and believes that it will be able to consistently
produce thinner gauge (down to .040") steel in hot-rolled form with 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 anticipated 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 further 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 represented
approximately 58% of the Company's total manufacturing costs for the three
months ended June 30, 1997. 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 entered
into an iron carbide "off-take" contract with Qualitech. Third, Steel
Dynamics is pursuing the IDI Project to produce DRI as another 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 entered into "off-take"
sales and distribution agreements with Heidtman and Preussag, through
2001, 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 invest approximately $85.0 million to finance its
Caster Project. The Caster Project, which is expected to be completed in
the first half of 1998, is expected to increase the annual production
capacity of the Company's mini-mill from 1.4 to approximately 2.4 million
tons of hot-rolled steel. 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.
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<PAGE> 33
- 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. The Company is conducting certain preliminary
engineering and feasibility analyses for a possible 750,000 ton capacity
structural steel facility to manufacture wide flange beams and other
structural shapes, utilizing near net shape casting technology in
conjunction with a state-of-the-art bloom caster. There is no assurance,
however, that such a facility will be approved by the Company for further
development efforts once these preliminary studies have been completed,
or, if further developed, that the facility will be able to be financed
and built. Steel Dynamics will also 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.
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.
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<PAGE> 34
PIE 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 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
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<PAGE> 35
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 these 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.
THE FLAT-ROLLED MARKET
The flat-rolled market represents the largest steel product group,
accounting for approximately 61.9% of the total annual U.S. steel shipments in
1996. 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 62.5 million tons of
shipments in 1996. 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.
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C>
Hot-Rolled(1)........................................... 20.8 22.7 24.6 26.8 27.0
Cold-Rolled(2).......................................... 14.2 14.4 14.7 14.1 15.8
Coated(3)............................................... 15.6 18.3 20.2 19.9 19.7
---- ---- ---- ---- ----
Total......................................... 50.6 55.4 59.5 60.8 62.5
==== ==== ==== ==== ====
% Total Steel Shipments................................. 61.6% 62.3% 62.6% 62.4% 61.9%
</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 1996 U.S. industry flat-rolled product
shipments by market segment (as reported by the AISI):
[PIE CHART]
<TABLE>
<S> <C>
Automotive 20%
Construction/Contractors' Products 9%
Converters/Processors 10%
Containers/Packaging 5%
Electrical Equipment 4%
Oil/Gas 4%
Appliances 3%
Other 14%
Steel Service Centers 31%
</TABLE>
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 1996 was approximately 27.0 million tons, excluding imports.
This is a market segment that the Company's existing mini-mill currently serves.
The following chart presents 1996 U.S. industry hot-rolled product shipments by
market segment (as reported by the AISI):
[PIE CHART]
<TABLE>
<S> <C>
Converters/Processors 18%
Automotive 12%
Oil/Gas 10%
Other 22%
Construction/Contractors' Products 4%
Steel Service Centers 34%
</TABLE>
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
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<PAGE> 37
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 1996 was approximately 15.8
million tons, excluding imports. This is a market segment that the Company's
cold mill will serve when completed in the fourth quarter of 1997. The following
chart presents 1996 U.S. industry cold-rolled product shipments by market
segment (as reported by the AISI):
[PIE CHART]
<TABLE>
<S> <C>
Construction/Contractors' Products 6%
Containers/Packaging 5%
Converters/Processors 9%
Appliances 7%
Electrical Equipment 11%
Automotive 17%
Steel Service Centers 33%
Other 12%
</TABLE>
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 1996 was approximately 19.7 million tons, excluding imports. This
market segment will be served by SDI's cold mill when completed in the fourth
quarter of 1997. The following chart presents 1996 U.S. industry coated product
shipments by market segment (as reported by the AISI):
[PIE CHART]
<TABLE>
<S> <C>
Containers/Packaging 12%
Construction/Contractors' Products 18%
Steel Service Centers 24%
Automotive 33%
Other 13%
</TABLE>
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 27.0 million tons. Based on information from
its customers, the following chart displays SDI's flat-rolled shipments for the
first six months of 1997, by market classification of the ultimate end user,
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<PAGE> 38
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>
Tubing................... 28% Structural tube, mechanical tube, conduit
Automotive............... 27 Safety restraints, suspension, frame
Commercial equipment..... 13 Racks, shelving, hardware
Construction............. 9 Metal buildings, piling, safety grating
Machinery................ 4 Construction equipment, machine tools
Appliances............... 3 Liners, backs, brackets
Residential equipment.... 3 Lawn equipment, garden implements, motion
furniture
Agriculture.............. 2 Farm equipment, feeders, bins
Rail..................... 2 Rail car sides, tops, end caps
Other.................... 9 Exercise and recreational equipment
---
Total.................... 100%
===
</TABLE>
After completion of the Cold Mill Project (expected to occur during the
third quarter 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 62.5 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 in 1996 and for the six
months ended June 30, 1997, 71% and 62%, respectively, 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 36% and 12% of Steel Dynamics' total net sales
during 1996, respectively, and 32% and 10% of the Company's total net sales for
the six months ended June 30, 1997, respectively. 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 during 1996 and for six months ended June 30, 1997.
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 65% and 63% of
total net sales during 1996 and the six months ended June 30, 1997. See "Risk
Factors -- Reliance on Major Customers."
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<PAGE> 39
SDI has a purchasing agreement with Heidtman for the purchase of at least
30,000 tons of the Company's hot band products per month through the end of
2001, 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) during 1996 and the six
months ended June 30, 1997, amounted to 279,000 tons and 188,138 tons,
respectively.
SDI also has a 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 through the end of 2001, 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, Mexico; and Preussag International Steel Corporation,
located in Atlanta, Georgia. The Company's aggregate sales to Preussag
(including its affiliated companies) during 1996 and the six months ended June
30, 1997, amounted to 85,800 tons and 56,230 tons, respectively.
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 10-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.
37
<PAGE> 40
CUSTOMER MAP
Of the Company's total net sales during 1996 and the six months ended June
30, 1997, more than 80% and 75%, respectively, 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
more than 50% of its flat-rolled steel in 1996 and the six months ended June 30,
1997.
International Sales. Of the Company's total net sales in 1996 and the six
months ended June 30, 1997, sales outside the continental United States
accounted for less than 5% and 10%, respectively. 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
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
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<PAGE> 41
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.
DIAGRAM
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
versus 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 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
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<PAGE> 42
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 degreesF 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 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 and is expected to be completed
in the fourth quarter of 1997.
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<PAGE> 43
As the following diagram illustrates, the Cold Mill Project consists 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 consists of a dual payoff system, scale breaker, shallow
bath pickling section, rinsing section and recoiler built by Davy International;
the hot dipped galvanizing lines 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 built by Ebner Furnaces
consist of 18 bases and nine hydrogen annealing bells; and the temper mill
consists of a single four-high stand built by SMS Schloemann-Siemag AG. All
electric drives and controls have been 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.
DIAGRAM
The pickle line commenced production in June 1997. The first of the two
galvanizing lines to coat hot rolled steel is expected to begin production in
July 1997, followed in September by the start-up of the cold rolled hot dipped
galvanizing line. The annealing facilities and the temper mill are expected to
be ready for commissioning in September 1997.
The pickle line begins at the existing hot strip mill building, and
delivers 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 are 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.
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, and which
the Company intends to further process, 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
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<PAGE> 44
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.
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. Construction began in June, 1997, and is expected to be completed in
the first half of 1998. The total cost of the Caster Project is estimated to be
approximately $85.0 million. The following diagram shows the components of SDI's
hot-mill upon completion of the Caster Project.
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<PAGE> 45
DIAGRAM
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 fourth quarter 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.
The IDI Project. The IDI Project consists of the design, construction, and
operation of a facility for the manufacture of DRI and its further refinement
into liquid pig iron 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 following diagram illustrates the
sequence of steps in the IDI Process, during which iron ore fines will be
processed into DRI and then further refined into liquid pig iron.
DIAGRAM
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 33.3 million tonnes of DRI
produced in 1996,
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<PAGE> 46
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 yet 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 refining, 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, given the
location of SDI's mill.
The IDI Process will begin with the use of low cost iron ore fines. In the
first step of the IDI Process, the iron ore fines, which the Company expects to
purchase under a long-term supply agreement, will be upgraded by processing to
reduce the silica (i.e. sand) content of the fines, thereby minimizing the
undesirable gangue content of the final DRI product. Then the upgraded iron ore
fines and grounds, and the fines, together with ground coal, are mixed with
additives and pelletized on a rotary disk. The resulting ball-like pellets or
"green balls" will then be screened, so that a uniform pellet will proceed
through the rest of the process and so that undersized and oversized pellets can
be recovered and recycled. The correctly sized pellets will next be fed into a
rotary dryer and then into a rotary hearth furnace, where the dry, sized green
balls will be transferred to the top of the rotary hearth via a conveyor, at a
controlled rate, and then distributed uniformly over the hearth. The material
will be heated to 1,300 degrees for approximately 10 to 15 minutes, after which
they will be removed to a refractory-lined container. At this stage, the DRI
will be expected to have a metallic iron content of 88% to 92%. Although this
product is commercially viable at this stage of the process and could be used in
steelmaking, IDI intends to transport the DRI on site to a furnace and then to a
desulfurization station where further impurities will be removed. This further
refining will take DRI to approximately 96% metallic pig iron which could then
be introduced by Steel Dynamics directly into its EAF charge mix. The hybrid EAF
and desulphurization station will be located within the Company's existing melt
shop in Butler, Indiana, and is included as part of the Caster Project.
An added benefit which the Company expects to realize from the use of this
process is that electricity consumption in Steel Dynamics' EAF 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 only minimal amounts of 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 degreesF, 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 between a 15% to 20% productivity gain if pig iron produced
by the IDI Process constituted 25% of the melt mix, and more if iron carbide
(such as that which the Company anticipates receiving from Qualitech beginning
in 1998) 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 lower cost iron ore fines or concentrates, that
pricing of the fines appears to be stable, and that coal as the reductant is
abundantly available and not affected by 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 liquid pig iron, which it expects IDI
to begin producing in 1998, when combined into the melt mix with iron carbide to
be manufactured by Qualitech, 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).
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STEEL SCRAP AND SCRAP SUBSTITUTE RESOURCES
Steel scrap is the single most important raw material used in the Company's
steelmaking process, representing approximately 50% to 60% 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 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 an 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, through the end of 2001, 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
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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 1996 and the six months ended June 30, 1997, the Company purchased
1,068,609 tons and 452,162 tons, respectively, of steel scrap from OmniSource,
and expects to purchase an average of 125,000 to 150,000 tons of steel scrap per
month at full production. 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 constructing a 600,000 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 six months ended
June 30, 1997, was $.027 per
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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 the end of July 1997 for $1.91 per decatherm, and, upon its
expiration the Company expects to purchase its natural gas supply needs in the
spot market until such time as it determines that long term contracts are at
more attractive prices.
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 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
Gallatin Steel Company's mini-mill in Ghent, Kentucky, Delta Steel, the
BHP/Northstar joint venture in Delta, Ohio, and TRICO Steel's mini-mill in
Alabama. 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.
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According to the AISI, annual U.S. raw steel production capacity was reduced
from approximately 154 million tons in 1982 to approximately 116 million tons in
1996. 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 1995, and 91% in 1996. 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 7.3
million tons in 1996, 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, an affiliate of
Delta Steel is expected to produce hot-rolled galvanized product, and 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, other relevant U.S. trade
laws are weakened, world demand for steel eases or 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
The Company's hot-rolled steel coil backlog, reflecting orders through the
end of the third quarter of 1997 (the latest date for which Steel Dynamics has
accepted orders), amounted to approximately $100 million (277,967 tons) at June
30, 1997.
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FACILITIES
The Company's plant is located on a greenfield site of approximately 800
acres 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 "hot" 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 strip mill), and the hot strip 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. The cold mill facility consists of a
continuous pickle line, two hot-dipped galvanizing lines, a semi-tandem
two-stand reversing mill, batch annealing furnaces, and a temper mill, all
housed within a new 550,000 square foot facility contiguous to the hot strip
mill building.
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.
Equipment failures at its plant could limit or shut down the Company's
production. From its start-up through June 30, 1997, the Company experienced
some equipment failures, none of which lasted more than two days. 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.
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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 359 employees as of June 30,
1997, of which 294 are hourly and 65 are salaried personnel. Of this number, 79
are assigned to the Cold Mill and four to IDI. 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. The Company 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
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.
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The Company has also established a cash bonus plan for its non-production
employees, including accountants, engineers, secretaries, accounting clerks and
receptionists. Bonuses under the plan are based upon the Company's return on
assets.
The Company 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 before year end.
Iron Dynamics has submitted several process patent applications to the U.S.
Patent and Trademark Office, relating to solid based production of low sulfur
direct reduced iron.
LEGAL PROCEEDINGS
The Company is not a party to any lawsuit that, if adversely resolved,
would individually or in the aggregate, have a material effect on the results of
operations or on the financial condition of the Company.
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MANAGEMENT
The following table sets forth information concerning the executive
officers and directors of the Company and its IDI subsidiary as of June 30,
1997. 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 June 30, 1997 and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Keith E. Busse............................ 54 President, Chief Executive Officer and
Director
Mark D. Millett........................... 38 Vice President of Melting and Casting and
Director
Richard P. Teets, Jr...................... 42 Vice President of Rolling and Finishing
and Director
Tracy L. Shellabarger..................... 40 Vice President of Finance, Chief Financial
Officer and Director
John W. Nolan............................. 45 Vice President of Sales and Marketing
Larry J. Lehtinen......................... 42 Vice President and General Manager of IDI
John C. Bates............................. 53 Director
Leonard Rifkin............................ 66 Director
Paul B. Edgerley(a)....................... 41 Director
William D. Strittmatter................... 41 Director
William Laverack, Jr.(a).................. 40 Director
Dr. Jurgen Kolb........................... 54 Director
</TABLE>
- ------------
(a) Member of the Audit Committee and member of the Company's Administrative
Committee under the Company's 1994 Incentive Stock Option Plan.
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.
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.
52
<PAGE> 55
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 W. Nolan joined the Company as its Manager of Sales and Marketing in
December 1994 and was appointed Vice President of Sales and Marketing in January
1997. Prior to that, Mr. Nolan was employed by Bethlehem Steel Company as
Manager of Marketing and by Inland Steel Industries as its Manager of Sales.
Larry J. Lehtinen joined Iron Dynamics, Inc. as its Vice President and
General Manager in January 1997. Prior to that, Mr. Lehtinen worked for
Cleveland Cliffs Inc. where he was most recently Vice President of Operations
for its North American iron ore partnerships. While with Cleveland Cliffs, Mr.
Lehtinen also served as the General Manager for the Company's Empire Mining
Partnership for a two-year period. Prior to 1994, Mr. Lehtinen was with Inland
Steel Industries for 17 years, most recently serving as Vice President/General
Manager of Inland Steel Mining Co. and Manager of Iron Ore.
John C. Bates was elected a director of the Company in September 1994. 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. 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.
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. 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. 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. 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 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 to serve as director of the Company in Mr. Edgerley's absence or
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
53
<PAGE> 56
Alliance Entertainment Corp., American Pad and Paper Company, 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 to serve as director of the Company in Mr. Strittmatter's absence
or unavailability. Ms. Ferguson is a Manager of 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 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 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 and 1996 for the
Chief Executive Officer and the three other most highly compensated executive
officers of the Company whose salary and bonus amounts exceeded $100,000
(collectively, the "Named Executive Officers"). The amounts shown include
compensation for services rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS
ANNUAL ----------------------- PAYOUTS
COMPENSATION(1) RESTRICTED -------
--------------------- OTHER ANNUAL STOCK SECURITIES LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) OPTIONS($) ($) ($)(1)
- ---------------------------- ------ --------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Keith E. Busse, ............ 1996 $ 290,000 $ 219,000 $ -- $ -- $ 5,000 $ -- $ 1,164
President and Chief 1995 275,000 195,000 1,320
Executive Officer
Mark D. Millett, ........... 1996 175,000 115,000 -- -- 3,750 -- 431
Vice President 1995 165,000 99,000 469
Richard P. Teets, Jr., ..... 1996 175,000 115,000 -- -- 3,750 -- 525
Vice President 1995 165,000 99,000 446
Tracy L. Shellabarger, ..... 1996 135,000 81,000 1,050,837(2) -- 3,750 -- 414
Vice President and 1995 120,000 72,000 87,882(3) 366
Chief Financial Officer
</TABLE>
- ------------
(1) Represents matching contributions made by the Company under its Retirement
Savings Plan and officer's life insurance premiums.
(2) Represents forgiveness of indebtedness income to Mr. Shellabarger ($750,000)
and amounts reimbursed to him for the payment of interest on the $750,000
promissory note and taxes on the forgiveness of indebtedness income
($300,837) in connection with the cancellation of the promissory note
executed by Mr. Shellabarger for the purchase of SDI Common Stock at the
time of his employment (the "Shellabarger Note") in connection with the
November 21, 1996 initial public offering of the Company's Common Stock.
(3) Amount reimbursed for the payment of interest and taxes thereon to Mr.
Shellabarger for 1995 interest payments made by the Company on behalf of Mr.
Shellabarger on the Shellabarger Note.
54
<PAGE> 57
INCENTIVE STOCK OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
SECURITIES APPRECIATION FOR
UNDERLYING % OF TOTAL OPTIONS EXERCISE OR OPTION TERM
OPTIONS GRANTED GRANTED TO BASE PRICE EXPIRATION -----------------
NAME (# OF SHARES) EMPLOYEES IN 1996 ($/SH) DATE 5%($) 10%($)
- -------------------------- --------------- ------------------ ----------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Keith E. Busse............ 5,000 5.3% 16.00 11-21-01 22,103 48,841
Mark D. Millett........... 3,750 4.0% 16.00 11-21-01 16,577 36,631
Richard P. Teets, Jr...... 3,750 4.0% 16.00 11-21-01 16,577 36,631
Tracy L. Shellabarger..... 3,750 4.0% 16.00 11-21-01 16,577 36,631
</TABLE>
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
In November 1996, the Board of Directors established an Audit Committee.
The Audit Committee makes recommendations to the Board of Directors regarding
the independent auditors to be nominated for election by the stockholders and
reviews the independence of such auditors, approves the scope of the annual
audit activities of the independent auditors, and reviews such audit results.
Deloitte & Touche LLP presently serves as the independent auditors of the
Company. The Board of Directors may also establish other committees to assist in
the discharge of its responsibilities. The Board has appointed directors Paul B.
Edgerley and William Laverack, Jr. as the Administrative Committee under the
Company's 1994 Incentive Stock Option Plan.
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 $290,000 for 1996.
Mr. Busse's Base Salary for 1997 is $310,000. 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 1996, and will receive the same additional amount for 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
55
<PAGE> 58
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 Vice President of
Rolling and Finishing, received a Base Salary of $175,000 for 1996 and will
receive a Base Salary of $187,000 for 1997. 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 1996 of $135,000 ($158,000 for 1997). 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
the Shellabarger Note. Pursuant to the terms of his employment agreement the
Shellabarger Note was forgiven in connection with the Company's initial public
offering of its Common Stock in November 1996. 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.
Effective January 2, 1997, IDI entered into a five year Employment
Agreement with Larry J. Lehtinen as IDI's Vice President and General Manager,
with responsibility to implement the development of the IDI Process, the design
construction, start-up, and operation of the IDI production facility, and the
development and supervision of IDI's sales, licensing, and sub-licensing
activities. Mr. Lehtinen is to receive a base salary of $120,000, subject to
increase on an annual review basis, plus an annual bonus in an amount not less
than $78,000 per year for each of the first two years, and thereafter in
accordance with Steel Dynamics' Bonus Plan (as defined) under the category of a
"Manager." Mr. Lehtinen was granted a 33,672 share option, at fair market value,
under the Steel Dynamics' 1994 Incentive Stock Option Plan, on the effective
date of his Employment Agreement, and received an additional one-time cash
payment of $10,670 to offset certain
56
<PAGE> 59
expenses and/or anticipated losses, expected to be incurred by Mr. Lehtinen as a
result of his change of employment. Mr. Lehtinen is also entitled to participate
under Steel Dynamics' 1996 Incentive Stock Option Plan under the category of a
"Vice President."
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,
five Officers (the President and four Vice-Presidents) and five 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
57
<PAGE> 60
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 commenced with the Company's fiscal year beginning
January 1, 1997, however, 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."
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 is
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
incentive stock options ("ISOs") intended to qualify as such under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). However, 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 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). One-third of the ISOs granted to an
employee under the 1994 Plan become exercisable six months after the date of
grant, and two-thirds of the ISOs become exercisable on the fifth anniversary of
the date of grant, or at such time and subject to such other terms and
conditions as determined by the Board of Directors or the Administrative
Committee. 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 June 30, 1997, options for
763,236 shares of Common Stock had been issued under the 1994 Plan, of which
options for 62,043 shares had been exercised.
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<PAGE> 61
Awards under the 1994 Plan, through December 31, 1996, were determined by
the Board of Directors, in its discretion. Effective January 1, 1997, awards
under the 1994 Plan are determined by the Administrative Committee, consisting
of two members of the Board each of whom is 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.
On January 10, 1997, the Company filed a Registration Statement on Form
S-8, to register, under the Securities Act of 1933, as amended, the issuance of
all 1,102,765 shares of Common Stock available for awards under the 1994 Plan.
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 359 employees as of June 30, 1997) 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
Vice-President......................................... 2 45,000
Manager................................................ 2 30,000
Supervisors/Professionals
Grade 3.............................................. 2 15,000
Grade 2.............................................. 2 12,500
Grade 1.............................................. 2 10,000
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
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.
An Administrative Committee, when appointed by the Board of Directors, is
to administer the 1996 Plan. Such Committee must consist 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, however, in the absence of the
appointment of a Committee by the Board, the Board is
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<PAGE> 62
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 June 30, 1997, options for
185,896 shares of Common Stock have been issued under the 1996 Plan, of which
939 had been exercised.
On May 21, 1997, the Company filed a Registration Statement on Form S-8, to
register under the Securities Act, the issuance of all 1,403,000 shares of
Common Stock available for awards under the 1996 Plan.
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 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
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<PAGE> 63
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.
CERTAIN TRANSACTIONS
In 1996 and the six months ended June 30, 1997, the Company has sold
279,000 tons and 188,138 tons, respectively, of its hot bands to Heidtman (and
its affiliated companies) for $91.8 million and $66.1 million, respectively,
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 12.2% 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 1997 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 an "off-take" agreement, during 1996 and the six months ended
June 30, 1997, the Company sold 85,800 tons and 56,230 tons, respectively, of
its steel coil to Preussag for an aggregate of $29.9 million and $20.4 million,
respectively. 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 and Preussag owns
6,089,865 shares of Common Stock, or 12.7% of the total outstanding shares prior
to the offerings. See "Principal and Selling Stockholders."
Pursuant to a scrap purchasing agreement with OmniSource, during 1996 and
the six months ended June 30, 1997, the Company purchased an aggregate of
1,068,609 tons and 452,162 tons, respectively, of steel scrap for $14.5 million
and $58.5 million, respectively, and paid OmniSource a total of $1.8 million and
$0.8 million, respectively, 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
5,667,612 shares of the Company's Common Stock, or 11.8% 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
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<PAGE> 64
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 4.0% 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 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 "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 1,284,197 shares of
Common Stock or 2.6% 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 1996, the Company sold Common Stock to certain of its existing
shareholders or their affiliates for an aggregate purchase price of $11.9
million in 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 these stockholders,
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 stockholders, owning
collectively (prior to the purchase) approximately 78.0% of the total then
outstanding,
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<PAGE> 65
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 at that time 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 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 12.0% 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.
In November 1996, the Company used a portion of the proceeds from its
initial public offering to prepay all $55.0 million principal amount of certain
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, respectively, of such subordinated notes and were stockholders
of the Company.
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 the Shellabarger Note in partial payment of the purchase price.
Pursuant to the terms of his employment agreement, the note was forgiven in
connection with the offerings. See "Management -- Employment Agreements."
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. In connection
with the offerings, the Bain Stockholders and General Electric Capital
Corporation will be deemed to have used one demand registration right each.
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 November 21,
2004, 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.
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<PAGE> 66
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1997, 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 OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------ ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Heavy Metal, L.C.(1)...................... 6,233,926 13.0% -- 5,733,926 11.7%
1610 North Calhoun Street
Fort Wayne, IN 46808
Preussag Stahl AG(2)...................... 6,089,865 12.7 550,000 5,539,865 11.3
Eisenhuttenstr. 99 D-38223
Salzgitter, Germany
Bain Capital Entities(3).................. 4,043,732 8.4 -- 1,299,723 2.6
Two Copley Place
Boston, MA 02116
General Electric Capital Corporation...... 5,750,029 12.0 1,440,029 4,310,000 8.8
G.E. Capital Corporation
1600 Summer Street, 5th Floor
Stamford, CT 06927
Keylock Investments Limited(4)............ 3,017,139 6.3 -- 2,917,139 5.9
17 Dame Street
Dublin 2, Ireland
Mazelina Anstalt(5)....................... 2,805,958 5.9 100,000 2,705,958 5.5
c/o Lic. Gentrud Beck
Stadtle 36
9490 Vaduz, Liechtenstein
J.H. Whitney & Co.(6)..................... 1,753,591 3.7 1,450,000 303,591 .6
177 Broad Street, 15th Floor
Stamford, CT 06961
Sumitomo Corporation of America........... 513,750 1.1 160,000 353,750 .7
Keith E. Busse(7)......................... 1,682,909 3.5 100,000 1,582,909 3.2
Richard P. Teets, Jr.(8).................. 1,126,156 2.4 -- 1,126,156 2.3
Mark D. Millett(9)........................ 1,067,707 2.2 -- 1,067,707 2.2
Tracy L. Shellabarger(10)................. 286,751 .6 -- 286,751 .6
Leonard Rifkin(11)........................ 6,239,926 13.0 -- 5,739,926 11.7
OmniSource Corporation(12)................ 6,233,926 13.0 450,000 5,733,926 11.7
John C. Bates(13)......................... 3,017,139 6.3 -- 2,917,139 5.9
Heidtman Steel Products, Inc.(14)......... 3,017,139 6.3 -- 2,917,139 5.9
Paul B. Edgerley(15)...................... 4,043,732 8.4 -- 1,299,723 2.6
William D. Strittmatter(16)............... 5,750,029 12.0 -- 4,310,000 8.8
William Laverack, Jr.(17)................. 1,753,591 3.7 -- 303,591 .6
Dr. Jurgen Kolb(18)....................... 6,089,865 12.7 -- 5,539,865 11.3
Directors and Executive Officers as a
Group (10 persons)(13, 15-18)........... 31,057,805 64.9 100,000 24,173,767 49.2
Other Selling Stockholders(19)............ 2,927,475 6.1 2,894,000 33,475 *
(None of whom own more than 1% of the
outstanding Common Stock)
</TABLE>
(footnotes on following page)
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<PAGE> 67
- ---------------
* Less than 1%
(1) Prior to the offerings, Heavy Metal, L.C. will distribute 500,000 shares to
two of its members, who will in turn sell those shares in the offerings. Of
these shares, 450,000 will be distributed to and sold by OmniSource
Corporation and are shown in the "Number of Shares Offered" column for
OmniSource Corporation. The other 50,000 shares will be distributed to a
person included in the category of "Other Selling Stockholders" and are
included in the "Number of Shares Being Offered" column for Other Selling
Stockholders. If the U.S. Underwriters exercise their over-allotment option
in full, Heavy Metal, L.C. will distribute another 266,525 shares to
OmniSource Corporation and 33,475 shares to one of the Other Selling
Stockholders, who will then sell those shares. The remaining shares
beneficially owned by Heavy Metal, L.C. if the U.S. Underwriters exercise
their overallotment option in full would thus be 5,433,926.
(2) If the U.S. Underwriters exercise their over-allotment option in full, the
shares beneficially owned by Preussag Stahl AG after the offerings would be
5,039,865.
(3) Consists of 1,687,584 shares held of record by Bain Capital Fund IV, L.P.,
1,931,272 shares held of record by Bain Capital Fund IV-B, L.P., 325,278
shares held of record by BCIP Associates, L.P., and 99,598 shares held of
record by BCIP Trust Associates, L.P. Prior to the offerings, the Bain
Capital Entities will distribute 2,744,000 shares to various limited
partners, who will in turn sell these shares in the offerings. These shares
are included in the "Number of Shares Offered" column for the Other Selling
Shareholders.
(4) Prior to the offerings, Keylock Investments Limited will distribute 90,496
shares to HS Processing, Inc., an affiliate of Heidtman Steel Products,
Inc., 8,415 shares to National Materials, Inc., and 1,089 to Centaur, Ltd.,
for a total of 100,000 shares, which will then be sold by these entities in
the offerings. These shares are included in the "Number of Shares Being
Offered" column opposite the Other Selling Stockholders.
(5) If the U.S. Underwriters exercise their over-allotment option in full, the
shares beneficially owned by Mazelina Anstalt after the offerings would be
2,455,958.
(6) Consists of 961,060 shares held of record by Whitney 1990 Equity Fund, L.P.
(139,510 after the offerings), 240,279 shares held of record by J.H.
Whitney & Co. (72,846 after the offerings), and 552,252 shares held of
record by the Whitney Subordinated Debt Fund (91,235 after the offerings).
(7) Includes 300 shares of Common Stock held by Mr. Busse's minor son, with
respect to which Mr. Busse disclaims beneficial ownership. Includes 5,000
shares subject to currently exercisable stock options or stock options
exercisable within 60 days. If the U.S. Underwriters exercise their
over-allotment option in full, the shares beneficially owned by Mr. Busse
after the offerings would be 1,532,609.
(8) Includes 3,750 shares subject to currently exercisable stock options or
stock options exercisable within 60 days.
(9) Includes 3,750 shares subject to currently exercisable stock options or
stock options exercisable within 60 days.
(10) Includes 3,750 shares subject to currently exercisable stock options or
stock options exercisable within 60 days, and also includes 2,400 shares
owned by Mr. Shellabarger's wife for the benefit of Mr. Shellabarger's
minor children.
(11) Includes 6,239,926 shares of Common Stock held of record for its members 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 and to one of
the Other Selling Stockholders. It also includes 500,000 shares of Common
Stock which Heavy Metal, L.C. intends to distribute to OmniSource
Corporation and to one of the Other Selling Stockholders immediately prior
to the offerings, which OmniSource Corporation and such Other Selling
Stockholder will sell in the offerings. Mr. Rifkin disclaims beneficial
ownership of all but 593,018 of these shares, none of which are being sold
in the offerings.
(12) Consists of all 6,233,926 shares of Common Stock held of record for its
members by Heavy Metal, L.C. that OmniSource may be deemed to beneficially
own due to its relationship with other beneficial owners
(footnotes continued on following page)
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<PAGE> 68
of that entity. It also includes 500,000 shares which are intended to be
distributed by Heavy Metal, L.C. to OmniSource Corporation and one of the Other
Selling Stockholders immediately prior to the offerings and which OmniSource
Corporation and such Other Selling Stockholder will sell in the offerings.
OmniSource disclaims beneficial ownership of all but 1,716,525 of these
shares. If the U.S. Underwriters exercise their over-allotment option in
full, the shares deemed beneficially owned by OmniSource after the
offerings would be 5,433,926, of which OmniSource would disclaim beneficial
ownership of all but 1,000,000 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 that entity. Prior to the offerings, Keylock
Investments Limited will distribute the shares noted in footnote (4) to the
entities noted therein, and these shares are included in the "Number of
Shares Offered" column for Other Selling Stockholders. Mr. Bates may be
deemed the beneficial owner of some of these shares.
(14) Consists of all 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 C. Bates, own a controlling interest in Keylock Investments
Limited. Prior to the offerings, Keylock Investments Limited will
distribute the shares noted in footnote (4) to the entities noted therein,
and these shares are included in the shares shown in the "Number of Shares
Offered" column for the Other Selling Stockholders.
(15) Consists of all 4,043,732 shares of Common Stock held of record by the Bain
Capital Entities that Mr. Edgerley may be deemed to beneficially own due to
his relationship with those entities. Mr. Edgerley disclaims beneficial
ownership of these shares. Prior to the offerings, 2,744,000 of these
shares will be distributed by the Bain Capital Entities to its limited
partners and will be sold by such limited partners as Other Selling
Stockholders, and these shares are included in the shares shown in the
"Number of Shares Offered" column for the Other Selling Stockholders.
(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 this entity. Mr. Strittmatter
disclaims beneficial ownership of these shares. The shares that are being
sold in the offerings by General Electric Capital Corporation are shown in
the "Number of Shares Offered" column opposite General Electric Capital
Corporation and are not being offered by Mr. Strittmatter.
(17) Consists of all 1,753,591 shares held of record by J.H. Whitney & Co. and
its affiliated entities noted in footnote (6) that Mr. Laverack may be
deemed to beneficially own due to his relationship with those entities. Mr.
Laverack disclaims beneficial ownership of these shares. The shares that
are being sold in the offerings by J.H. Whitney & Co. and its affiliated
entities are shown in the "Number of Shares Offered" column opposite J.H.
Whitney & Co. and are not being offered by Mr. Laverack.
(18) Consists of all 6,089,591 shares held of record by Preussag Stahl AG that
Dr. Kolb may be deemed to beneficially own due to his relationship with
this entity. Dr. Kolb disclaims beneficial ownership of the shares. The
shares that are being sold in the offerings by Preussag Stahl AG are shown
in the "Number of Shares Offered" column opposite Preussag Stahl AG and are
not being offered by Dr. Kolb.
(19) Consists of 2,744,000 shares expected to be distributed to certain of the
Other Selling Stockholders immediately prior to the offerings by the Bain
Capital Entities, and 50,000 and 100,000 shares expected to be distributed
immediately prior to the offerings by Heavy Metal, L.C. and Keylock
Investments Limited, respectively. See footnotes (1) and (4) above. If the
U.S. Underwriters exercise their over-allotment option in full, this group
would no longer beneficially own any shares after the offerings.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a brief description of the basic terms of the Company's
Credit Agreement and the proposed indebtedness of its subsidiary, Iron Dynamics,
Inc. 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. The Credit Agreement is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
THE CREDIT AGREEMENT
The Company entered into the Credit Agreement dated as of June 30, 1997,
which amended and restated the Company's previous credit agreement, with Melon
Bank, N.A. (the "Agent") and the lenders party thereto (the "Lenders"), which
provides for (i) a $250.0 million five-year revolving credit facility (the
"Tranche 1 Facility") for working capital and general corporate purposes; (ii) a
$100.0 million 364-day revolving credit facility (the "Tranche 2 Facility") for
capital expenditures and general corporate purposes; and (iii) a $100.0 million
term loan (the "Tranche 3 Facility"). Indebtedness outstanding under the Credit
Agreement is secured by a first priority lien on substantially all of the assets
of the Company. Borrowings under the Tranche 1 Facility are subject to a
borrowing base consisting of specified percentages of depreciated book value of
specified fixed assets, eligible inventory and receivables. Upon one week's
notice from the Company and approval of all of the Lenders, all or a portion of
the borrowings under the Tranche 2 Facility may be converted to Tranche 1
borrowings.
The Tranche 1 Facility will mature on June 30, 2002, subject to the
Company's option to extend this maturity date for an additional one year at the
end of year three (June 30, 2000) and at the end of year four (June 30, 2001),
provided that the Company's leverage ratio for the twelve month periods ending
on June 30, 2000 and on June 30, 2001, respectively, shall be less than 3.0 to
1. The Tranche 2 Facility will mature on June 30, 1998, subject to 364-day
extensions provided all of the Tranche 2 Facility lenders approve each such
extension. In the event that a Company request for an extension of the Tranche 2
Facility is not approved by such lenders, the Tranche 2 Facility shall be
converted to a five-year term loan with the principal amount of such five-year
term loan to be amortized in equal quarterly installments during the final two
years of the five-year term loan period. The Tranche 3 Facility will amortize in
equal quarterly installments during the final two years of the Tranche 3
Facility term, commencing on September 30, 2002, with the final quarterly
payment being due on June 30, 2004. Borrowings under the Tranche 1 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
asset sales, insurance proceeds and condemnation awards.
Borrowings under the Tranche 1 Facility and the Tranche 2 Facility bear
interest, at the option of the Company, at (i) the "Base Rate" plus an
applicable margin ("Base Rate Option") or (ii) the "Euro-Rate" plus an
applicable margin (the "Euro-Rate Option"). Borrowings under the Tranche 3
Facility bear interest at 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 Credit Agreement restricts the Company's ability to incur additional
indebtedness, except (i) licensing or royalty fees payable to SMS
Schloemann-Siemag AG; (ii) accounts payable to trade creditors arising out of
purchases of goods or services in the ordinary course of business, (iii) certain
indebtedness secured by purchase money liens; and (iv) unsecured indebtedness in
an aggregate principal amount at any one time not greater than $10.0 million. In
addition, the Credit Agreement prohibits the Company from
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making capital expenditures in any fiscal year in excess of an aggregate amount
of $50.0 million, unless the Company shall have furnished to the Agent
projections satisfactory to a majority in committed dollar amount of the Lenders
which demonstrate that the Company will satisfy the Financial Covenants (as
defined below). The Company is also prohibited from making any loans or advances
to, or making an investment in other entities except, among other things, (i)
investments in subsidiaries, partnerships or other joint ventures related to the
Company's steel production business which do not exceed (A) $50.0 million plus
35% of the cumulative annual change in net worth of the Company and its
subsidiary in the case of investments in entities in which the Company or its
subsidiary has an equity interest equal to or greater than 10% of the total
equity interests in such entity, or (B) $10.0 million plus 25% of the cumulative
annual change in net worth of the Company and its subsidiary in the case of
other investments and (ii) an investment in IDI not exceeding $30.0 million and
funded solely with the proceeds of the issuance of equity securities. The Credit
Agreement also prohibits the Company from creating any 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 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 subsidiary
with respect to entering into certain contracts, disposition of property or
assets, payment of dividends, providing guarantees, entering into sale-leaseback
transactions, entering into transactions with affiliates, mergers and
consolidations and the modification of certain agreements. In addition, the
Credit Agreement requires the Company to meet certain financial tests (the
"Financial Covenants"), including maintaining (i) its leverage ratio at or below
5.0 to 1 for any period of four consecutive fiscal quarters; (ii) its tangible
net worth at or above the sum of $187 million plus 50% of cumulative net income
at such time; and (iii) its ratio of EBITDA to interest expense at not less than
2.0 to 1 for any period of four consecutive fiscal quarters.
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, Heidtman or
OmniSource.
THE IDI FINANCING
IDI, the wholly owned subsidiary of the Company, expects to receive a
commitment during the third quarter of 1997 for the $60.0 million senior secured
financing facility, the IDI Financing, to finance a portion of the IDI Project.
This anticipated credit facility, as currently being discussed with a group of
lenders would include (i) a $50.0 million eight-year standby construction and
term loan facility (the "IDI Term Facility") for the construction and start-up
of a DRI production facility; and (ii) a $10.0 million eight-year revolving
credit facility (the "IDI Revolving Facility") for working capital and letters
of credit for import requirements. The IDI Term Facility and the IDI Revolving
Facility will be ratably secured by substantially all of the assets of IDI, and
will be further supported by a "take or pay" off-take supply agreement with the
Company for all of IDI's DRI production with an agreement term 18 months longer
than the maturity date of the IDI Financing, and with pricing of the DRI product
tied to market prices of prompt industrial scrap with a ceiling and floor
sufficient to provide for IDI's operating costs and debt service.
The IDI Term Facility will amortize by semi-annual payments beginning in
the year 2000 at 5% of the original principal amount, and increasing to 17.5% on
the final maturity date. In addition, IDI will be required to make prepayments
on the IDI Term Facility under certain circumstances from asset sales, insurance
proceeds and condemnation awards. Borrowings under the IDI Revolving Facility,
upon preliminary acceptance of the DRI production facility, will be subject to a
borrowing base consisting of specified percentages of raw materials, finished
DRI product and accounts receivables. Borrowings under the IDI Revolving
Facility will be required to be repaid to the extent such borrowings exceed the
borrowing base.
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Borrowings under the IDI Financing will bear interest at floating rates tied to
either the Base Rate (as defined above) or the Euro-Rate (as defined above), at
the option of IDI.
In addition to the "take or pay" off-take supply agreement with the
Company, the lenders will require that the Company provide construction
management services to IDI, as well as a package of coordinated completion and
performance guarantees (including repayment of all amounts outstanding under the
IDI Financing in the event the IDI Project fails to achieve a pre-determined
level of performance by a date certain) (the "Assurance Package"). The Assurance
Package will contain, at a minimum, (i) a coordination agreement among vendors
and contractors enabling timely resolution of disputes; (ii) satisfactory
retainages; (iii) payment schedules and payment support facilities; and (iv)
liquidated damages for delay, performance failure and performance shortfall up
to 100% of the contract price.
While it is anticipated that IDI will receive a commitment for the IDI
Financing substantially in accordance with the preceding terms, there can be no
assurance that the commitment will be received or that the IDI Financing will be
consummated.
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. The Company's authorized capital
stock consists of 100,000,000 shares of Common Stock, par value $.01 per share.
As of June 30, 1997, there were 47,866,323 shares of Common Stock issued and
outstanding, that were beneficially owned by approximately 6,250 stockholders.
As of June 30, 1997, 885,784 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.
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
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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 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
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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
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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
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
49,122,294 shares of Common Stock outstanding. Of these shares, 27,997,931
shares, plus 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, 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 one year 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 491,223 shares
immediately after the offerings) or the average weekly reported volume of
trading of the 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 two 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 Company, its directors and executive officers, the Selling
Stockholders, and certain other stockholders of the Company 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, lend 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, or (ii) enter into any swap or other agreement
that transfers to another, in whole or in part,
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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 90 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, (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, or (iii) transactions relating to
shares of Common Stock or other securities acquired in open market transactions
after completion of the offerings.
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. The Company has registered on Form S-8 under the Securities Act
approximately 2,505,765 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. As
of June 30, 1997, 1,102,765 shares had been reserved by the Company for issuance
pursuant to options granted under the 1994 Plan, and 1,403,000 shares had been
reserved for issuance pursuant to options granted under the 1996 Plan.
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
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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 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,
73
<PAGE> 76
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.
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
74
<PAGE> 77
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.
75
<PAGE> 78
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 the Selling Stockholders have agreed to sell 1,255,971 and 7,144,029 shares,
respectively, of the Company's Common Stock and the U.S. Underwriters named
below, for whom Morgan Stanley & Co. Incorporated, PaineWebber Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, 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, Donaldson, Lufkin & Jenrette Securities Corporation
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................................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
McDonald & Company Securities, Inc. ....................................
Salomon Brothers Inc....................................................
----------
Subtotal............................................................. 6,720,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited..............................
PaineWebber International (U.K.) Ltd. ..................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
McDonald & Company Securities, Inc......................................
Salomon Brothers International Limited..................................
----------
Subtotal............................................................. 1,680,000
----------
Total........................................................... 8,400,000
========
</TABLE>
76
<PAGE> 79
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 (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
77
<PAGE> 80
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 Price to Public. 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.
Pursuant to the Underwriting Agreement, the Company and certain of the
Selling Stockholders have granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
1,260,000 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.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, its executive officers and directors, the Selling
Stockholders, and certain other stockholders of the Company have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated, they
will not, for a period of 90 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, lend 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 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, (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 or (iii) transactions relating to shares of Common Stock
or other securities acquired in open market transactions after completion of the
offerings.
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.
78
<PAGE> 81
GE Capital Services, which owns 100% of the outstanding common stock of
General Electric Capital Corporation, owns 100% of the common stock of Kidder,
Peabody Group Inc. which in turn owns 100% of the common stock of Kidder,
Peabody & Co. Incorporated ("Kidder"). Kidder in turn owns approximately 22% of
the issued and outstanding common stock of PaineWebber Group Inc. and
Convertible Preferred Stock and Redeemable Preferred Stock of PaineWebber Group
Inc. PaineWebber Incorporated, a member of the NASD and a subsidiary of
PaineWebber Group Inc., will participate in the distribution of the Common Stock
offered hereby. In addition, General Electric Capital Corporation owns 5,750,029
of the shares of Common Stock outstanding prior to the offerings. As a result
the offering of the shares of Common Stock offered hereby are required to be
made in accordance with the applicable provisions of Rule 2720 of the NASD.
In compliance with Rule 2720, the public offering price can be no higher
than that recommended by a "qualified independent underwriter." Morgan Stanley &
Co. Incorporated is assuming the responsibilities of acting as qualified
independent underwriter and the public offering price of the shares of Common
Stock offered hereby will not be higher than the public offering price
recommended by Morgan Stanley & Co. Incorporated. In connection with the
offerings, Morgan Stanley & Co. Incorporated in its role as "qualified
independent underwriter" has performed due diligence investigations and reviewed
and participated in the preparation of the Registration Statement of which this
Prospectus is a part. In addition, the underwriters may not confirm sales to any
discretionary account without the prior written approval of the customer.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
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 deemed 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 as of December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 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.
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, is
required to file reports, proxy statements and other information with the
Commission. The Registration Statement, reports, proxy statements and other
informa-
79
<PAGE> 82
tion 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. The Common Stock of the Company is traded on the Nasdaq
Stock Market (Symbol: STLD), and such reports, proxy statements and other
information concerning the Company also can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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, 1995 and 1996 and unaudited June 30,
1997................................................................................ F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1996 and the unaudited six-month periods ended June 29, 1996 and June
30, 1997............................................................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1996 and for the unaudited six-month period ended June 30,
1997................................................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1996 and for the unaudited six-month periods ended June 29, 1996 and
June 30, 1997....................................................................... 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.
We have audited the accompanying consolidated balance sheets of Steel
Dynamics, Inc. (the "Company") as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 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. as of
December 31, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
January 17, 1997
F-2
<PAGE> 85
STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $6,884... $ 57,460 $ 22,293
Accounts receivable, net of allowance for doubtful
accounts of $628, $628 and $563 as of December 31,
1995 and 1996, and June 30, 1997, respectively....... 125 14,600 22,413
Accounts receivable -- related parties.................. -- 17,860 14,576
Inventories............................................. 13,580.. 65,911 56,829
Other current assets.................................... 1,634 1,599 1,217
-------- -------- --------
Total current assets............................ 22,223 157,430 117,328
PROPERTY, PLANT, AND EQUIPMENT, NET....................... 274,197 339,263 410,272
DEBT ISSUANCE COSTS, less accumulated amortization of $32,
$1,548, and $2,372 as of December 31, 1995 and 1996, and
June 30, 1997, respectively............................. 12,211 12,405 11,591
RESTRICTED CASH........................................... 2,666 2,827 3,456
OTHER ASSETS.............................................. 9,382 10,366 9,956
-------- -------- --------
TOTAL ASSETS.................................... $320,679 $522,291 $ 552,603
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 24,478 $ 28,968 $ 20,378
Accounts payable-related parties........................ 3,424 12,218 18,004
Accrued interest........................................ 2,660 338 1,216
Accrued foreign currency loss........................... 1,013 261 --
Other accrued expenses.................................. 3,078 8,597 11,123
Current maturities of long-term debt.................... 2,058 11,175 5,931
-------- -------- --------
Total current liabilities....................... 36,711 61,557 56,652
LONG-TERM DEBT, less current maturities................... 220,996 196,168 199,530
DEFERRED TAXES............................................ -- -- 1,468
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock voting, $.01 par value; 100,000,000
shares authorized; 28,644,722, 47,803,341 and
47,866,323 shares issued and outstanding as of
December 31, 1995 and 1996, and June 30, 1997,
respectively......................................... 286 478 479
Additional paid-in capital.............................. 93,083 303,846 304,078
Amounts due from stockholders........................... (469) -- --
Accumulated deficit..................................... (29,928) (39,758) (9,604)
-------- -------- --------
Total stockholders' equity...................... 62,972 264,566 294,953
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $320,679 $522,291 $ 552,603
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 86
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------------
---------------------------------- JUNE 29, JUNE 30,
1994 1995 1996 1996 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES:
Unrelated parties............... $ -- $ 137 $130,886 $ 49,474 $ 114,290
Related parties................. -- -- 121,731 49,188 86,487
------- -------- -------- -------- --------
Total net sales......... -- 137 252,617 98,662 200,777
Cost of goods sold................ -- 3,169 220,563 95,591 150,180
------- -------- -------- -------- --------
GROSS PROFIT (LOSS)............... -- (3,032) 32,054 3,071 50,597
Selling, general and
administrative expenses......... 4,192 13,580 13,838 5,894 12,479
------- -------- -------- -------- --------
OPERATING INCOME (LOSS)........... (4,192) (16,612) 18,216 (2,823) 38,118
Foreign currency gain (loss)...... (4,952) (3,272) 328 260 261
Interest expense.................. (43) (564) (22,684) (12,128) (3,995)
Interest income................... 307 560 1,581 579 1,264
------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS.......... (8,880) (19,888) (2,559) (14,112) 35,648
Income taxes...................... -- -- -- -- 5,494
------- -------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS............................ (8,880) (19,888) (2,559) (14,112) 30,154
Extraordinary loss................ -- -- (7,271) -- --
------- -------- -------- -------- --------
NET INCOME (LOSS)................. $ (8,880) $(19,888) $ (9,830) $ (14,112) $ 30,154
======= ======== ======== ======== ========
INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY LOSS.............. $ (.36) $ (.62) $ (.07) $ (.41) $ .63
Per share effect of extraordinary
loss............................ -- -- (.21) -- --
------- -------- -------- -------- --------
NET INCOME (LOSS) PER SHARE....... $ (.36) $ (.62) $ (.28) $ (.41) $ .63
======= ======== ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING..................... 24,679 31,975 34,571 34,695 47,851
======= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 87
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL AMOUNTS TOTAL
--------------- PAID-IN DUE FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994....... 13,436 $134 $ 597 -- $ (1,160) $ (429)
Issuance of shares................ 14,624 146 81,042 $(10,750) -- 70,438
Issuance of 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 common stock
warrants........................ -- -- 5,043 -- -- 5,043
Collection of amounts due from
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
Exercise of common stock
warrants........................ 1,791 18 382 -- -- 400
Issuance of shares, net of
expenses........................ 17,367 174 210,381 -- -- 210,555
Amortization of amount due from
officer......................... -- -- -- 469 -- 469
Net loss.......................... -- -- -- -- (9,830) (9,830)
------ ---- -------- -------- -------- --------
Balances at December 31,
1996....................... 47,803 478 303,846 -- (39,758) 264,566
Issuance of shares, net of
expenses (unaudited)............ 63 1 232 -- -- 233
Net income (unaudited)............ -- -- -- -- 30,154 30,154
------ ---- -------- -------- -------- --------
Balances at June 30, 1997
(unaudited)................ 47,866 $479 $ 304,078 $ -- $ (9,604) $ 294,953
====== ==== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 88
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, --------------------------
--------------------------------- JUNE 29, JUNE 30,
1994 1995 1996 1996 1997
-------- --------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................... $ (8,880) $ (19,888) $ (9,830) $ (14,112) $ 30,154
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization............. 13 876 19,403 8,793 11,607
Foreign currency loss (gain).............. 4,952 3,272 (328) (260) (261)
Deferred taxes............................ -- -- -- -- 1,468
Extraordinary loss........................ -- -- 7,271 -- --
Changes in certain assets and liabilities:
Accounts receivable.................... -- (125) (32,335) (28,020) (4,529)
Inventories............................ (13,580) (52,331) (12,399) 9,082
Other assets........................... (251) (788) 35 (986) 382
Accounts payable....................... 691 6,441 13,284 1,036 (2,804)
Accrued expenses....................... 796 4,822 3,197 1,582 3,406
-------- --------- -------- -------- --------
Net cash (used) provided in operating
activities......................... (2,679) (18,970) (51,634) (44,366) 48,505
-------- --------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment................................. (43,709) (224,449) (83,720) (12,062) (81,524)
Proceeds from government grants............. 2,878 21,188 1,558 1,467 --
Purchase of short-term investments.......... -- -- (7,000) (7,000) --
Maturities of short-term investments........ -- -- 7,000 -- --
Other....................................... (549) (1,602) (984) (571) 56
-------- --------- -------- -------- --------
Net cash used in investing
activities......................... (41,380) (204,863) (83,146) (18,166) (81,468)
-------- --------- -------- -------- --------
FINANCING ACTIVITIES:
Repayment of vendor/customer advances....... (800)
Issuance of long-term debt.................. 13,352 188,430 35,411 35,411 --
Repayments of long-term debt................ -- -- (57,927) (493) (2,426)
Issuance of common stock, net of expenses... 70,488 15,281 211,424 45,095 233
Debt issuance costs......................... (10,990) (1,102) (3,552) (3,542) (11)
-------- --------- -------- -------- --------
Net cash (used) provided in financing
activities......................... 72,050 202,609 185,356 76,471 (2,204)
-------- --------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents................................. 27,991 (21,224) 50,576 13,939 (35,167)
Cash and cash equivalents at beginning of
period...................................... 117 28,108 6,884 6,884 57,460
-------- --------- -------- -------- --------
Cash and cash equivalents at end of period.... $ 28,108 $ 6,884 $ 57,460 $ 20,823 $ 22,293
======== ========= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest...................... $ 14 $ 8,000 $ 26,030 $ 11,813 $ 3,797
======== ========= ======== ======== ========
Cash paid for taxes......................... $ -- $ -- $ -- $ -- $ 3,675
======== ========= ======== ======== ========
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Interim financial information as of June 30, 1997 and for the six months
ended June 30, 1997 and June 29, 1996 is unaudited. The unaudited interim
consolidated financial statements reflect all adjustments consisting of normal
recurring accruals which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods.)
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 operated on a four
week, four week, five week accounting cycle for 1996. Accordingly, the Company's
interim periods ended on the last day of the fourth or fifth week within the
month. The Company, effective January 1997, operates on a calendar month
accounting cycle.
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.
The Company records sales upon shipment and provides an allowance for
estimated costs associated with returns.
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.
Cash
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. 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 bond.
Inventories
Inventories consist of approximately 97%, 91% and 94% of raw materials and
supplies, and 3%, 9% and 6% of finished products as of December 31, 1995 and
1996, and June 30, 1997, 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 approximately $10.1
million, $1.0 million and $4.9 million in 1995, 1996 and June 30, 1997,
respectively. Depreciation is provided using the units-of-production method for
manufacturing plant and equipment and using the straight-line method for
non-manufacturing equipment over the estimated useful lives of the assets
ranging from 12 years to 30 years. 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 as of
December 31, 1995 and 1996.
F-7
<PAGE> 90
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Debt Issuance Costs
The costs related to the issuance of debt are deferred and amortized to
interest expense using the effective interest method over the terms of the
related debt.
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 income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of shares of common stock outstanding using the
treasury stock method. The anti-dilutive effect of shares issued from September
23, 1995 through September 23, 1996 are included in the weighted average number
of shares of common stock outstanding for the years ended December 31, 1994 and
1995 and the six months ended June 29, 1996. The anti-dilutive effect of common
stock equivalents is excluded from the calculation for all periods presented.
Derivatives
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses such
instruments to manage certain of its interest rate and foreign currency risks
and accounts for them under the accrual method.
New Pronouncements
In February 1997, SFAS No. 128, Earnings per Share, was issued which
establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. Management has determined that the adoption of SFAS No. 128 will not
have a material effect on the accompanying consolidated financial statements.
F-8
<PAGE> 91
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, SFAS No. 130, Comprehensive Income, was issued and becomes
effective in 1998 and requires reclassification of earlier financial statements
for comparative purposes. SFAS No. 130 requires that changes in the amounts of
certain items, including foreign currency translation adjustments and gains and
losses on certain securities be shown in the financial statements. SFAS No. 130
does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. Management has not yet
determined the effect, if any, of SFAS No. 130 on the consolidated financial
statements.
Also in June 1997, SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, was issued. This Statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined the effect, if any, of SFAS No. 131
on the consolidated financial statements.
2. PROPERTY, PLANT, AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements............................. $ 5,309 $ 4,757 $ 4,641
Buildings and improvements........................ 24,849 27,059 27,066
Plant, machinery and equipment.................... 242,690 246,023 243,653
Construction-in-progress.......................... 1,499 78,247 162,250
-------- -------- --------
274,347 356,086 437,610
Less accumulated depreciation..................... 150 16,823 27,338
-------- -------- --------
Property, plant, and equipment, net............. $274,197 $339,263 $ 410,272
======== ======== ========
</TABLE>
F-9
<PAGE> 92
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<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%, 8.0% and 6.9% as
of December 31, 1995 and 1996 and June 30, 1997,
respectively)................................... $115,000 $150,000 $ 150,000
8.01% municipal bond, principal and interest due
monthly through 2015............................ 21,400 21,100 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............................................ 37,397 36,243 34,361
11% senior subordinated promissory notes.......... 49,257 -- --
-------- -------- --------
Total debt...................................... 223,054 207,343 205,461
Less current maturities........................... 2,058 11,175 5,931
-------- -------- --------
Long-term debt.................................. $220,996 $196,168 $ 199,530
======== ======== ========
</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 million was designated and
remains available at June 30, 1997 for construction of the cold mill, and $45
million of revolving credit is available for working capital purposes. At
December 31, 1995 and 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 secured notes and the unused revolving credit
facility.
In 1995 the Company borrowed $21.4 million through a state government
municipal bond program, of which $2.7 million and $2.8 million as of December
31, 1995 and 1996, respectively, is held by a trustee in a debt service reserve
fund and is recorded as restricted cash. At December 31, 1996, a stand-by letter
of credit of $22.0 million relating to the municipal bonds was outstanding.
The electric utility transmission facility loan of $7.8 million and $7.7
million at December 31, 1995 and 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 $13.1 million at December
31, 1995 and 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.
The credit agreement, electric utility loan and transmission facility loan
require the Company to maintain certain covenants, the most restrictive of which
are requirements to maintain tangible net worth of at least $45
F-10
<PAGE> 93
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 which was less than $0.01 per share.
The proceeds received from the issuance of the Subordinated Notes and warrants
were allocated to the Subordinated Notes and warrants based upon their estimated
fair values. The Subordinated Notes were repaid in November 1996 with a portion
of the proceeds from the initial public offering. An extraordinary loss on the
prepayment of the Subordinated Notes in the amount of $7.3 million was recorded
in 1996 and was comprised of the write-off of the unamortized discount,
write-off of the financing costs associated with the Subordinated Notes and a
prepayment penalty.
If the retirement of the Subordinated Notes had occurred on January 1,
1996, income per share before extraordinary loss would have been $.11; the per
share effect of extraordinary loss would have been $.24 and the net loss per
share would have been $.13.
Maturities of outstanding debt as of December 31, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1997.............................................. $ 11,175
1998.............................................. 41,376
1999.............................................. 47,934
2000.............................................. 56,597
2001.............................................. 12,112
Thereafter........................................ 38,149
--------
$207,343
========
</TABLE>
4. INCOME TAXES
The effective income tax rate differs from the statutory federal income tax
rate for the years ended December 31, 1994, 1995 and 1996 because of the
valuation allowances recorded.
F-11
<PAGE> 94
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
------- -------- JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards...... $ 1,002 $ 19,752 $ 13,827
Tax assets expensed for books.................... 7,221 8,628 9,288
Other accrued expenses........................... 2,236 3,824 5,338
------- -------- --------
Total deferred tax assets.......................... 10,459 32,204 28,453
Less valuation allowance........................... (8,071) (11,937) (4,360)
------- -------- --------
Net deferred tax assets............................ 2,388 20,267 24,093
Deferred tax liabilities:
Depreciable assets............................... (2,026) (19,348) (24,311)
Amortization of fees............................. (41) (435) (662)
Other............................................ (321) (484) (588)
------- -------- --------
Total deferred tax liabilities..................... (2,388) (20,267) (25,561)
------- -------- --------
Net deferred tax liabilities....................... $ -- $ -- $ (1,468)
======= ======== ========
</TABLE>
As of December 31, 1996, the Company had available net operating loss
carryforwards of approximately $49.4 million for federal income tax purposes.
The carryforwards expire $200,000 in 2009, $2.3 million in 2010 and $46.9
million in 2011. Because of the Company's limited operating history, a valuation
allowance has been established for a portion of the deferred tax asset. The
Company will continually assess the need for a valuation allowance for the
deferred tax asset based upon expectations of future taxable income.
For the six months ended June 29, 1996, the Company had a net deferred tax
asset that was offset entirely by a valuation allowance. For the six months
ended June 30, 1997, the Company has computed income taxes based upon the
expected annual effective tax rate which gives effect to the utilization of
available net operating loss carryforwards.
5. COMMON STOCK
On November 21, 1996, the Company completed an initial public offering. The
Company issued 9,375,000 shares at a net offering price of $15.08 per share. The
Company received approximately $140.2 million in net proceeds. Existing
shareholders sold 468,750 shares, and the over-allotment was exercised by the
underwriting group, which allowed existing shareholders to sell an additional
1,476,562 shares. The Company's Common Stock currently trades on the Nasdaq
National Market under the STLD symbol.
Warrants related to the Subordinated Notes for 1,641,827 shares of the
Company's Common Stock were exercised in the fourth quarter of 1996. In
addition, other warrants for 149,645 shares were exercised in the fourth quarter
of 1996.
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.
1994 Incentive Stock Option Plan
The Company 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, 1,102,765 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 1996, and
June 30, 1997, respectively. Eligible individuals under the 1994 Plan may be
granted options to
F-12
<PAGE> 95
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Effective January 10,
1997, options under the 1994 Plan vest one-third six months after the date of
grant and two-thirds five years after the date of grant. The options have a
maximum term of ten years. As of June 30, 1997, options for 62,043 shares had
been exercised.
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 have 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. As of June 30,
1997, options for 939 shares had been exercised.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------------------------
---------------------------------------
JUNE 29, 1996 JUNE 30, 1997
------------------ ------------------
1995 1996
------------------ ------------------
(UNAUDITED) (UNAUDITED)
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 PLAN
- ------------------------
Outstanding at beginning
of period............. 241,319 $3 572,427 $ 3 572,427 $ 3 645,383 $ 4
Granted................. 331,108 5 81,374 11 16,836 10 117,853 19
Forfeited............... -- -- 8,418 3 8,418 3 -- --
Exercised............... -- -- -- -- -- -- 62,043 4
Outstanding at end of
period................ 572,427 3 645,383 4 580,845 3 701,193 7
Options exercisable at
end of period......... -- -- -- -- -- -- 153,085 5
1996 PLAN
- ------------------------
Outstanding at beginning
of period............. -- -- -- -- -- -- 94,408 16
Granted................. -- -- 94,408 16 -- -- 92,273 21
Forfeited............... -- -- -- -- -- -- 1,151 17
Exercised............... -- -- -- -- -- -- 939 16
Outstanding at end of
period................ -- -- 94,408 16 -- -- 184,591 18
Options exercisable at
end of period......... -- -- -- -- -- -- 92,684 16
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for the plans. No
compensation cost has been recognized for the plans because the stock option
price is equal to fair value at the grant date. Had compensation cost for the
plans been determined based on the fair value at the grant dates for awards
under the plan consistent with the fair value method of SFAS No. 123, Accounting
for Stock-Based Compensation, the Company's net income (loss) and
F-13
<PAGE> 96
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net income (loss) per share would change to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED
31, ---------------------------
--------------------- JUNE 29, JUNE 30,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss):
As reported......................... $(19,888) $ (9,830) $ (14,112) $30,154
Pro forma........................... (19,972) (10,274) (14,285) 29,576
Net income (loss) per share:
As reported......................... $ (.62) $ (.28) $ (.41) $ .63
Pro forma........................... (.63) (.30) (.41) .62
</TABLE>
At December 31, 1996, 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 one and one-half to eight years. The pro forma
amounts are not representative of the effects on reported net income 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 December 31, 1996, the Company's fixed and determinable purchase
obligations for electricity are $7.5 million annually from 1997 through 2001.
The Company began construction of its cold mill in August 1996 and has
construction related commitments of approximately $132.0 million as of December
31, 1996. The Company also began construction of its second caster project in
June 1997 and has construction related commitments of approximately $15 million
as of June 30, 1997.
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, cash flows or future results of operations.
F-14
<PAGE> 97
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. During 1996, sales to Heidtman and
Preussag represented 36% and 12%, respectively, and during 1997, sales to
Heidtman and Preussag represented 32% and 10%, respectively, of the Company's
total net sales. The Company had sales of $91.8 million and $29.9 million during
the year ended December 31, 1996 to Heidtman and affiliates of Preussag,
respectively. The Company as of December 31, 1996 had outstanding accounts
receivable of $15.3 million and $2.6 million from Heidtman and affiliates of
Preussag, respectively.
The Company had purchases (including fees) of approximately $7.2 million
and $145.5 million from OmniSource in 1995 and 1996, respectively. The Company
as of December 31, 1995 and 1996 had accounts payable to OmniSource of
approximately $3.4 million and $12.0 million, respectively.
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. The Company has
commitments to purchase additional equipment from General Electric Corporation
for approximately $23.4 million.
9. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximated fair value as
of December 31, 1995 and 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, 1995 and 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 was 7.0%. The premium paid for the interest
rate cap agreement was included in other current assets, as of December 31, 1995
and amortized to interest expense during 1996.
10. RETIREMENT PLANS
The Company sponsors a 401(k) retirement savings plan ("401(k) Plan") for
all eligible employees of the Company under which they 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. The 401(k) Plan was amended effective in 1997 to provide for a
matching contribution that will be dependent upon the Company's return on
assets. In no event will the match be less than 5% or greater than 50% of
employee contributions.
The Company has also established a Profit Sharing Plan ("Profit Sharing
Plan") for eligible employees. The Profit Sharing Plan is a "qualified plan" for
federal income tax purposes. Each year, the Company allocates 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
F-15
<PAGE> 98
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL YEAR 1997:
Net sales.................................... $ 98,059 $ 102,178 $ -- $ --
Gross profit................................. 24,149 26,448 -- --
Income from operations....................... 18,810 19,308 -- --
Net income................................... 14,585 15,569 -- --
Net income per share......................... .30 .33 -- --
FISCAL YEAR 1996:
Net sales.................................... $ 32,287 $ 66,375 $75,957 $77,998
Gross profit (loss).......................... (2,898) 5,967 13,293 15,692
Income (loss) from operations................ (5,707) 2,883 9,839 11,200
Extraordinary loss........................... -- -- -- 7,271
Net income (loss)............................ (11,296) (2,816) 4,295 (13)
Net income (loss) per share.................. (.35) (.08) .11 --
FISCAL YEAR 1995:
Net sales.................................... $ -- $ -- $ -- $ 137
Gross profit (loss).......................... -- -- -- (3,032)
Loss from operations......................... (1,695) (2,408) (6,871) (8,914)
Net loss..................................... (1,695) (2,408) (6,871) (8,914)
Net loss per share........................... (.05) (.08) (.22) (.28)
</TABLE>
Per share amounts are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share amounts may not equal
the total for the year.
12. SUBSEQUENT EVENTS (UNAUDITED)
On July 9, 1997, the Company amended its credit facility which increased
the amount committed to the Company from $345 million to $450 million, changed
the maturities of the tranches, revised the covenants and lowered the effective
interest rate charged by the bank group.
As a result of the substantial modifications with this amendment, the
Company will incur an extraordinary loss of approximately $10.5 million (net of
tax benefit of $2.2 million) related to prepayment penalties and the write-off
of the financing costs associated with the original credit facility.
Effective July 1, 1997, the Company entered into an interest rate swap
agreement with The First National Bank of Chicago ("First Chicago") to make
fixed rate payments at 6.935% and to receive variable rate payments at LIBOR on
a notional amount of $100 million. The interest rate swap agreement was entered
into as an anticipatory hedge of the seven year term tranche of the new credit
facility. The maturity date of the interest rate swap agreement is July 2, 2001;
however, on June 28, 2001, First Chicago has the right to extend the maturity
date to July 1, 2004 at predetermined interest rates. The interest rate swap
agreement will be accounted for on an accrual basis. The Company is exposed to
credit loss in the event of nonperformance by the counterparty for the net
interest differential when variable rates exceed the fixed rate. However, the
Company does not anticipate nonperformance by the counterparty.
F-16
<PAGE> 99
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.
[Alternate Page for International Prospectus]
PROSPECTUS (Subject to Completion)
Issued July 21, 1997
8,400,000 Shares
Steel Dynamics, Inc.
COMMON STOCK
------------------------
OF THE 8,400,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,255,971 SHARES
ARE BEING SOLD BY THE COMPANY AND 7,144,029 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 8,400,000 SHARES OF COMMON STOCK BEING OFFERED,
1,680,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS AND 6,720,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON STOCK IS TRADED ON THE NASDAQ STOCK MARKET, UNDER THE
SYMBOL "STLD." ON JULY 17, 1997, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ STOCK MARKET WAS $26 3/8 PER SHARE.
------------------------
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 $600,000.
(3) The Company and certain of the Selling Stockholders have granted the
U.S. Underwriters an option, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 1,260,000 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, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein 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 , 1997, at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER PAINEWEBBER INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
McDONALD & COMPANY SECURITIES, INC.
SALOMON BROTHERS INTERNATIONAL LIMITED
, 1997
<PAGE> 100
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...................................................... $ 77,024
NASD filing fee........................................................... 25,918
Nasdaq National Market listing fee........................................ 17,500
Printing and engraving expenses........................................... 200,000
Blue Sky qualification fees and expenses.................................. 12,000
Legal fees and expenses................................................... 100,000
Accounting fees and expenses.............................................. 100,000
Transfer Agent and Registrar fees......................................... 2,500
Miscellaneous expenses and administrative costs........................... 65,058
--------
Total........................................................... $600,000
========
</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 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
II-1
<PAGE> 101
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
The Registrant issued and sold the following securities (without giving
effect to the 28.06:1 stock split of the Registrant's Common Stock effected
immediately prior to the Company's initial public offering in November 1996):
1. At the time of incorporation in September 1993, 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, 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, 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 $55,379,292. 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 180,609 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 61,173 shares for $6,742,157, for a per share
purchase price of $90.61 and Keylock 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
$55,379,292, for a per share average purchase price of $108.34.
II-2
<PAGE> 102
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, SDI Limited Partnership,
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 a June 30, 1994 credit agreement, 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 was forgiven concurrently with the Company's initial public
offering.
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 a June 30, 1994 agreement between the Company's stockholders
at that time, 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> 103
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.
3.1a Amended and Restatement Articles of Incorporation of Steel Dynamics, Inc. Filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1, SEC File No.
333-12521, effective November 21, 1996 ("1996 Form S-1") and incorporated by
reference herein.
3.1b Articles of Incorporation of Iron Dynamics, Inc. Filed as Exhibit 3.1b to the
Registrant's 1996 Annual Report on Form 10-K, SEC File No. 0-21719 ("1996 Form
10-K"), filed March 31, 1997, and incorporated by reference herein.
3.2a Bylaws of Steel Dynamics, Inc. Filed as Exhibit 3.2 to the Registrant's 1996 Form
S-1 and incorporated by reference herein.
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., dated July 9, 1997.
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.
Filed as the identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein.
10.3 Contract for electric service between Steel Dynamics, Inc. and American Electric
Power Company. Filed as the identically numbered exhibit to the Registrant's 1996
Form S-1 and incorporated by reference herein.
10.4 Industrial Gasses Supply Agreement Between Steel Dynamics, Inc. and Air Products
and Chemicals, Inc. dated August 5, 1994. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.5 Interruptible Gas Supply Contract between Steel Dynamics, Inc. and Northern
Indiana Trading Co. dated February 27, 1995. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.6 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana Fuel &
Light Company, Inc. dated April 3, 1995. Filed as the identically numbered exhibit
to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.7 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana Trading
Co. dated April 3, 1995. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein.
10.8 Gas Services Agreement between Steel Dynamics, Inc. and Crossroads Pipeline
Company dated April 3, 1995. Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by reference herein.
10.9 Panhandle Eastern Pipeline Agreement dated July 22, 1996. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein.
10.10 Natural Gas Purchase Agreement between Steel Dynamics, Inc. and PanEnergy Trading
and Market Services, Inc. dated August 8, 1996. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.11 Agreement for Wastewater Services between the City of Butler, Indiana and Steel
Dynamics, Inc. dated September 5, 1995. Filed as the identically numbered exhibit
to the Registrant's 1996 Form S-1 and incorporated by reference herein.
</TABLE>
II-4
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
10.12 Slag Processing Agreement between Steel Dynamics, Inc. and Butler Mill Service
Company dated February 3, 1995. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein.
10.13 Agreement to provide Scrap Purchasing Services between Steel Dynamics, Inc. and
OmniSource Corporation dated October 29, 1993. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.14 Purchasing Agreement between Steel Dynamics, Inc. and Heidtman Steel Products,
Inc. dated October 29, 1993. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein.
10.15 Iron Carbide Off Take Agreement between Steel Dynamics, Inc. and Qualitech Steel
Corporation dated June 29, 1996. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein.
10.16 Purchasing, Domestic Sales and Export Distribution Agreement between Steel
Dynamics, Inc. and Preussag Stahl AG dated December 14, 1995. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein.
10.17 Reciprocal Patent and Technical Information Transfer and License Agreement between
Steel Dynamics, Inc. and Preussag Stahl AG dated December 14, 1995. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein.
10.18 1994 Incentive Stock Option Agreement, as needed. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein.
10.19 1996 Incentive Stock Option Agreement. Filed as the identically numbered exhibit
to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.20 Employment Agreement between Steel Dynamics, Inc. and Keith Busse. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein.
10.21 Employment Agreement between Steel Dynamics, Inc. and Mark D. Millett. Filed as
the identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein.
10.22 Employment Agreement between Steel Dynamics, Inc. and Richard P. Teets, Jr. Filed
as the identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein.
10.23 1996 Officer and Manager Cash and Stock Bonus Plan. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein.
10.24 Employment Agreement between Steel Dynamics, Inc. and Tracy L. Shellabarger. Tracy
L. Shellabarger Promissory Note and Stock Pledge Agreement. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein.
10.25 "Second Look" Export Distribution Agreement between Steel Dynamics, Inc. and
Sumitomo Corporation of America. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein.
10.26 Sale of Excess Product Agreement between Iron Dynamics, Inc. and Sumitomo
Corporation of America. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein.
10.31 Registration Agreement dated June 30, 1994. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.32 Amendment No. 1 to Registration Agreement. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
</TABLE>
II-5
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<C> <S>
10.33 Amendment No. 2 to Registration Agreement. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.34 Amendment No. 3 to Registration Agreement. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.35 Stock Purchase Agreement with Preussag Stahl AG dated December 14, 1995. Filed as
the identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein.
10.36 Stock Purchase Agreement with Sumitomo Corporation of America and Sumitomo
Corporation dated September 10, 1996. Filed as the identically numbered exhibit to
the Registrant's 1996 Form S-1 and incorporated by reference herein.
10.37 Stock Purchase Agreement with Bain Capital, General Electric Capital Corporation,
Heavy Metal, L.C., Keylock Investments Limited, Mazelina Anstalt, et. al. dated
June 30, 1994. Filed as the identically numbered exhibit to the Registrant's 1996
Form S-1 and incorporated by reference herein.
10.38 Employment Agreement between Iron Dynamics, Inc. and Larry J. Lehtinen. Filed as
Exhibit 10.38 to the Registrant's 1996 Form 10-K and incorporated by reference
herein.
10.39+ License Agreement between Iron Dynamics, Inc. and Sumitomo Corporation and
Sumitomo Corporation, dated June 5, 1997.
11.1* Statement re: Computation of Per Share Earnings.
21.1* List of 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>
- ---------------
* Filed herewith.
+ To be filed by amendment.
(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.
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.
II-6
<PAGE> 106
(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-effectve 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-7
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this 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 21st day of July, 1997.
STEEL DYNAMICS, INC.
By: /s/ KEITH E. BUSSE
------------------------------------
Keith E. Busse
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Keith E.
Busse and Tracy L. Shellabarger, either of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him, and in his name, place and stead,
in any and all capacities to sign any and all amendments (including
post-effective amendments) and supplements to this Registration Statement and
any related Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ ------------------------------------ --------------
<S> <C> <C>
/s/ KEITH E. BUSSE President & Chief Executive Officer July 21, 1997
- ------------------------------------------ and Director (Principal Executive
Keith E. Busse Officer)
/s/ TRACY L. SHELLABARGER Vice President & Chief Financial July 21, 1997
- ------------------------------------------ Officer and Director (Principal
Tracy L. Shellabarger Financial and Accounting Officer)
/s/ MARK D. MILLETT Vice President of Melting and July 21, 1997
- ------------------------------------------ Casting and Director
Mark D. Millett
/s/ RICHARD P. TEETS, JR. Vice President of Rolling and July 21, 1997
- ------------------------------------------ Finishing and Director
Richard P. Teets, Jr.
Director
- ------------------------------------------
Paul B. Edgerley
Director
- ------------------------------------------
William D. Strittmatter
/s/ LEONARD RIFKIN Director July 21, 1997
- ------------------------------------------
Leonard Rifkin
/s/ JOHN C. BATES Director July 21, 1997
- ------------------------------------------
John C. Bates
Director
- ------------------------------------------
William Laverack, Jr.
Director
- ------------------------------------------
Jurgen Kolb
</TABLE>
II-8
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ------------------------------------------------------------------------- --------
<C> <S> <C>
1.1+ Form of Underwriting Agreement. .........................................
3.1a Amended and Restatement Articles of Incorporation of Steel Dynamics, Inc.
Filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1,
SEC File No. 333-12521, effective November 21, 1996 ("1996 Form S-1") and
incorporated by reference herein. .......................................
3.1b Articles of Incorporation of Iron Dynamics, Inc. Filed as Exhibit 3.1b to
the Registrant's 1996 Annual Report on Form 10-K, SEC File No. 0-21719
("1996 Form 10-K"), filed March 31, 1997, and incorporated by reference
herein. .................................................................
3.2a Bylaws of Steel Dynamics, Inc. Filed as Exhibit 3.2 to the Registrant's
1996 Form S-1 and incorporated by reference herein. .....................
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., dated July 9, 1997. ..........................
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. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.3 Contract for electric service between Steel Dynamics, Inc. and American
Electric Power Company. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein. ........
10.4 Industrial Gasses Supply Agreement Between Steel Dynamics, Inc. and Air
Products and Chemicals, Inc. dated August 5, 1994. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.5 Interruptible Gas Supply Contract between Steel Dynamics, Inc. and
Northern Indiana Trading Co. dated February 27, 1995. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.6 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana
Fuel & Light Company, Inc. dated April 3, 1995. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.7 Gas Services Agreement between Steel Dynamics, Inc. and Northern Indiana
Trading Co. dated April 3, 1995. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.8 Gas Services Agreement between Steel Dynamics, Inc. and Crossroads
Pipeline Company dated April 3, 1995. Filed as the identically numbered
exhibit to the Company's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.9 Panhandle Eastern Pipeline Agreement dated July 22, 1996. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.10 Natural Gas Purchase Agreement between Steel Dynamics, Inc. and PanEnergy
Trading and Market Services, Inc. dated August 8, 1996. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ------------------------------------------------------------------------- --------
<C> <S> <C>
10.11 Agreement for Wastewater Services between the City of Butler, Indiana and
Steel Dynamics, Inc. dated September 5, 1995. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.12 Slag Processing Agreement between Steel Dynamics, Inc. and Butler Mill
Service Company dated February 3, 1995. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.13 Agreement to provide Scrap Purchasing Services between Steel Dynamics,
Inc. and OmniSource Corporation dated October 29, 1993. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.14 Purchasing Agreement between Steel Dynamics, Inc. and Heidtman Steel
Products, Inc. dated October 29, 1993. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.15 Iron Carbide Off Take Agreement between Steel Dynamics, Inc. and
Qualitech Steel Corporation dated June 29, 1996. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.16 Purchasing, Domestic Sales and Export Distribution Agreement between
Steel Dynamics, Inc. and Preussag Stahl AG dated December 14, 1995. Filed
as the identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.17 Reciprocal Patent and Technical Information Transfer and License
Agreement between Steel Dynamics, Inc. and Preussag Stahl AG dated
December 14, 1995. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein. ........
10.18 1994 Incentive Stock Option Agreement, as needed. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.19 1996 Incentive Stock Option Agreement. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.20 Employment Agreement between Steel Dynamics, Inc. and Keith Busse. Filed
as the identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.21 Employment Agreement between Steel Dynamics, Inc. and Mark D. Millett.
Filed as the identically numbered exhibit to the Registrant's 1996 Form
S-1 and incorporated by reference herein. ...............................
10.22 Employment Agreement between Steel Dynamics, Inc. and Richard P. Teets,
Jr. Filed as the identically numbered exhibit to the Registrant's 1996
Form S-1 and incorporated by reference herein. ..........................
10.23 1996 Officer and Manager Cash and Stock Bonus Plan. Filed as the
identically numbered exhibit to the Registrant's 1996 Form S-1 and
incorporated by reference herein. .......................................
10.24 Employment Agreement between Steel Dynamics, Inc. and Tracy L.
Shellabarger. Tracy L. Shellabarger Promissory Note and Stock Pledge
Agreement. Filed as the identically numbered exhibit to the Registrant's
1996 Form S-1 and incorporated by reference herein. .....................
10.25 "Second Look" Export Distribution Agreement between Steel Dynamics, Inc.
and Sumitomo Corporation of America. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ------------------------------------------------------------------------- --------
<C> <S> <C>
10.26 Sale of Excess Product Agreement between Iron Dynamics, Inc. and Sumitomo
Corporation of America. Filed as the identically numbered exhibit to the
Registrant's 1996 Form S-1 and incorporated by reference herein. ........
10.31 Registration Agreement dated June 30, 1994. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.32 Amendment No. 1 to Registration Agreement. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.33 Amendment No. 2 to Registration Agreement. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.34 Amendment No. 3 to Registration Agreement. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.35 Stock Purchase Agreement with Preussag Stahl AG dated December 14, 1995.
Filed as the identically numbered exhibit to the Registrant's 1996 Form
S-1 and incorporated by reference herein. ...............................
10.36 Stock Purchase Agreement with Sumitomo Corporation of America and
Sumitomo Corporation dated September 10, 1996. Filed as the identically
numbered exhibit to the Registrant's 1996 Form S-1 and incorporated by
reference herein. .......................................................
10.37 Stock Purchase Agreement with Bain Capital, General Electric Capital
Corporation, Heavy Metal, L.C., Keylock Investments Limited, Mazelina
Anstalt, et. al. dated June 30, 1994. Filed as the identically numbered
exhibit to the Registrant's 1996 Form S-1 and incorporated by reference
herein. .................................................................
10.38 Employment Agreement between Iron Dynamics, Inc. and Larry J. Lehtinen.
Filed as Exhibit 10.38 to the Registrant's 1996 Form 10-K and
incorporated by reference herein. .......................................
10.39+ License Agreement between Iron Dynamics, Inc. and Sumitomo Corporation
and Sumitomo Corporation, dated June 5, 1997. ...........................
11.1* Statement re: Computation of Per Share Earnings. ........................
21.1* List of 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>
- ---------------
* Filed herewith.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
[BARRETT & MCNAGNY LETTERHEAD]
ROBERT S. WALTERS
Direct 219-423-8905
July , 1997
Steel Dynamics, Inc.
4500 County Road 59
Butler, IN 46721
Dear Sirs:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act") by Steel Dynamics, Inc. (the "Company") of approximately
shares of its Common Stock, in a proposed public offering registered
with the United States Securities and Exchange Commission on Form S-1, we have
examined such corporate records, certificates, and other documents, and have
reviewed such questions of law as we have considered necessary or appropriate
for purposes of this opinion.
On the basis of such examination and review, we advise you that, in our
opinion, when the Registration Statement on Form S-1 filed by the Company
herewith with respect to such offering of its Common Stock shall have become
effective under the Act, and when the certificates evidencing the shares of
Common Stock purchased in connection herewith shall have been issued, executed,
authenticated and delivered by the Company and by First Chicago Trust Company of
New York as its transfer agent, and when sold in accordance with the terms set
forth in the Underwriting Agreement between the Company and Morgan Stanley & Co.
Incorporated, as the representative of the underwriters identified therein, the
shares of Common Stock will be validly and legally issued and outstanding, will
be fully paid and non-assessable, and will be entitled to the benefits described
for the Common Stock in the Company's Amended and Restated Articles of
Incorporation.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Opinions" in the Prospectus forming part of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
BARRETT & McNAGNY
Robert S. Walters
RSW:klv:104464
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
(AMENDED AND RESTATED)
dated as of June 30, 1994,
as amended and restated as of June 30, 1997,
by and among
STEEL DYNAMICS, INC.,
as Borrower,
the Lenders parties hereto from time to time,
MELLON BANK, N.A.,
as Agent for the Lenders hereunder,
MELLON BANK, N.A.,
as Issuing Bank hereunder,
KREDITANSTALT FUR WIEDERAUFBAU and COMERICA BANK,
as Senior Co-Agents,
and
BANQUE NATIONALE DE PARIS, NBD BANK, N.A. and
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
as Co-Agents
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS; CONSTRUCTION; ACCOUNTING PRINCIPLES .............. 2
1.01. Certain Definitions ............................................... 2
1.02. Construction ...................................................... 30
1.03. Accounting Principles. ............................................ 30
ARTICLE II - THE CREDITS .................................................. 31
2.01. Revolving Credit Loans. ........................................... 31
2.02. Commitment Fee; Reduction of the Revolving Credit
Committed Amounts ............................................... 33
2.03. Tranche 2 Loans on the Tranche 2 Conversion Date .................. 35
2.04. Tranche 3 Loans ................................................... 36
2.05. Making of Loans ................................................... 36
2.06. Interest Rates. ................................................... 37
2.07. Conversion or Renewal of Interest Rate Options .................... 43
2.08. Prepayments Generally ............................................. 44
2.09. Optional Prepayments .............................................. 45
2.10. Mandatory Prepayments ............................................. 46
2.11. Interest Payment Dates ............................................ 46
2.12. Pro Rata Treatment; Payments Generally;
Interest on Overdue Amounts .................................... 47
2.13. Additional Compensation in Certain
Circumstances .................................................. 50
2.14. Taxes. ............................................................ 52
2.15. Funding by Branch, Subsidiary or Affiliate. ....................... 55
2.16. Borrowing Base .................................................... 56
2.17. The Letter of Credit Subfacility .................................. 62
2.18. Procedure for Issuance and Amendment
of Letters of Credit ........................................... 64
2.19. Letter of Credit Participating Interests .......................... 66
2.20. Letter of Credit Drawings and Reimbursements ...................... 67
2.21. Obligations Absolute .............................................. 68
2.22. Additional Compensation in Certain Circumstances .................. 69
2.23. Further Assurances ................................................ 69
2.24. Letter of Credit Applications ..................................... 69
2.25. Cash Collateral for Letters of Credit ............................. 70
2.26. Certain Provisions Relating to the Issuing Bank ................... 71
2.27. The Swingline Subfacility ......................................... 73
2.28. Limitations on the Making of Swingline Loans;
Swingline Current Availability ................................. 74
2.29. Swingline Loan Participating Interests ............................ 75
2.30. Certain Provisions Relating to the
Swingline Lender ............................................... 77
ARTICLE III - REPRESENTATIONS AND WARRANTIES .............................. 78
3.01. Corporate Status .................................................. 78
3.02. Corporate Power and Authorization ................................. 78
3.03. Execution and Binding Effect ...................................... 79
<PAGE> 3
3.04. Governmental Approvals and Filings ................................ 79
3.05. Absence of Conflicts .............................................. 79
3.06. Projections ....................................................... 80
3.07. Labor Matters ..................................................... 81
3.08. Absence of Undisclosed Liabilities ................................ 81
3.09. Accurate and Complete Disclosure .................................. 81
3.10. Commitments ....................................................... 81
3.11. Solvency .......................................................... 81
3.12. Margin Regulations ................................................ 82
3.13. Subsidiaries ...................................................... 82
3.14. Partnerships, etc ................................................. 82
3.15. Ownership and Control ............................................. 82
3.16. Litigation ........................................................ 83
3.17. Absence of Events of Default ...................................... 83
3.18. Absence of Other Conflicts ........................................ 83
3.19. Insurance ......................................................... 83
3.20. Title to Property ................................................. 83
3.21. Intellectual and Other Property ................................... 84
3.22. Taxes ............................................................. 84
3.23. Employee Benefits ................................................. 84
3.24. Environmental Matters. ............................................ 84
3.25. Potential Conflicts of Interest ................................... 85
ARTICLE IV - CONDITIONS OF LENDING ........................................ 86
4.01. Conditions to Initial Loans and
Letters of Credit .............................................. 86
4.02. Conditions to All Loans or Letters
of Credit ...................................................... 88
4.03. Use of Proceeds of Initial Loans .................................. 89
ARTICLE V - AFFIRMATIVE COVENANTS ......................................... 89
5.01. Basic Reporting Requirements. ..................................... 89
5.02. Insurance ......................................................... 95
5.03. Payment of Taxes and Other Potential
Charges and Priority Claims .................................... 95
5.04. Preservation of Corporate Status .................................. 96
5.05. Governmental Approvals and Filings ................................ 96
5.06. Maintenance of Properties ......................................... 96
5.07. Avoidance of Other Conflicts ...................................... 96
5.08. Financial Accounting Practices .................................... 97
5.09. Use of Proceeds ................................................... 97
5.10. Continuation of or Change in Business ............................. 97
5.11. Consolidated Tax Return ........................................... 97
5.12. Fiscal Year ....................................................... 97
5.13. Future Project Agreements ......................................... 98
ARTICLE VI - NEGATIVE COVENANTS ........................................... 98
6.01. Financial Covenants ............................................... 98
6.02. Liens ............................................................. 98
6.03. Indebtedness. ..................................................... 98
<PAGE> 4
6.04. Guaranties, Indemnities, etc. .................................... 101
6.05. Loans, Advances and Investments .................................. 101
6.06. Dividends and Related Distributions .............................. 103
6.07. Sale-Leasebacks .................................................. 104
6.08. Leases ........................................................... 104
6.09. Mergers, Acquisitions, etc. ...................................... 104
6.10. Dispositions of Properties ....................................... 104
6.11. No Plans ......................................................... 105
6.12. Dealings with Affiliates ......................................... 105
6.13. Capital Expenditures ............................................. 106
6.14. Limitations on Modification of Certain
Agreements and Instruments ..................................... 106
6.15. Limitation on Other Restrictions on Liens ........................ 107
6.16. Limitation on Other Restrictions on
Amendment of the Loan Documents, etc. .......................... 107
6.17. Maintenance of Business .......................................... 107
6.18. Subsidiaries ..................................................... 107
ARTICLE VII - DEFAULTS ................................................... 108
7.01. Events of Default ................................................ 108
7.02. Consequences of an Event of Default .............................. 112
ARTICLE VIII - THE AGENT ................................................. 113
8.01. Appointment ...................................................... 113
8.02. General Nature of Agent's Duties ................................. 114
8.03. Exercise of Powers ............................................... 114
8.04. General Exculpatory Provisions ................................... 115
8.05. Administration by the Agent ...................................... 116
8.06. Lender Not Relying on Agent or Other Lenders ..................... 117
8.07. Indemnification .................................................. 117
8.08. Agent in its Individual Capacity ................................. 118
8.09. Holders of Notes ................................................. 118
8.10. Successor Agent .................................................. 118
8.11. Additional Agents ................................................ 119
8.12. Calculations ..................................................... 119
8.13. Funding by Agent ................................................. 120
8.14. Co-Agents ........................................................ 120
ARTICLE IX - MISCELLANEOUS ............................................... 120
9.01. Holidays ......................................................... 120
9.02. Records .......................................................... 121
9.03. Amendments and Waivers ........................................... 121
9.04. No Implied Waiver; Cumulative Remedies ........................... 123
9.05. Notices .......................................................... 123
9.06. Expenses; Taxes; Indemnity ....................................... 124
9.07. Severability ..................................................... 125
9.08. Prior Understandings ............................................. 125
9.09. Duration; Survival ............................................... 126
9.10. Counterparts ..................................................... 126
9.11. Limitation on Payments ........................................... 126
<PAGE> 5
9.12. Set-Off .......................................................... 126
9.13. Sharing of Collections ........................................... 127
9.14. Successors and Assigns; Participations;
Assignments .................................................... 128
9.15. Confidentiality .................................................. 132
9.16. Governing Law; Submission to
Jurisdiction; Waiver of Jury Trial;
Limitation of Liability ........................................ 132
Exhibits
Exhibit A-1-1997 Form of Tranche 1 Note
Exhibit A-2-1997 Form of Tranche 2 Note
Exhibit A-3-1997 Form of Tranche 3 Note
Exhibit B-1997 Form of Swingline Note
Exhibit DD-1997 Investments in Subsidiaries
Exhibit KK-1997 Prepayment Upon Receipt of
Condemnation/Insurance Proceeds
Schedules
Schedule 1.01B Project Agreements
Schedule 3.15-1997 Ownership and Control
Schedule 3.16-1997 Litigation
Schedule 3.23-1997 Employee Benefits
Schedule 3.25-1997 Conflicts of Interest
Schedule 4.01-1997 Amended Security Documents
Schedule 5.02-1997 Insurance
Schedule 6.05-1997 Loans and Investments
Schedule 6.12-1997 Contracts with Affiliates
<PAGE> 6
CREDIT AGREEMENT
(AMENDED AND RESTATED)
THIS AGREEMENT, dated as of June 30, 1994, as amended and
restated as of June 30, 1997, by and among STEEL DYNAMICS, INC., an Indiana
corporation (the "Borrower"), the lenders parties hereto from time to time (the
"Lenders", as defined further below), MELLON BANK, N.A., a national banking
association, as issuing bank (in such capacity, the "Issuing Bank", as defined
further below), MELLON BANK, N.A., a national banking association, as agent for
the Lenders hereunder (in such capacity, together with its successors in such
capacity, the "Agent"), and the Senior Co-Agents and Co-Agents named on the
signature pages hereof (in such capacities, the "Senior Co-Agents" and the
"Co-Agents").
Recitals:
WHEREAS, the Borrower, the Agent, the Lenders, the Senior
Co-Agents and the Co-Agents are parties to the Credit Agreement, dated as of
June 30, 1994, as amended by Amendments Nos. 1 through 10 thereto (as so
amended, the "Original Agreement");
WHEREAS, the parties desire to amend and restate the Original
Agreement to read in its entirety as set forth herein;
WHEREAS, the Borrower wishes to borrow an aggregate amount of up
to $450,000,000 and the Lenders are willing to extend credit to the Borrower to
permit, on the terms and subject to the conditions herein contained, such
borrowings;
WHEREAS, certain financial institutions which were not party to
the Original Agreement wish to become Lenders hereunder; and
WHEREAS, all of the Exhibits and Schedules to the Original
Agreement shall remain Exhibits and Schedules hereto, with the same
designations, and additional Exhibits and Schedules are attached hereto and
referred to herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and intending to be legally bound hereby, the
parties hereto agree that the Original Agreement is amended and restated in its
entirety as follows:
<PAGE> 7
ARTICLE I
DEFINITIONS; CONSTRUCTION; ACCOUNTING PRINCIPLES
------------------------------------------------
1.01. CERTAIN DEFINITIONS. In addition to other words and terms
defined elsewhere in this Agreement, as used herein the following words and
terms shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
"Affected Lender" shall have the meaning set forth in Section
2.06(e) hereof.
"Affiliate" of a Person (the "Specified Person") shall mean (a)
any Person which directly or indirectly controls, or is controlled by,
or is under common control with, the Specified Person, (b) any
director or officer (or, in the case of a Person which is not a
corporation, any individual having analogous powers) of the Specified
Person or of a Person who is an Affiliate of the Specified Person
within the meaning of the preceding clause (a), and (c) for each
individual who is an Affiliate of the Specified Person within the
meaning of the foregoing clauses (a) or (b), any other individual
related to such Affiliate by consanguinity within the third degree or
in a step or adoptive relationship within such third degree or related
by affinity with such Affiliate or any such individual. For purposes
of the preceding sentence, "control" of a Person means (a) the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether
through the ownership of voting securities, by contract or otherwise
and (b) in any case shall include direct or indirect ownership
(beneficially or of record) of, or direct or indirect power to vote,
5% or more of the outstanding shares of any class of capital stock of
such Person (or in the case of a Person that is not a corporation, 5%
or more of any class of equity interest). Bain Capital, Inc. shall be
deemed to be an Affiliate of the Borrower so long as Bain is an
Affiliate of the Borrower, whether or not Bain Capital, Inc. meets the
requirements of the foregoing definition.
"Applicable Margin" shall have the meaning set forth in Section
2.06(b) hereof.
"Assignment of Contracts" shall have the meaning set forth in
Section 4.01(b)(i)(D) of the Original Agreement.
<PAGE> 8
"Bain" shall mean, collectively, Bain Capital Fund IV, L.P., Bain
Capital Fund IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P.
and Klans Associates.
"Base Rate" shall have the meaning set forth in Section 2.06(a)
hereof.
"Base Rate Option" shall have the meaning set forth in Section
2.06(a) hereof.
"Base Rate Portion" of any Loan or Loans shall mean at any time
the portion, including the whole, of such Loan or Loans bearing
interest at such time (i) under the Base Rate Option or (ii) in
accordance with Section 2.12(c)(ii) hereof. If no Loan or Loans is
specified, "Base Rate Portion" shall refer to the Base Rate Portion of
all Loans outstanding at such time.
"Borrower Group" shall mean the group consisting of the Borrower
and any of its consolidated Subsidiaries permitted hereunder.
"Borrowing Base" shall have the meaning set forth in Section 2.16
hereof.
"Borrowing Base Certificate" shall have the meaning set forth in
Section 2.16(e) hereof.
"Business Day" shall mean any day other than a Saturday, Sunday,
public holiday under the laws of the Commonwealth of Pennsylvania or
of the State of New York or other day on which banking institutions
generally are authorized or obligated to close in Pittsburgh,
Pennsylvania or in New York, New York.
"Capital Expenditures" of any Person shall mean, for any period,
all expenditures (whether paid in cash or accrued as liabilities
during such period) of such Person during such period which would be
classified as capital expenditures for purposes of GAAP (including,
without limitation, expenditures for maintenance and repairs which are
capitalized, and Capitalized Leases to the extent an asset is recorded
in connection therewith in accordance with GAAP).
"Capitalized Lease" shall mean at any time any lease which is, or
is required under GAAP to be, capitalized on the balance sheet of the
lessee at such time, and "Capitalized Lease Obligation" of any Person
at any time shall mean the aggregate amount which is, or is required
<PAGE> 9
under GAAP to be, reported as a liability on the balance sheet of such
Person at such time as lessee under a Capitalized Lease.
"Cash Equivalent Investments" shall mean any of the following, to
the extent acquired for investment and not with a view to achieving
trading profits: (a) obligations fully backed by the full faith and
credit of the United States of America, or issued by an agency or
instrumentality thereof, in each case maturing not in excess of nine
months from the date of acquisition, (b) commercial paper maturing not
in excess of nine months from the date of acquisition and rated "P-1"
or "P-2" by Moody's Investors Service or "A-1" or "A-2" by Standard &
Poor's Corporation on the date of acquisition, (c) the following
obligations of any domestic commercial bank having capital and surplus
in excess of $500,000,000, which has, or the holding company of which
has, a commercial paper rating meeting the requirements specified in
clause (b) above: (i) time deposits, certificates of deposit and
acceptances maturing not in excess of nine months from the date of
acquisition, or (ii) repurchase obligations with a term of not more
than seven days for underlying securities of the type referred to in
clause (a) above, and (d) investments in mutual funds which do not
make any material investments other than those described in clauses
(a), (b) or (c) of this definition.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and any successor statute
of similar import, and regulations thereunder, in each case as in
effect from time to time.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List, as the same may be
amended from time to time.
"Change of Control" shall mean that at any time any Person or
group of Persons (as defined in the Securities Exchange Act of 1934,
as amended) not a member of the Control Group shall own more than 30%
of the voting capital stock of the Borrower or more than 30% of the
equity securities of the Borrower.
As used herein, the term "Control Group" at any time shall mean
the following Persons: (a) Bain, (b) GECC, (c) Keith Busse and the
Designated Managers, (d) Heavy Metal, L.C., a Virginia limited
liability company, (e) Keylock Investments Limited, an Irish
non-resident corporation, and Mazelina Anstalt, a Liechenstein
business trust and (f) Preussag.
<PAGE> 10
"Code" means the Internal Revenue Code of 1986, as amended, and
any successor statute of similar import, and regulations thereunder,
in each case as in effect from time to time. References to sections of
the Code shall be construed also to refer to any successor sections.
"Cold Mill Work in Process Inventory" shall mean flat rolled
steel coils in processing or held for further processing.
"Collateral" shall mean the property from time to time subject to
or purported to be subject to the Liens of the Security Documents.
"Commercial Grade Finished Goods" shall mean finished goods which
are of prime grade in accordance with A.I.S.I. standards.
"Commitments" of a Lender shall mean the Tranche 1 Commitment,
the Tranche 2 Commitment and the Tranche 3 Commitment, as the case may
be, of such Lender.
"Consents to Assignment of Contracts" shall mean the Consents to
Assignment of Contracts delivered pursuant to Section 4.01(b)(i)(E) or
Section 4.05(b)(i)(C) of the Original Agreement.
"Continuing Letter of Credit Agreement" shall mean the continuing
letter of credit agreement executed and delivered by the Borrower
substantially in the form of Exhibit L hereto.
"Contractual Obligations" shall mean, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument to which such Person is a party or by which it or any of
its property (now owned or hereafter acquired) is bound.
"Controlled Group Member" shall mean each trade or business
(whether or not incorporated) which together with the Borrower is
treated as a single employer under Sections 4001(a)(14) or 4001(b)(1)
of ERISA or Sections 414(b), (c), (m) or (o) of the Code.
"Corresponding Source of Funds" shall mean, in the case of any
Funding Segment of the Euro-Rate Portion, the proceeds of hypothetical
receipts by a Notional Euro-Rate Funding Office or by a Lender through
a Notional Euro-Rate
<PAGE> 11
Funding Office of one or more Dollar deposits in the interbank
eurodollar market at the beginning of the Euro-Rate Funding Period
corresponding to such Funding Segment having maturities approximately
equal to such Euro-Rate Funding Period and in an aggregate amount
approximately equal to such Lender's Pro Rata share of such Funding
Segment.
"Cumulative Annual Change in Net Worth" at any time shall mean
the sum of the increases (or decreases) in Tangible Net Worth of the
Borrower Group for each fiscal year which has ended at the time in
question and has ended after December 31, 1996.
"Cumulative Net Income" shall mean for the period from July 1,
1997 until the end of the fiscal quarter completed most recently at
the time of measurement, the consolidated net earnings (without
deduction for losses incurred in any completed fiscal year or in any
completed fiscal quarter in the then current fiscal year) after taxes
of the Borrower Group; PROVIDED, that there shall be deducted
therefrom (a) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made against
income during such period, and (b) any gain arising from the
acquisition of any securities, or the extinguishment, under GAAP, of
any Indebtedness, of the Borrower Group.
"Depreciated Book Value of Specified Fixed Assets" shall mean the
net book value at the time in question of the equipment and real
estate of the Borrower which is subject to a perfected security
interest in favor of the Agent under the Security Documents and which,
in the case of equipment under construction or installation, has been
the subject of preliminary acceptance by the Borrower under its
contract with the supplier thereof.
"Designated Lender" shall have the meaning set forth in Section
2.14(f) hereof.
"Designated Managers" shall mean Mark Millett, Richard Teets and
such other senior management employee or employees of the Borrower, if
any, as shall have been approved by the Required Lenders as a
Designated Manager.
"Development Package" shall mean the combination of grants and
loans extended to the Borrower as described on Schedule 1.01A hereto.
<PAGE> 12
"Direct Reduced Iron Inventory" shall mean solid form iron units
not obtained from scrap and held for utilization as melting feedstock
by the Borrower.
"Dollar," "Dollars" and the symbol "$" shall mean lawful money of
the United States of America.
"EBITDA" for any period, with respect to the Borrower Group,
shall mean the sum of (a) Net Income for such period, (b) Interest
Expense for such period, (c) charges against income for foreign,
federal, state and local income taxes for such period, (d)
extraordinary losses to the extent included in determining such Net
Income, (e) depreciation expense for such period, and (f) amortization
expense for such period, MINUS (g) extraordinary gains to the extent
included in determining such Net Income, (h) interest income, and (i)
capitalized losses (exclusive of capitalized interest), all as
determined on a consolidated basis in accordance with GAAP; provided,
however, that there shall be excluded from EBITDA any net positive or
negative contribution that, absent such exclusion, would have been
made thereto by IDI or any other Subsidiary which is subject to any
material restriction on its ability to transfer, as a dividend, as a
loan or otherwise, cash or assets to the Borrower, except that there
shall not be so excluded (x) any positive contribution of any such
Subsidiary equal to dividends actually paid by such Subsidiary to the
Borrower during the applicable period and (y) any negative
contribution of any such Subsidiary equal to the advances or capital
contributions made during the applicable period to fund operating
losses of such Subsidiary after preliminary acceptance of the
principal operating property of such Subsidiary.
"Eligible Inventory" shall have the meaning set forth in Section
2.16(d) hereof.
"Eligible Receivables" shall have the meaning set forth in
Section 2.16(b) hereof.
"Employment Agreements" shall mean the employment agreements
between each of certain executives on the one hand and the Borrower on
the other.
"Environmental Affiliate" shall mean, with respect to any Person,
any other Person whose liability (contingent or otherwise) for any
Environmental Claim such Person has retained, assumed or otherwise is
liable for (by Law, agreement or otherwise).
<PAGE> 13
"Environmental Approvals" shall mean any Governmental Action
pursuant to or required under any Environmental Law.
"Environmental Claim" shall mean, with respect to any Person, any
action, suit, proceeding, investigation, notice, claim, complaint,
demand, request for information or other communication (written or
oral) by any other Person (including but not limited to any
Governmental Authority, citizens' group or present or former employee
of such Person) alleging, asserting or claiming any actual or
potential (a) violation of any Environmental Law, (b) liability under
any Environmental Law or (c) liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, fines or penalties arising out
of, based on or resulting from the presence, or release into the
environment, of any Environmental Concern Materials at any location,
whether or not owned by such Person.
"Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on
CERCLIS or on any similar state list of sites requiring investigation
or cleanup, or which is the subject of any pending or threatened
action, suit, proceeding or investigation related to or arising from
any alleged violation of any Environmental Law.
"Environmental Concern Materials" shall mean (a) any flammable
substance, explosive, radioactive material, hazardous material,
hazardous waste, toxic substance, solid waste, pollutant, contaminant
or any related material, raw material, substance, product or
by-product of any substance specified in or regulated or otherwise
affected by any Environmental Law (including but not limited to any
"hazardous substance" as defined in CERCLA or any similar state Law),
(b) any toxic chemical or other substance from or related to
industrial, commercial or institutional activities, and (c) asbestos,
gasoline, diesel fuel, motor oil, waste and used oil, heating oil and
other petroleum products or compounds, polychlorinated biphenyls,
radon and urea formaldehyde.
"Environmental Law" shall mean any Law, whether now existing or
subsequently enacted or amended, relating to (a) pollution or
protection of the environment, including natural resources, (b)
exposure of Persons, including but not limited to employees, to
Environmental Concern Materials, (c) protection of the public health
or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of Environmental Concern
<PAGE> 14
Materials or (d) regulation of the manufacture, use or introduction
into commerce of Environmental Concern Materials including their
manufacture, formulation, packaging, labeling, distribution,
transportation, handling, storage or disposal. Without limitation,
"Environmental Law" shall also include any Environmental Approval and
the terms and conditions thereof.
"Equity Agreements" shall mean the Registration Agreement, dated
June 30, 1994 among the Borrower and the other parties thereto and the
Stockholders Agreement, dated June 30, 1994 among the Borrower and the
other parties thereto, as amended from time to time in accordance with
the terms thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed also to refer to
any successor sections.
"Euro-Rate" shall have the meaning set forth in Section 2.06(a)
hereof.
"Euro-Rate Funding Period" shall have the meaning set forth in
Section 2.06(c) hereof.
"Euro-Rate Option" shall have the meaning set forth in Section
2.06(a) hereof.
"Euro-Rate Portion" of any Loan or Loans shall mean at any time
the portion, including the whole, of such Loan or Loans bearing
interest at any time under the Euro-Rate Option or at a rate
calculated by reference to the Euro-Rate under Section 2.12(c)(i)
hereof. If no Loan or Loans is specified, "Euro-Rate Portion" shall
refer to the Euro-Rate Portion of all Loans outstanding at such time.
"Euro-Rate Reserve Percentage" shall have the meaning set forth
in Section 2.06(a) hereof.
"Event of Default" shall mean any of the Events of Default
described in Section 7.01 hereof.
"Federal Funds Effective Rate" for any day shall mean the rate
per annum (rounded upward to the nearest 1/100 of 1%) announced by the
Federal Reserve Bank of New York (or any successor) on such day as
being the weighted average of the rates on overnight Federal funds
transactions arranged
<PAGE> 15
by Federal funds brokers on the previous trading day, as computed and
announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes
and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; PROVIDED, that if
such Federal Reserve Bank (or its successor) does not announce such
rate on any day, the "Federal Funds Effective Rate" for such day shall
be the Federal Funds Effective Rate for the last day on which such
rate was announced.
"Funding Breakage Date" shall have the meaning set forth in
Section 2.13(b) hereof.
"Funding Breakage Indemnity" shall have the meaning set forth in
Section 2.13(b) hereof.
"Funding Periods" shall have the meaning set forth in Section
2.06(c) hereof.
"Funding Segment" of the Euro-Rate Portion of the Revolving
Credit Loans or the Term Loans at any time shall mean the entire
principal amount of such Portion to which at the time in question
there is applicable a particular Funding Period beginning on a
particular day and ending on a particular day. (By definition, each
such Portion is at all times composed of an integral number of
discrete Funding Segments and the sum of the principal amounts of all
Funding Segments of any such Portion at any time equals the principal
amount of such Portion at such time.)
"Future Project Agreement" shall mean any contract or agreement
described on Schedule 1.01E hereto, and any contract or agreement (or
series of related contracts or agreements) entered into by any Loan
Party after the Restatement Date for (a) the purchase of raw materials
of 100,000 tons or more annually for a term of one year or more, (b)
the sale of product for amounts of $10,000,000 or more annually for a
term of one year or more or (c) the disposal of Environmental Concern
Material (and other by-products of the Borrower's operations) for a
term of one year or more.
"GAAP" shall have the meaning set forth in Section 1.03 hereof.
"Governmental Action" shall have the meaning set forth in Section
3.04 hereof.
<PAGE> 16
"Governmental Authority" shall mean any government or political
subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of either, or any court,
tribunal, grand jury or public or private mediator or arbitrator, in
each case whether foreign or domestic.
"Guaranty Equivalent": A Person (the "Deemed Guarantor") shall be
deemed to be subject to a Guaranty Equivalent in respect of any
indebtedness, obligation or liability (the "Assured Obligation") of
another Person (the "Deemed Obligor") if the Deemed Guarantor directly
or indirectly guarantees, becomes surety for, endorses, assumes,
agrees to indemnify the Deemed Obligor against, or otherwise agrees,
becomes or remains liable (contingently or otherwise) for, such
Assured Obligation. Without limitation, a Guaranty Equivalent shall be
deemed to exist if a Deemed Guarantor agrees, becomes or remains
liable (contingently or otherwise), directly or indirectly: (a) to
purchase or assume, or to supply funds for the payment, purchase or
satisfaction of, an Assured Obligation, (b) to make any loan, advance,
capital contribution or other investment in, or to purchase or lease
any property or services from, a Deemed Obligor (i) to maintain the
solvency of the Deemed Obligor, (ii) to enable the Deemed Obligor to
meet any other financial condition, (iii) to enable the Deemed Obligor
to satisfy any Assured Obligation or to make any Stock Payment or any
other payment, or (iv) to assure the holder of such Assured Obligation
against loss, (c) to purchase or lease property or services from the
Deemed Obligor regardless of the non-delivery of or failure to furnish
such property or services, (d) in a transaction having the
characteristics of a take-or-pay or throughput contract or as
described in paragraph 6 of FASB Statement of Financial Accounting
Standards No. 47, or (e) in respect of any other transaction the
effect of which is to assure the payment or performance (or payment of
damages or other remedy in the event of nonpayment or nonperformance)
of any Assured Obligation.
"Heidtman" shall mean Heidtman Steel Products Inc., an Ohio
corporation.
"Heidtman Documents" shall mean the agreements and other
documents listed on Exhibit S hereto, in the respective forms referred
to on or included in such Exhibit.
"I&M Development Debt" shall mean the indebtedness in the
original principal amount of $7,821,033 incurred by the Borrower as
part of the Development Package to finance the
<PAGE> 17
Borrower's share of the cost of the electric transmission facilities
constituting part of the Phase I Project.
"IDI" shall mean Iron Dynamics, Inc., an Indiana corporation, all
of the capital stock of which is owned by
the Borrower.
"IDI Guaranty" shall mean that certain Guaranty and Suretyship
Agreement, substantially in the form of Exhibit R hereto, executed and
delivered by IDI in favor of the Agent.
"IDI Security Agreement" shall mean that certain Security
Agreement, substantially in form and substance satisfactory to the
Agent and its counsel, executed and delivered by IDI in favor of the
Agent.
"Indebtedness" of a Person shall mean:
(a) All obligations on account of money borrowed by, or
credit extended to or on behalf of, or for or on account of
deposits with or advances to, such Person;
(b) All obligations of such Person evidenced by bonds,
debentures, notes or similar instruments;
(c) All obligations of such Person for the deferred purchase
price of property or services;
(d) All obligations secured by a Lien on property owned by
such Person (whether or not assumed); and all obligations of such
Person under Capitalized Leases (without regard to any limitation
of the rights and remedies of the holder of such Lien or the
lessor under such Capitalized Lease to repossession or sale of
such property);
(e) The face amount of all letters of credit issued for the
account of such Person and, without duplication, the unreimbursed
amount of all drafts drawn thereunder, and all other obligations
of such Person associated with such letters of credit or draws
thereon;
(f) All obligations of such Person in respect of acceptances
or similar obligations issued for the account of such Person;
(g) All obligations of such Person under a product financing
or similar arrangement described in paragraph
<PAGE> 18
8 of FASB Statement of Accounting Standards No. 49 or any similar
requirement of GAAP; and
(h) All obligations of such Person under any interest rate
or currency protection agreement, interest rate or currency
future, interest rate or currency option, interest rate or
currency swap or cap or other interest rate or currency hedge
agreement.
"Indebtedness for Borrowed Money" shall mean Indebtedness
described in clauses (a), (b), (d), (e) and (f) of the definition of
Indebtedness herein, but in no event shall Indebtedness for Borrowed
Money include the SMS vendor obligation or the electric transmission
agreement debt, in each case appearing on the Borrower's balance sheet
as of March 31, 1997.
"Indemnified Parties" shall mean the Agent, the Lender Parties,
the Issuing Bank, their respective Affiliates and the directors,
officers, employees, attorneys and agents of each of the foregoing.
"Initial Tranche 1 Committed Amount" shall have the meaning set
forth in Section 2.01(a) hereof.
"Initial Tranche 2 Committed Amount" shall have the meaning set
forth in Section 2.01(b) hereof.
"Interest Expense" for any period shall mean the total interest
expense of the Borrower Group for such period determined on a
consolidated basis in accordance with GAAP.
"Interest Rate Protection Agreements" shall mean one or more
contracts with one or more Lenders or affiliates thereof, having terms
and conditions reasonably satisfactory to the Agent , as contemplated
by Section 5.13 of the Original Agreement.
"Inventory" shall mean all goods now or hereafter owned by the
Borrower, whenever acquired and wherever located, held for sale or
lease or furnished or to be furnished under contracts of service, and
all raw materials, spares and supplies, work in process and materials
now or hereafter owned by the Borrower whenever acquired and wherever
located, and used or consumed in its business.
"IPO" shall mean the underwritten initial public offering of the
Borrower's equity securities.
"Issuing Bank" shall mean Mellon Bank, N.A.
<PAGE> 19
"Law" shall mean any law (including common law), constitution,
statute, treaty, convention, regulation, rule, ordinance, order,
injunction, writ, decree or award of any Governmental Authority.
"Lenders" shall mean lender parties listed on the signature pages
hereof, subject to the provisions of Section 9.14 hereof pertaining to
Persons becoming or ceasing to be Lenders, and "Lender" shall mean any
of them.
"Lender Parties" shall mean the Lenders, the Issuing Bank, the
Senior Co-Agents, the Co-Agents and the Agent.
"Letter of Credit" shall mean each Standby Letter of Credit and
each Trade Letter of Credit issued by the Issuing Bank for the account
of the Borrower pursuant to this Agreement or the Original Agreement,
each as amended, modified or supplemented from time to time.
"Letter of Credit Application" shall have the meaning given that
term in Section 2.18(a) hereof.
"Letter of Credit Collateral Account" shall have the meaning
given that term in Section 2.25(b) hereof.
"Letter of Credit Exposure" at any time shall mean the sum at
such time of (a) the aggregate Letter of Credit Unreimbursed Draws and
(b) the aggregate Letter of Credit Undrawn Availability.
"Letter of Credit Facing Fee" shall have the meaning set forth in
Section 2.17(e) hereof.
"Letter of Credit Fee" shall have the meaning given that term in
Section 2.17(d) hereof.
"Letter of Credit Participating Interest" shall have the meaning
given that term in Section 2.19(a) hereof.
"Letter of Credit Reimbursement Obligation" with respect to a
Letter of Credit means the obligation of the Borrower to reimburse the
Issuing Bank for Letter of Credit Unreimbursed Draws, together with
interest thereon.
"Letter of Credit Undrawn Availability" with respect to a Letter
of Credit at any time shall mean the maximum amount available to be
drawn under such Letter of Credit at such time or thereafter,
regardless of the existence or satisfaction of any conditions or
limitations on drawing.
<PAGE> 20
"Letter of Credit Unreimbursed Draws" with respect to a Letter of
Credit at any time shall mean the aggregate amount at such time of all
payments made by the Issuing Bank under such Letter of Credit, to the
extent not repaid by the Borrower.
"Level 1 Day", "Level 2 Day", "Level 3 Day", "Level 4 Day",
"Level 5 Day" and "Level 6 Day" shall have the respective meanings set
forth in Section 2.06(b).
"Leverage Ratio" for any period of four consecutive fiscal
quarters shall mean the ratio of (a) consolidated Indebtedness for
Borrowed Money of the Borrower Group at the end of such period to (b)
EBITDA of the Borrower Group for such period.
"Lien" shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement
of any nature whatsoever, including but not limited to any conditional
sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security.
"Loan" shall mean any loan by a Lender to the Borrower under this
Agreement, and "Loans" shall mean all Loans made by the Lenders under
this Agreement.
"Loan Documents" shall mean this Agreement, the Original
Agreement, the Notes, the Transfer Supplements, the Interest Rate
Protection Agreements, the Letters of Credit, the Continuing Letter of
Credit Agreement, the Letter of Credit Applications (and any other
agreements or documents pursuant to which any Letter of Credit may be
issued or amended), each Subsidiary Guaranty, the Security Documents
and all other agreements and instruments extending, renewing,
refinancing or refunding any indebtedness, obligation or liability
arising under any of the foregoing, in each case as the same may be
amended, modified or supplemented from time to time hereafter.
"Loan Parties" shall mean the Borrower and each Subsidiary of the
Borrower, and "Loan Party" shall mean any one of them.
"London Business Day" shall mean a day for dealing in deposits in
Dollars by and among banks in the London interbank market and which is
a Business Day.
<PAGE> 21
"Material Adverse Effect" shall mean: (a) a material adverse
effect on the business, operations or condition (financial or
otherwise) of the Borrower or of the Borrower Group, (b) a material
adverse effect on the ability of the Borrower or any other Loan Party
to perform or comply with any of the terms and conditions of any Loan
Document or an adverse effect on the ability of the Borrower or any
other Loan Party to perform or comply with any of the terms and
conditions of any Project Agreement if the effect thereof could excuse
or preclude the other party to such Project Agreement, as the case may
be, from performing any of its obligations or duties thereunder
material to the properties or operations of the Borrower or any other
Loan Party, or could increase the duties or obligations of the
Borrower or any other Loan Party thereunder to an extent material to
the properties or operations of such Person or (c) a material adverse
effect on (i) the legality, validity, binding effect, enforceability
or admissibility into evidence of any Loan Document, or (ii) the
ability of the Agent or any Lender Party to enforce any rights or
remedies under or in connection with any Loan Document which could, in
the judgment of the Required Lenders reasonably exercised, prevent the
practical realization of the rights and benefits of the Lenders under
such Loan Document, or (iii) the ability of any Loan Party to enforce
any rights or remedies material to the properties or operations of the
Borrower or any Loan Party under or in connection with any Project
Agreement.
"Measurement Period" with respect to any day shall mean the
period of four consecutive fiscal quarters of the Borrower most
recently ended in a month which is not the month immediately preceding
the month in which such day occurs.
"Mellon" shall mean Mellon Bank, N.A., a national banking
association.
"Mortgage" shall have the meaning set forth in Section 4.01(c) of
the Original Agreement.
"Multiemployer Plan" shall mean any employee benefit plan which
is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA and to which any Loan Party or any Controlled Group Member has
or had an obligation to contribute.
"Net Cash Proceeds" with respect to any property or issuance of
debt or equity securities shall mean cash or cash equivalents received
by any Loan Party from, and
<PAGE> 22
payments of principal of any Capitalized Lease Obligations or other
obligation received by any Loan Party in connection with, the sale,
lease or other disposition of such property or securities, MINUS the
sum of (a) expenses reasonably incurred in respect of such sale, lease
or other disposition, (b) any sales or transfer taxes payable as a
result of such sale, lease or other disposition, (c) incremental
income taxes reasonably estimated by the Borrower to be payable by
such Loan Party as a result of such sale, lease or other disposition
and (d) the amount required to discharge any indebtedness or
obligation secured by a Lien on such property and required to be
discharged in connection with such sale, lease or other disposition.
"Net Income" for any period shall mean the net earnings (or loss)
after taxes of the Borrower Group for such period determined on a
consolidated basis in accordance with GAAP; PROVIDED, that there shall
be deducted therefrom (a) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made
against income during such period, and (b) any gain arising from the
acquisition of any securities, or the extinguishment, under GAAP, of
any Indebtedness, of the Borrower Group.
"Notes" shall mean the Revolving Credit Notes and the Term Loan
Notes of the Borrower executed and delivered under this Agreement,
together with all extensions, renewals, refinancings or refundings of
any thereof in whole or part, and "Note" shall mean any one of the
Notes.
"Notional Euro-Rate Funding Office" shall have the meaning given
to that term in Section 2.15(a) hereof.
"Obligations" shall mean all indebtedness, obligations and
liabilities of any Loan Party to any Lender Party or the Agent from
time to time arising under or in connection with or related to or
evidenced by or secured by or under color of this Agreement or any
other Loan Document, and all extensions, renewals or refinancings
thereof, whether such indebtedness, obligations or liabilities are
direct or indirect, otherwise secured or unsecured, joint or several,
absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising. Without limitation of
the foregoing, such indebtedness, obligations and liabilities include
the principal amount of Loans, interest, Letter of Credit
Reimbursement Obligations, guaranty obligations, fees, indemnities or
expenses under or in connection with this Agreement or any other Loan
Document, and all extensions, renewals and refinancings thereof,
whether or not such Loans were made or such Letters
<PAGE> 23
of Credit were issued in compliance with the terms and conditions of
this Agreement or in excess of the obligation of the Lenders to lend
or the authority of the Issuing Bank to issue Letters of Credit.
Obligations shall remain Obligations notwithstanding any assignment or
transfer or any subsequent assignment or transfer of any of the
Obligations or any interest therein.
"Office," when used in connection with the Agent, shall mean its
office located at One Mellon Bank Center, Pittsburgh, Pennsylvania, or
at such other office or offices of the Agent or any branch, subsidiary
or affiliate thereof as may be designated in writing from time to time
by the Agent to the Borrower.
"OmniSource" shall mean OmniSource Corporation, an Indiana
corporation.
"OmniSource Documents" shall mean the agreements and other
documents listed on Exhibit T hereto, in the respective forms referred
to on or included in such Exhibit.
"Option" shall mean the Base Rate Option or the Euro-Rate Option,
as the case may be.
"Other Finished Goods" shall mean finished goods which are not
Commercial Grade Finished Goods.
"Other Raw Materials" shall mean raw materials other than Scrap.
"Participants" shall have the meaning set forth in Section
9.14(b) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation established
under Title IV of ERISA or any other governmental agency, department
or instrumentality succeeding to the functions of said corporation.
"Pension-Related Event" shall mean any of the following events or
conditions:
(a) Any action is taken by any Person (i) to terminate, or
which would result in the termination of, a Plan, either pursuant
to its terms or by operation of law (including, without
limitation, any amendment of a Plan which would result in a
termination under Section 4041(e) of ERISA) other than compliance
with Section 4041(b) of ERISA, or (ii) to have a trustee
appointed for a Plan pursuant to Section 4042 of ERISA;
<PAGE> 24
(b) PBGC notifies any Person of its determination that an
event described in Section 4042 of ERISA has occurred with
respect to a Plan, that a Plan should be terminated, or that a
trustee should be appointed for a Plan;
(c) Any Reportable Event occurs with respect to a Plan;
(d) Any action occurs or is taken which could result in any
Loan Party becoming subject to liability for a complete or
partial withdrawal by any Person from a Multiemployer Plan
(including, without limitation, seller liability incurred under
Section 4204(a)(2) of ERISA), or any Loan Party or any Controlled
Group Member receives from any Person a notice or demand for
payment on account of any such alleged or asserted liability; or
(e) (i) There occurs any failure to meet the minimum funding
standard under Section 302 of ERISA or Section 412 of the Code
with respect to a Plan, or any tax return is filed showing any
tax payable under Section 4971(a) of the Code with respect to any
such failure, or any Loan Party or any Controlled Group Member
receives a notice of deficiency from the Internal Revenue Service
with respect to any alleged or asserted such failure, or (ii) any
request is made by any Person for a variance from the minimum
funding standard, or an extension of the period for amortizing
unfunded liabilities, with respect to a Plan.
"Permitted Liens" shall have the meaning set forth in Section
6.02 hereof.
"Permitted Payments" shall mean payments made by the Borrower to
Persons (other than Affiliates of the Borrower) of regular and
customary legal, accounting and similar fees in connection with the
Borrowers' capital stock, maintenance of the corporate existence of
the Borrower, the compliance of the Borrower with Laws and other
customary administrative expenses.
"Person" shall mean an individual, corporation, partnership,
trust, unincorporated association, joint venture, joint-stock company,
Governmental Authority or any other entity.
<PAGE> 25
"Phase I Project" shall mean the 1.2 million ton thin slab cast
mini-mill and related improvements (including without limitation the
electric substation, the water-distribution system and mill railroad
tracks located on the Project Site.
"Phase II Project" shall mean the cold rolling and coating steel
processing facility located on the Project Site.
"Plan" means any employee pension benefit plan within the meaning
of Section 3(2) of ERISA (other than a Multiemployer Plan) covered by
Title IV of ERISA by reason of Section 4021 of ERISA, of which any
Loan Party or any Controlled Group Member is or has been within the
preceding five years a "contributing sponsor" within the meaning of
Section 4001(a)(13) of ERISA, or which is or has been within the
preceding five years maintained for employees of any Loan Party or any
Controlled Group Member.
"Portion" shall mean the Base Rate Portion or the Euro-Rate
Portion, as the case may be.
"Postretirement Benefits" shall mean any benefits, other than
retirement income, provided by any Loan Party to retired employees, or
to their spouses, dependents or beneficiaries, including, without
limitation, group medical insurance or benefits, or group life
insurance or death benefits.
"Postretirement Benefit Obligation" shall mean that portion of
the actuarial present value of all Postretirement Benefits expected to
be provided by any Loan Party which is attributable to employees'
service rendered to the date of determination (assuming that such
liability accrues ratably over an employee's working life to the
earlier of his date of retirement or the date on which the employee
would first become eligible for full benefits), reduced by the fair
market value as of the date of determination of any assets which are
segregated from the assets of the applicable Loan Party and which have
been restricted so that they cannot be used for any purpose other than
to provide Postretirement Benefits or to defray related expenses.
"Potential Base Rate Lender" shall mean each Revolving Credit
Lender and each Term Loan Lender which has provided written notice to
the Agent that it is willing to have Term Loans bear interest under
the Base Rate Option in the circumstances set forth in Section
2.06(e).
<PAGE> 26
"Potential Default" shall mean any event or condition which with
notice, passage of time, or both, would constitute an Event of
Default.
"Preussag" shall mean Preussag Stahl AG, a company incorporated
under the laws of the Federal Republic of Germany.
"Prime Rate" as used herein, shall mean the interest rate per
annum announced from time to time by the Agent as its prime rate, such
rate to change automatically effective as of the effectiveness of each
announced change in such prime rate. The Prime Rate may be greater or
less than other interest rates charged by the Agent to other borrowers
and is not solely based or dependent upon the interest rate which the
Agent may charge any particular borrower or class of borrower.
"Project Agreements" shall mean the contracts and agreements
listed on Schedule 1.01B hereto and any Future Project Agreements
after execution and delivery thereof by the Loan Party which is a
party thereto.
"Project Site" shall mean the property described in Exhibit A to
the Mortgage and which is located in Butler, Indiana.
"Pro Rata" shall mean from or to (i) each Tranche 1 Lender in
proportion to its Tranche 1 Commitment Percentage (ii) each Tranche 2
Lender in proportion to its Tranche 2 Commitment Percentage and (iii)
each Tranche 3 Lender in proportion to its outstanding principal
amount of Tranche 3 Loans, as the case may be.
"Purchasing Lender" shall have the meaning set forth in Section
9.14(c) hereof.
"Register" shall have the meaning set forth in Section 9.14(d)
hereof.
"Regular Payment Date" shall mean the last day of each March,
June, September and December after the Restatement Date, commencing
September 30, 1997.
"Reportable Event" means (i) a reportable event described in
Section 4043 of ERISA and regulations thereunder, (ii) a withdrawal by
a substantial employer from a Plan to which more than one employer
contributes, as referred to in Section 4063(b) of ERISA, (iii) a
cessation of operations at a facility causing more than twenty percent
<PAGE> 27
(20%) of Plan participants to be separated from employment, as
referred to in Section 4062(e) of ERISA, or (iv) a failure to make a
required installment or other payment with respect to a Plan when due
in accordance with Section 412 of the Code or Section 302 of ERISA
which causes the total unpaid balance of missed installments and
payments (including unpaid interest) to exceed $750,000.
"Required Lenders" shall mean, as of any date, Lenders which have
Tranche 1 Commitments (or, if the Tranche 1 Commitments have
terminated, outstanding Tranche 1 Loans), Tranche 2 Commitments (or,
if the Tranche 2 Commitments have terminated, outstanding Tranche 2
Loans) and outstanding Tranche 3 Loans constituting, in the aggregate,
at least 51% of the total aggregate amount of Tranche 1 Commitments
(or if the Tranche 1 Commitments have terminated, outstanding Tranche
1 Loans), Tranche 2 Commitments (or if the Tranche 2 Commitments have
terminated, outstanding Tranche 2 Loans) and outstanding Tranche 3
Loans of all the Lenders on such date; PROVIDED, however, that for
purposes of the written request referred to in Section 7.02(a) as it
relates to clause (ii) thereof "Required Lenders" shall mean Lenders
which have made Loans (which for purposes of this proviso shall
include funded participations in Swingline Loans and shall not include
Swingline Loans to the extent of funded participations therein)
constituting, in the aggregate, at least 51% in principal amount of
all Loans outstanding and Letter of Credit Reimbursement Obligations
outstanding on the date of such request.
"Requirement of Law" shall mean, as to any Person, the
certificate or articles of incorporation and by-laws or other
organizational or governing documents of such Person, and any Law,
right, privilege, qualification, license or franchise or determination
of an arbitrator or a court or other Governmental Authority, in each
case applicable or binding upon such Person or any of its property
(now owned or hereafter acquired) or to which such Person or any of
its property is subject or pertaining to any or all of the
transactions contemplated or referred to herein.
"Responsible Officer" shall mean the President, any Executive
Vice President, the Treasurer or the Chief Financial Officer of the
Borrower.
"Restatement Date" shall mean June 30, 1997.
"Revolving Credit Commitment" of a Lender shall mean the Tranche
1 Commitment and, until the Tranche 2 Conversion Date, the Tranche 2
Commitment of such Lender.
<PAGE> 28
"Revolving Credit Commitment Fee" shall mean the Tranche 1
Commitment Fee and, until the Tranche 2 Conversion Date, the Tranche 2
Commitment Fee.
"Revolving Credit Committed Amount" of a Lender shall mean the
Tranche 1 Committed Amount of such Lender plus, until the Tranche 2
Conversion Date, the Tranche 2 Committed Amount of such Lender.
"Revolving Credit Lenders" shall mean the Lenders listed on the
signature pages hereof who have a Revolving Credit Committed Amount
greater than zero set forth thereon, subject to the provisions of
Section 9.14 hereof pertaining to Persons becoming or ceasing to be
Lenders; "Revolving Credit Lender" shall mean any one of them.
"Revolving Credit Loans" shall mean the Tranche 1 Loans and,
until the Tranche 2 Conversion Date, the Tranche 2 Loans.
"Revolving Credit Notes" shall mean the Tranche 1 Notes and,
until the Tranche 2 Conversion Date, the Tranche 2 Notes.
"Scrap" shall mean ferrous material (excluding finished goods)
resident on Borrower's real property of suitable quality for melting
in Borrower's electric furnace.
"Security Agreement" shall have the meaning set forth in Section
4.01(b)(i)(A) of the Original Agreement.
"Security Documents" shall mean the Security Agreement, the IDI
Security Agreement, the IDI Guaranty, the Mortgage, the Assignment of
Contracts (and each assignment of contract entered into pursuant to
Section 5.15 of the Original Agreement), together with the Consents to
Assignment of Contracts (and each consent to assignment of contract
delivered pursuant to Section 5.15 of the Original Agreement) and any
other agreements or instruments from time to time to time granting or
purporting to grant the Agent a Lien in any property for the benefit
of the Lenders to secure the Obligations, or constituting a Guaranty
Equivalent for the Obligations.
"SMS" shall mean SMS Schloemann-Siemag AG, a German corporation.
<PAGE> 29
"SMS Documents" shall mean the agreements and other documents
listed on Exhibit U hereto, in the respective forms referred to on and
included in such Exhibit.
"Solvent" means, with respect to any Person at any time, that at
such time (a) the sum of the debts and liabilities (including, without
limitation, contingent liabilities) of such Person is not greater than
all of the assets of such Person at a fair valuation, (b) the present
fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such
Person has not incurred, does not intend to incur, and does not
believe that it will incur, debts or liabilities (including, without
limitation, contingent liabilities) beyond such person's ability to
pay as such debts and liabilities mature, (d) such Person is not
engaged in, and is not about to engage in, a business or a transaction
for which such person's property constitutes or would constitute
unreasonably small capital, and (e) such Person is not otherwise
insolvent as defined in, or otherwise in a condition which could in
any circumstances then or subsequently render any transfer,
conveyance, obligation or act then made, incurred or performed by it
avoidable or fraudulent pursuant to, any Law that may be applicable to
such Person pertaining to bankruptcy, insolvency or creditors' rights
(including but not limited to the Bankruptcy Code of 1978, as amended,
and, to the extent applicable to such Person, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act, or any other
applicable Law pertaining to fraudulent conveyances or fraudulent
transfers or preferences).
"Spares" shall mean spares and supplies of the Borrower which the
Agent in its reasonable discretion determines to be readily
marketable.
"Standard Notice" shall mean an irrevocable notice provided to
the Agent on a Business Day which is
(a) On or before the same Business Day in the case of
selection of, conversion to or renewal of the Base Rate Option or
prepayment of any Base Rate Portion;
(b) At least four London Business Days in advance in the
case of selection of the Euro-Rate Option or prepayment of any
Euro-Rate Portion.
<PAGE> 30
Standard Notice must be provided no later than 10:00 a.m., Pittsburgh
time, on the last day permitted for such notice.
"Standby Letter of Credit" shall mean a Letter of Credit which is
not a Trade Letter of Credit.
"Stock Payment" by any Person shall mean any dividend,
distribution or payment of any nature (whether in cash, securities, or
other property) on account of or in respect of any shares of the
capital stock (or warrants, options or rights therefor) of such
Person, including but not limited to any payment on account of the
purchase, redemption, retirement, defeasance or acquisition of any
shares of the capital stock (or warrants, options or rights therefor)
of such Person, in each case regardless of whether required by the
terms of such capital stock (or warrants, options or rights) or any
other agreement or instrument.
"Subsidiary" shall mean any corporation of which a majority (by
number of shares or number of votes) of any class of outstanding
capital stock normally entitled to vote for the election of one or
more directors (regardless of any contingency which does or may
suspend or dilute the voting rights of such class) is at such time
owned directly or indirectly, beneficially or of record, by the
Borrower or one or more Subsidiaries of the Borrower.
"Subsidiary Guaranty" shall mean a Guaranty and Suretyship
Agreement, substantially in the form of Exhibit R hereto, entered into
by a Subsidiary in compliance with Section 6.04(e) hereof.
"Swingline Current Availability" shall have the meaning assigned
to that term in Section 2.28 hereof.
"Swingline Lender" shall mean Mellon Bank, N.A., in its capacity
as the Swingline Lender.
"Swingline Loan Participating Interest" shall have the meaning
assigned to that term in Section 2.29(a) hereof.
"Swingline Loans" shall have the meaning assigned to that term in
Section 2.27(a) hereof.
"Swingline Note" shall mean the promissory note of the Borrower
executed and delivered under Section 2.27(c) hereof, together with all
extensions, renewals, refinancings or refundings thereof in whole or
in part.
<PAGE> 31
"Swingline Subfacility Amount" shall have the meaning assigned to
that term in Section 2.27(a) hereof.
"Tangible Net Worth" at any time shall mean the total amount of
stockholders' equity of the Borrower Group at such time determined on
a consolidated basis in accordance with GAAP, except that there shall
be deducted therefrom the book value of all intangible assets (other
than the asset denominated the I&M Transmission Facilities Agreement
(as defined in the Original Agreement) which corresponds to the I&M
Development Debt) and deferred charges of the Borrower Group at such
time determined in accordance with GAAP.
"Tax Affected Lender" shall have the meaning assigned to that
term in Section 2.14(f) hereof.
"Taxes" shall have the meaning set forth in Section 2.14 hereof.
"Term Lenders" shall mean the Tranche 3 Lenders and, from and
after the Tranche 2 Conversion Date, the Tranche 2 Lenders,
collectively.
"Term Loans" shall mean the Tranche 3 Loans and, from and after
the Tranche 2 Conversion Date, the Tranche 2 Loans, collectively.
"Term Loan Notes" shall mean the Tranche 3 Notes and, from and
after the Tranche 2 Conversion Date, the Tranche 2 Notes.
"Total Tranche 1 Credit Exposure" of any Tranche 1 Lender at any
time shall mean the sum of the outstanding principal amount of such
Lender's Tranche 1 Loans plus such Lender's Pro Rata share of the
aggregate Letter of Credit Exposure at such time plus such Lender's
Pro Rata share of the aggregate outstanding amount of Swingline Loans
at such time (irrespective of whether such Lender has funded
participation interests in such Swingline Loans).
"Trade Letter of Credit" shall mean a Letter of Credit which is
designated as such by the Issuing Bank after determination by the
Issuing Bank that such Letter of Credit may, in accordance with the
Issuing Bank's usual operating practice, be treated as a documentary
or trade letter of credit.
"Tranche 1 Commitment" shall have the meaning set forth in
Section 2.01(a) hereof.
<PAGE> 32
"Tranche 1 Commitment Fee" shall have the meaning set forth in
Section 2.02(a) hereof.
"Tranche 1 Commitment Percentage" for any Lender shall mean the
Tranche 1 Commitment Percentage for such Lender set forth below its
name on the signature page hereof, subject to transfer to another
Lender as provided in Section 9.14 hereof.
"Tranche 1 Committed Amount" shall have the meaning set forth in
Section 2.01(a) hereof.
"Tranche 1 Lenders" shall mean the Lenders listed on the
signature pages hereof who have a Tranche 1 Committed Amount greater
than zero set forth thereon, subject to the provisions of Section 9.14
hereof pertaining to Persons becoming or ceasing to be Lenders;
"Tranche 1 Lender " shall mean any one of them.
"Tranche 1 Loans" shall have the meaning set forth in Section
2.01(a) hereof.
"Tranche 1 Maturity Date" shall mean June 30, 2002, PROVIDED,
that if the Leverage Ratio for the twelve month period ending June 30,
2000 is less than 3.0 to 1 and the Borrower notifies the Agent in
writing between July 1, 2000 and September 1, 2000 that it desires
such extension, the Tranche 1 Maturity Date shall be June 30, 2003,
and PROVIDED, further, that if the Leverage Ratio for the twelve month
period ending June 30, 2001 is less than 3.0 to 1, the Tranche 1
Maturity Date has previously been extended to June 30, 2003 and the
Borrower notifies the Agent in writing between July 1, 2001 and
September 1, 2001 that it desires such additional extension, the
Tranche 1 Maturity Date shall be June 30, 2004.
"Tranche 1 Notes" shall mean the promissory notes of the Borrower
executed and delivered under Section 2.01(c) hereof, any promissory
notes issued in substitution therefor pursuant to Sections 2.15(b) or
9.14(c) hereof, together with all extensions, renewals, refinancings
or refundings thereof in whole or part; "Tranche 1 Note" shall mean
any one of them.
"Tranche 2 Commitment" shall have the meaning set forth in
Section 2.01(b) hereof.
"Tranche 2 Commitment Fee" shall have the meaning set forth in
Section 2.02(a) hereof.
<PAGE> 33
"Tranche 2 Commitment Percentage" for any Lender shall mean the
Tranche 2 Commitment Percentage for such Lender set forth below its
name on the signature page hereof, subject to transfer to another
Lender as provided in Section 9.14 hereof.
"Tranche 2 Committed Amount" shall have the meaning set forth in
Section 2.01(b) hereof.
"Tranche 2 Conversion Date" shall mean June 30, 1998, as the same
may be extended in accordance with Section 2.02(d) hereof.
"Tranche 2 Lenders" shall mean the Lenders listed on the
signature pages hereof who have a Tranche 2 Committed Amount greater
than zero set forth thereon, subject to the provisions of Section 9.14
hereof pertaining to Persons becoming or ceasing to be Lenders;
"Tranche 2 Lender " shall mean any one of them.
"Tranche 2 Loans" shall have the meaning set forth in Section
2.01(b) hereof.
"Tranche 2 Maturity Date" shall mean a date which is the fifth
anniversary of the Tranche 2 Conversion Date.
"Tranche 2 Notes" shall mean the promissory notes of the Borrower
executed and delivered under Section 2.01(c) hereof, any promissory
notes issued in substitution therefor pursuant to Sections 2.03(c),
2.15(b) or 9.14(c) hereof, together with all extensions, renewals,
refinancings or refundings thereof in whole or part; "Tranche 2 Note"
shall mean any one of them.
"Tranche 2 Special Loans" shall mean Tranche 2 Loans in an
aggregate principal amount (i) as to which the Borrower has requested
a conversion of the Tranche 2 Committed Amounts to Tranche 1 Committed
Amounts, but such conversion has been rejected by the Tranche 1
Lenders, and (ii) which, if such amount were an amount of Tranche 1
Loans, would comply with all Borrowing Base requirements, based on the
then most recently delivered Borrowing Base Certificate, applicable to
Tranche 1 Loans.
"Tranche 3 Commitment" shall have the meaning set forth in
Section 2.04(a) hereof.
"Tranche 3 Commitment Percentage" for any Lender shall mean the
Tranche 3 Commitment Percentage for such Lender set forth below its
name on the signature page hereof,
<PAGE> 34
subject to transfer to another Lender as provided in Section 9.14
hereof.
"Tranche 3 Committed Amount" shall have the meaning set forth in
Section 2.04(a) hereof.
"Tranche 3 Lenders" shall mean the Lenders listed on the
signature pages hereof who have a Tranche 3 Committed Amount greater
than zero set forth thereon, subject to the provisions of Section 9.14
hereof pertaining to Persons becoming or ceasing to be Lenders;
"Tranche 3 Lender " shall mean any one of them.
"Tranche 3 Loans" shall have the meaning set forth in Section
2.04(a) hereof.
"Tranche 3 Maturity Date" shall mean June 30, 2004.
"Tranche 3 Notes" shall mean the promissory notes of the Borrower
executed and delivered under Section 2.04(c) hereof, any promissory
notes issued in substitution therefor pursuant to Sections 2.15(b) or
9.14(c) hereof, together with all extensions, renewals, refinancings
or refundings thereof in whole or part; "Tranche 3 Note" shall mean
any one of them.
"Tranche 3 Special Loans" shall mean Tranche 3 Loans outstanding
on any day during the period from July 1, 2002 through the Tranche 3
Maturity Date, unless on such day the Tranche 1 Maturity Date is June
30, 2004 or later.
"Transfer Effective Date" shall have the meaning set forth in the
applicable Transfer Supplement.
"Transfer Supplement" shall have the meaning set forth in Section
9.14(c) hereof.
"Treasury Rate" as of any Funding Breakage Date shall mean the
rate per annum determined by the applicable Lender (which
determination shall be conclusive absent manifest error) to be the
semiannual equivalent yield to maturity (expressed as a semiannual
equivalent and decimal and, in the case of United States Treasury
bills, converted to a bond equivalent yield) for United States
Treasury securities maturing on the last day of the corresponding
Funding Period and trading in the secondary market in reasonable
volume (or if no such securities mature on such date, the rate
determined by standard securities interpolation methods as applied to
the series of securities maturing as close as possible to, but earlier
than, such date, and the series of
<PAGE> 35
such securities maturing as close as possible to, but later than, such
date).
"Work in Process" shall mean steel awaiting processing (excluding
Cold Mill Work in Process Inventory).
1.02. CONSTRUCTION. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole; "or" has the inclusive meaning
represented by the phrase "and/or"; and "property" includes all properties and
assets of any kind or nature, tangible or intangible, real, personal or mixed.
References in this Agreement to "determination" (and similar terms) by the Agent
or by any Lender include good faith estimates by the Agent or by any Lender (in
the case of quantitative determinations) and good faith beliefs by the Agent or
by any Lender (in the case of qualitative determinations). The words "hereof,"
"herein," "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References herein to "out-of-pocket expenses" of a Person (and similar terms)
include, but are not limited to, the fees of in-house counsel and other in-house
professionals of such Person to the extent that such fees are routinely
identified and separately and specifically charged under such Person's normal
cost accounting system consistent with past practice. The terms "include" and
"including" mean "including without limitation". The section and other headings
contained in this Agreement and the Table of Contents preceding this Agreement
are for reference purposes only and shall not control or affect the construction
of this Agreement or the interpretation thereof in any respect. Section,
subsection and exhibit references are to this Agreement unless otherwise
specified.
1.03. ACCOUNTING PRINCIPLES.
(a) As used herein, "GAAP" shall mean generally accepted
accounting principles in the United States, applied on a basis consistent with
the principles used in preparing the Borrower's financial statements as of June
30, 1994 and for the fiscal quarter then ended.
(b) Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters shall be
made, and all financial statements to be delivered pursuant to this Agreement
shall be prepared, in accordance with GAAP (including principles of
consolidation where appropriate), and all accounting or financial terms shall
have the meanings ascribed to such terms by GAAP.
<PAGE> 36
(c) If and to the extent that the financial statements generally
prepared by the Borrower apply accounting principles other than GAAP, all
financial statements referred to in this Agreement or any other Loan Document
shall be delivered in duplicate, one set based on the accounting principles then
generally applied by the Borrower and one set based on GAAP. To the extent this
Agreement or such other Loan Document requires financial statements to be
accompanied by an opinion of independent accountants, each set of financial
statements shall be accompanied by such an opinion.
ARTICLE II
THE CREDITS
-----------
2.01. REVOLVING CREDIT LOANS.
(a) TRANCHE 1 COMMITMENTS. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Revolving Credit Lender, severally and not jointly, agrees (such agreement being
herein called such Revolving Credit Lender's "Tranche 1 Commitment") to make
loans (the "Tranche 1 Loans") to the Borrower at any time or from time to time
on or after the Restatement Date and to but not including the Tranche 1 Maturity
Date. A Revolving Credit Lender shall have no obligation to make any Tranche 1
Loan to the extent that the aggregate principal amount of such Revolving Credit
Lender's Total Tranche 1 Exposure at any time would exceed the lesser of (x)
such Revolving Credit Lender's Tranche 1 Committed Amount at such time and (y)
such Revolving Credit Lender's Pro Rata share of the Borrowing Base at such
time. Each Revolving Credit Lender's "Tranche 1 Committed Amount" at any time
shall be equal to the amount set forth as its "Initial Tranche 1 Committed
Amount" below its name on the signature pages hereof, as such amount may have
been increased or reduced under Section 2.02 hereof at such time, and subject to
transfer to another Lender as provided in Section 9.14 hereof. Within the limits
of time and amount set forth in this Section 2.01, and subject to the provisions
of this Agreement, the Borrower may borrow, repay and reborrow Tranche 1 Loans
hereunder.
(b) TRANCHE 2 COMMITMENTS. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Revolving Credit Lender, severally and not jointly, agrees (such agreement being
herein called such Revolving Credit Lender's "Tranche 2 Commitment") to make
loans (the "Tranche 2 Loans") to the Borrower at any time or from time to time
on or after the Restatement Date and to but not including
<PAGE> 37
the Tranche 2 Conversion Date. A Revolving Credit Lender shall have no
obligation to make any Tranche 2 Loan to the extent that the aggregate principal
amount of such Revolving Credit Lender's outstanding Tranche 2 Loans at any time
would exceed such Revolving Credit Lender's Tranche 2 Committed Amount at such
time. Each Revolving Credit Lender's "Tranche 2 Committed Amount" at any time
shall be equal to the amount set forth as its "Initial Tranche 2 Committed
Amount" below its name on the signature pages hereof, as such amount may have
been reduced under Section 2.02 hereof at such time, and subject to transfer to
another Lender as provided in Section 9.14 hereof. Within the limits of time and
amount set forth in this Section 2.01, and subject to the provisions of this
Agreement, the Borrower may borrow, repay and reborrow Tranche 2 Loans
hereunder.
(c) TRANCHE 1 NOTES AND TRANCHE 2 NOTES. The obligation of the
Borrower to repay the unpaid principal amount of the Tranche 1 Loans made to it
by each Tranche 1 Lender and to pay interest thereon shall be evidenced in part
by promissory notes of the Borrower, one to each Tranche 1 Lender, dated the
Restatement Date (the "Tranche 1 Notes") in substantially the form attached
hereto as Exhibit A-1-1997, with the blanks appropriately filled, payable to the
order of such Tranche 1 Lender in a face amount equal to such Tranche 1 Lender's
Initial Tranche 1 Committed Amount. The obligation of the Borrower to repay the
unpaid principal amount of the Tranche 2 Loans made to it by each Tranche 2
Lender and to pay interest thereon shall be evidenced in part by promissory
notes of the Borrower, one to each Tranche 2 Lender, dated the Restatement Date
(the "Tranche 2 Notes") in substantially the form attached hereto as Exhibit
A-2-1997, with the blanks appropriately filled, payable to the order of such
Tranche 2 Lender in a face amount equal to such Tranche 2 Lender's Initial
Tranche 2 Committed Amount
(d) MATURITY. To the extent not due and payable earlier, the
Tranche 1 Loans shall be due and payable on the Tranche 1 Maturity Date. To the
extent not due and payable earlier, the Tranche 2 Loans shall be initially due
and payable on the Tranche 2 Conversion Date.
(e) LETTERS OF CREDIT. Letters of Credit may be issued in
accordance with the terms and provisions of Section 2.17 hereof.
(f) SWINGLINE LOANS. Swingline Loans may be requested in
accordance with the terms and provisions of Section 2.27 hereof.
<PAGE> 38
2.02. COMMITMENT FEE; REDUCTION OF THE REVOLVING CREDIT COMMITTED
AMOUNTS.
(a) COMMITMENT FEE. (i) The Borrower shall pay to the Agent for
the account of each Tranche 1 Lender a commitment fee (the "Tranche 1 Commitment
Fee") for each day from and including the Restatement Date to but excluding the
Tranche 1 Maturity Date (based on a year of 365 days and actual days elapsed)
equal to 0.125% per annum for each Level I Day, 0.15% per annum for each Level
II Day, 0.20% per annum for each Level III Day, 0.25% per annum for each Level
IV Day, 0.30% per annum for each Level V Day and 0.375% per annum for each Level
VI Day, in each case on an amount equal to such Tranche 1 Lender's Tranche 1
Committed Amount on such day minus the aggregate principal amount of such
Tranche 1 Lender's Tranche 1 Loans outstanding on such day minus such Tranche 1
Lender's Pro Rata share of the Letter of Credit Exposure on such day minus such
Tranche 1 Lender's funded participation interest in outstanding Swingline Loans
(or, in the case of the Swingline Lender, the outstanding principal amount of
Swingline Loans as to which no participation is funded). Such Tranche 1
Commitment Fee shall be due and payable for the preceding period for which such
fee has not been paid: (x) on each Regular Payment Date, (y) on the date of each
reduction of the Tranche 1 Committed Amounts (whether optional or mandatory) on
the amount so reduced and (z) on the Tranche 1 Maturity Date.
(ii) The Borrower shall pay to the Agent for the account of each
Tranche 2 Lender a commitment fee (the "Tranche 2 Commitment Fee") for each day
from and including the Restatement Date to but excluding the Tranche 2
Conversion Date (based on a year of 365 days and actual days elapsed) equal to
0.125% per annum on an amount equal to such Tranche 2 Lender's Tranche 2
Committed Amount on such day minus the aggregate principal amount of such
Tranche 2 Lender's Tranche 2 Loans outstanding on such day. Such Tranche 2
Commitment Fee shall be due and payable for the preceding period for which such
fee has not been paid: (x) on each Regular Payment Date, (y) on the date of each
reduction (including by way of conversion to Tranche 1 Committed Amounts) of the
Tranche 2 Committed Amounts (whether optional or mandatory) on the amount so
reduced and (z) on the Tranche 2 Conversion Date.
(b) REDUCTION OF THE REVOLVING CREDIT COMMITTED AMOUNTS. The
Borrower may at any time or from time to time reduce Pro Rata the Tranche 1
Committed Amounts of the Tranche 1 Lenders to an aggregate amount (which may be
zero) not less than the sum of the unpaid principal amount of the Tranche 1
Loans then outstanding plus the principal amount of all Tranche 1 Loans not yet
made as to which notice has been given by the Borrower
<PAGE> 39
under Section 2.05 hereof plus the Letter of Credit Exposure at such time. The
Borrower may at any time or from time to time reduce Pro Rata the Tranche 2
Committed Amounts of the Tranche 2 Lenders to an aggregate amount (which may be
zero) not less than the sum of the unpaid principal amount of the Tranche 2
Loans then outstanding plus the principal amount of all Tranche 2 Loans not yet
made as to which notice has been given by the Borrower under Section 2.05. Any
reduction of the Tranche 1 Committed Amounts or the Tranche 2 Committed Amounts
shall be in an aggregate amount which is an integral multiple of $1,000,000.
Reduction of the Tranche 1 Committed Amounts or the Tranche 2 Committed Amounts
shall be made by providing not less than three Business Days' notice (which
notice shall be irrevocable) to such effect to the Agent. After the date
specified in such notice the Tranche 1 Commitment Fee or the Tranche 2
Commitment Fee, as the case may be, shall be calculated upon the Tranche 1
Committed Amounts and Tranche 2 Committed Amounts, as the case may be, as so
reduced.
(c) CONVERSION OF TRANCHE 2 COMMITTED AMOUNTS TO TRANCHE 1
COMMITTED AMOUNTS. With the written consent of all of the Lenders (it being
understood that consent may be withheld by any Lender in its discretion) after
written request from the Borrower therefore, all or a portion of the Tranche 2
Committed Amounts may be converted to Tranche 1 Committed Amounts, ratably among
the Revolving Credit Lenders, thereby reducing the Tranche 2 Committed Amounts
of the Lenders and increasing the Tranche 1 Committed Amounts of the Lenders by
the amount of such conversion. Upon any such conversion, the Borrower will
furnish to the Agent, for distribution to the Revolving Credit Lenders, new
Tranche 1 Notes and Tranche 2 Notes reflecting such conversion.
(d) EXTENSION OF TRANCHE 2 CONVERSION DATE. The Borrower may request
an extension of the Tranche 2 Conversion Date to a date which is not more than
364 days from the Tranche 2 Conversion Date then in effect and in any event not
later than the Tranche 1 Maturity Date. Such request shall be in writing
delivered to the Agent, between 75 and 50 days prior to the Tranche 2 Conversion
Date then in effect, with a copy to each Tranche 2 Lender. Upon receipt of the
Borrower's request as aforesaid, each Tranche 2 Lender shall conduct its own
complete credit review of the Borrower and, within 45 days following its receipt
of the Borrower's request, shall advise the Agent whether it consents to such
extension. The Tranche 2 Conversion Date shall be extended only with the written
consent of all the Tranche 2 Lenders, which consent may be given or withheld in
the sole and absolute discretion of each Tranche 2 Lender, respectively. Any
Tranche 2 Lender which does not reply to such request by the Business Day prior
to the Tranche 2 Conversion
<PAGE> 40
Date then in effect will be deemed to have withheld its consent thereto.
Promptly upon its receipt of the responses of all the Tranche 2 Lenders, the
Agent shall advise the Borrower as to whether such extension has been granted.
If such extension is granted, such extension shall not become effective until
the then current Tranche 2 Conversion Date, and effectiveness of the Tranche 2
Lenders' agreement to extend the Tranche 2 Conversion Date shall be subject to
fulfillment by the Borrower of the conditions precedent set forth in Section
4.02 hereof. If such extension is not granted, the aggregate principal amount of
the Tranche 2 Loans outstanding on the then current Tranche 2 Conversion Date
shall be converted pursuant to Section 2.03.
2.03. TRANCHE 2 LOANS ON THE TRANCHE 2 CONVERSION DATE.
(a) TRANCHE 2 COMMITMENTS. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth,
each Tranche 2 Lender, severally and not jointly, agrees to make a
Tranche 2 Loan to the Borrower on the Tranche 2 Conversion Date in
such principal amounts as may be requested by the Borrower but not
exceeding such Tranche 2 Lender's Tranche 2 Committed Amount on such
date.
(b) NATURE OF CREDIT. The Borrower may not reborrow amounts
repaid after the Tranche 2 Conversion Date with respect to Tranche 2
Loans.
(c) TRANCHE 2 NOTES. The obligation of the Borrower to repay the
unpaid principal amount of the Tranche 2 Loan made to it by each
Tranche 2 Lender and to pay interest thereon in accordance with this
Section 2.03 shall be evidenced in part by promissory notes of the
Borrower, one to each Tranche 2 Lender, dated the Tranche 2 Conversion
Date, in substantially the form of Exhibit A-4-1997 hereto, with the
blanks appropriately filled, payable to the order of each such Tranche
2 Lender in a face amount equal to the principal amount of each such
Tranche 2 Lender's Tranche 2 Loan made under subsection (a) hereof.
(d) AMORTIZATION AND MATURITY. The principal of the Tranche 2
Loans made on the Tranche 2 Conversion Date shall be due and payable
in eight equal quarterly installments, commencing on the Regular
Payment Date next following the third anniversary of the Tranche 2
Conversion Date and continuing on each Regular Payment Date
thereafter, with the final installment of the then unpaid principal
amount of the Tranche 2 Loans due and payable on the fifth anniversary
of the Tranche 2 Conversion Date.
<PAGE> 41
2.04. TRANCHE 3 LOANS.
(a) TRANCHE 3 COMMITMENTS. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth,
each Tranche 3 Lender, severally and not jointly, agrees (such
agreement being herein called such Tranche 3 Lender's "Tranche 3
Commitment") to make a loan (the "Tranche 3 Loans") to the Borrower on
the Restatement Date in a principal amount equal to such Tranche 3
Lender's Tranche 3 Committed Amount. Each Tranche 3 Lender's "Tranche
3 Committed Amount" at any time shall be equal to the amount set forth
below its name on the signature pages hereof.
(b) NATURE OF CREDIT. The Borrower may not reborrow amounts
repaid with respect to Tranche 3 Loans.
(c) TRANCHE 3 NOTES. The obligation of the Borrower to repay the
unpaid principal amount of the Tranche 3 Loan made to it by each
Tranche 3 Lender and to pay interest thereon shall be evidenced in
part by promissory notes of the Borrower to each Tranche 3 Lender,
dated the Restatement Date (the "Tranche 3 Notes") in substantially
the form attached hereto as Exhibit A-3-1997, with the blanks
appropriately filled, payable to the order of such Tranche 3 Lender in
a face amount equal to the principal amount of such Lender's Tranche 3
Committed Amount.
(d) AMORTIZATION AND MATURITY. The principal of the Tranche 3
Loans shall be due and payable in eight equal quarterly installments,
commencing on September 30, 2002 and continuing on December 31, 2002,
March 31, 2003, June 30, 2003, September 30, 2003, December 31, 2003
and March 31, 2004, with the final installment of the then unpaid
principal amount of the Tranche 3 Loans due and payable on June 30,
2004.
2.05. MAKING OF LOANS. Whenever the Borrower desires that the
Lenders make Loans, the Borrower shall provide Standard Notice to the Agent
setting forth the following information (a separate notice being required for
each such type of Loans):
(a) Whether the proposed Loans are Tranche 1 Loans, Tranche 2
Loans or Swingline Loans;
(b) The date, which shall be a Business Day, on which such
proposed Loans are to be made;
<PAGE> 42
(c) The aggregate principal amount of such proposed Loans, which
shall be the sum of the principal amounts selected pursuant to clause
(d) of this Section 2.05, and which shall be an integral multiple of
$500,000 not less than $1,000,000;
(d) The interest rate Option or Options selected in accordance
with Section 2.06(a) hereof and the principal amounts selected in
accordance with Section 2.06(d) hereof of the Base Rate Portion and
each Funding Segment of the Euro-Rate Portion, as the case may be, of
such proposed Loans; and
(e) With respect to each such Funding Segment of such proposed
Loans, the Funding Period to apply to such Funding Segment, selected
in accordance with Section 2.06(c) hereof.
Standard Notice having been so provided, the Agent shall promptly notify each
Lender no later than 12:00 o'clock Noon, Pittsburgh time, of the information
contained therein and of the amount of such Lender's Loan. Unless any applicable
condition specified in ARTICLE IV hereof has not been satisfied, on the date
specified in such Standard Notice each Lender shall make the proceeds of its
Loan available to the Agent at the Agent's Office, no later than 2:00 o'clock
P.M., Pittsburgh time, in funds immediately available at such Office. Promptly
after its receipt thereof, the Agent will make the funds so received available
to the Borrower in funds immediately available at the Agent's Office.
2.06. INTEREST RATES.
(a) OPTIONAL BASES OF BORROWING. The unpaid principal amount of
the Tranche 1 Loans and the Tranche 2 Loans shall bear interest for each day
until due on one or more bases selected by the Borrower from among the interest
rate Options set forth below. The unpaid principal amount of the Tranche 3 Loans
shall bear interest for each day on the basis of the Euro-Rate Option described
below. Subject to the provisions of this Agreement the Borrower may select
different Options to apply simultaneously to different Portions of the Tranche 1
Loans and the Tranche 2 Loans and may select different Funding Segments to apply
simultaneously to different parts of the Euro-Rate Portion of the Loans. Each
selection of a rate Option shall apply separately and without overlap to the
Tranche 1 Loans as a class, the Tranche 2 Loans as a class and the Tranche 3
Loans as a class. The aggregate number of Funding Segments applicable to the
Euro-Rate Portion of the Tranche 1 Loans at any time shall not exceed eight, the
aggregate number of Funding Segments applicable to the Euro-Rate Portion of the
Tranche 2 Loans at any time shall not exceed eight and the
<PAGE> 43
aggregate number of Funding Segments applicable to the Tranche 3 Loans at any
time shall not exceed eight.
(i) "BASE RATE OPTION": A rate per annum (computed on the basis
of a year of 365 days and actual days elapsed) for each day equal to
the Base Rate for such day plus the Applicable Margin for such day.
The "Base Rate" for any day shall mean the greater of (A) the Prime
Rate for such day or (B) 0.50% plus the Federal Funds Effective Rate
for such day, such interest rate to change automatically from time to
time effective as of the effective date of each change in the Prime
Rate or the Federal Funds Effective Rate.
(ii) "EURO-RATE OPTION": A rate per annum (based on a year of 360
days and actual days elapsed) for each day equal to the Euro-Rate for
such day plus the Applicable Margin for such day. "Euro-Rate" for any
day, as used herein, shall mean for each Funding Segment of the
Euro-Rate Portion corresponding to a proposed or existing Euro-Rate
Funding Period the rate per annum determined by the Agent by dividing
(the resulting quotient to be rounded upward to the nearest 1/100 of
1%) (A) the rate of interest (which shall be the same for each day in
such Euro-Rate Funding Period) quoted on the Reuters screen ISDA page
to be (or, if such Reuters quotation is not available, determined in
good faith by the Agent, after inquiry to three reference banks
selected by the Agent from among the Lenders, in accordance with its
usual procedures when reference banks are consulted (which
determination shall be conclusive) to be) the average of the rates per
annum for deposits in Dollars offered to major money center banks in
the London interbank market at approximately 11:00 a.m., London time,
two London Business Days prior to the first day of such Euro-Rate
Funding Period for delivery on the first day of such Euro-Rate Funding
Period in amounts comparable to such Funding Segment and having
maturities comparable to such Funding Period by (B) a number equal to
1.00 minus the Euro-Rate Reserve Percentage.
"Euro-Rate Reserve Percentage" for any day shall mean the
percentage (expressed as a decimal, rounded upward to the nearest
1/100 of 1%), as determined in good faith by the Agent (which
determination shall be conclusive absent manifest error), which is in
effect on such day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) representing the maximum
reserve requirement (including, without limitation, supplemental,
marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "Eurocurrency
liabilities") of a member bank in such System. The Euro-Rate shall be
adjusted automatically as of the
<PAGE> 44
effective date of each change in the Euro-Rate Reserve Percentage. The
Euro-Rate Option shall be calculated in accordance with the foregoing
whether or not any Lender is actually required to hold reserves in
connection with its eurocurrency funding or, if required to hold such
reserves, is required to hold reserves at the "Euro-Rate Reserve
Percentage" as herein defined.
The Agent shall give prompt notice to the Borrower and to the
Lenders of the Euro-Rate determined or adjusted in accordance with the
definition of the Euro-Rate, which determination or adjustment shall
be conclusive if made in good faith.
In addition to the Euro-Rate Option for Tranche 3 Loans made by
Kreditanstalt fur Wiederaufbau ("KfW"), such Tranche 3 Loans may, at
the option of KfW and the Borrower, bear interest at a fixed rate per
annum offered by KfW and accepted by the Borrower for the then
remaining term of such Tranche 3 Loans based on KfW's cost of funding
plus the Applicable Margin and the Reuter's page "BNDS", all in
accordance with procedures agreed to between KfW and the Borrower.
(b) APPLICABLE MARGINS.
(i) Except with respect to any day occurring between the
Restatement Date and September 30, 1997, which shall be deemed to be a
Level IV Day, as used herein:
"Level I Day" means any day for which the Leverage Ratio for the
Measurement Period is less than 2.0 to 1.
"Level II Day" means any day for which the Leverage Ratio for the
Measurement Period is 2.0 to 1 or higher but less than 2.5 to 1.
"Level III Day" means any day for which the Leverage Ratio for
the Measurement Period is 2.5 to 1 or higher but less than 3.0 to 1.
"Level IV Day" means any day for which the Leverage Ratio for the
Measurement Period is 3.0 to 1 or higher but less than 3.5 to 1.
"Level V Day" means any day for which the Leverage Ratio for the
Measurement Period is 3.5 to 1 or higher but less than 4.0 to 1.
<PAGE> 45
"Level VI Day" means any day for which the Leverage Ratio for the
Measurement Period is 4.0 to 1 or higher.
(ii) The "Applicable Margin" for each installment of each type of
Loan and interest rate Option for any day shall mean the applicable percentage
set forth in this clause (ii). The Applicable Margin for the Base Rate Option
with respect to Tranche 1 Loans and Tranche 2 Special Loans will be zero percent
for each Level I Day, each Level II Day, each Level III Day and each Level IV
Day, 0.125% for each Level V Day and 0.5% for each Level VI Day. The Applicable
Margin for the Base Rate Option with respect to Tranche 2 Loans (other than the
Tranche 2 Special Loans) will be 0.25% for each Level I Day, each Level II Day,
each Level III Day and each Level IV Day, 0.375% for each Level V Day and 0.75%
for each Level VI Day. The Applicable Margin for the Euro-Rate Option with
respect to the Tranche 1 Loans, the Tranche 3 Loans (other than Tranche 3
Special Loans) and the Tranche 2 Special Loans will be 0.375% for each Level I
Day, 0.50% for each Level II Day, 0.625% for each Level III Day, 0.75% for each
Level IV Day, 1.125% for each Level V Day and 1.50% for each Level VI Day. The
Applicable Margin for the Euro-Rate Option with respect to the Tranche 2 Loans
(other than the Tranche 2 Special Loans) and to the Tranche 3 Special Loans will
be 0.625% for each Level I Day, 0.75 % for each Level II Day, 0.875% for each
Level III Day, 1.0% for each Level IV Day, 1.375% for each Level V Day and 1.75
% for each Level VI Day.
(iii) Notwithstanding clause (ii) above, upon the occurrence of
an Event of Default, the Applicable Margin for each type of Loan and the
interest rate option for any day shall mean the percentage set forth with
respect thereto in clause (ii) plus 2%. Such Applicable Margin shall remain in
effect from the date of the occurrence of such Event of Default until the
earlier to occur of (a) the date on which such Event of Default is cured or
waived or otherwise ceases to exist (and no other Event of Default exists), in
which case the Applicable Margin shall be determined in accordance with clause
(ii) above, and (b) the date on which the unpaid principal amount of the Loans,
interest accrued thereon and all other Obligations are declared to be
immediately due and payable pursuant to Section 7.02(a)(ii) hereof, in which
case Section 2.12(c) shall apply.
(iv) Notwithstanding clause (ii) above, but subject to clause
(iii) above, the Applicable Margin for the Euro-Rate Option for all Loans for
any day on which Standard & Poor's Ratings Group has issued, and there remains
applicable, a rating of the Borrower's senior unsecured debt rating of BBB- or
better shall be .25%.
<PAGE> 46
(c) FUNDING PERIODS. At any time when the Borrower shall select,
convert to or renew the Euro-Rate Option to apply to any part of the Loans, the
Borrower shall specify one or more periods (the "Funding Periods") during which
each such Option shall apply, such Funding Periods being one, two, three or six
months ("Euro-Rate Funding Period"); PROVIDED, that:
(i) Each Euro-Rate Funding Period shall begin on a London
Business Day, and the term "month", when used in connection with a
Euro-Rate Funding Period, shall mean the interval between the
Euro-Convention Dates in consecutive calendar months as to such
Euro-Rate Funding Period (and the "Euro-Convention Date" in a calendar
month as to any Euro-Rate Funding Period shall mean the day in such
calendar month numerically corresponding to the first day of such
Euro-Rate Funding Period, except (x) if there is no such numerically
corresponding day in a calendar month, the "Euro-Convention Date" for
such calendar month shall mean the last London Business Day of such
calendar month, (y) if the first day of such Euro-Rate Period is the
last day of a calendar month, the "Euro-Convention Date" for any
calendar month shall mean the last London Business Day of such
calendar month and (z) otherwise, if a numerically corresponding day
in a given calendar month is not a London Business Day, the
"Euro-Convention Date" for such calendar month shall mean the next
following day that is a London Business Day, but not later than the
last Business Day of such calendar month);
(ii) In the case of (A) Tranche 1 Loans, the Borrower may not
select a Funding Period that would end after the Tranche 1 Maturity
Date, (B) Tranche 2 Loans, the Borrower may not select a Funding
Period that would end after the Tranche 2 Conversion Date, unless the
Tranche 2 Conversion Date has occurred, in which case the Borrower may
not select a Funding Period that would end after the Tranche 2
Maturity Date, and (C) Tranche 3 Loans, the Borrower may not select a
Funding Period that would end after the Tranche 3 Maturity Date; and
(iii)The Borrower shall, in selecting any Funding Period, allow
for scheduled mandatory payments and foreseeable mandatory prepayments
of the Loans.
(d) TRANSACTIONAL AMOUNTS. Every selection of, conversion
from, conversion to or renewal of an interest rate Option and every payment or
prepayment of any Loans shall be in a principal amount such that after giving
effect thereto the aggregate principal amount of the Base Rate Portion of the
Tranche 1 Loans or the Tranche 2 Loans, or the aggregate
<PAGE> 47
principal amount of each Funding Segment of the Euro-Rate Portion of the Tranche
1 Loans, the Tranche 2 Loans or the Tranche 3 Loans, respectively, as the case
may be, shall be as set forth below:
PORTION OR FUNDING SEGMENT ALLOWABLE AGGREGATE PRINCIPAL AMOUNTS
Base Rate Portion Any; and
Each Funding Segment $1,000,000 or integral
of the Euro-Rate Portion multiples of $500,000.
(e) EURO-RATE UNASCERTAINABLE; IMPRACTICABILITY. If
(i) on any date on which a Euro-Rate would otherwise be set the
Agent (in the case of clauses (A) or (B) below) or any Lender (in the
case of clause (C) below) shall have determined in good faith (which
determination shall be conclusive) that:
(A) adequate and reasonable means do not exist for
ascertaining such Euro-Rate,
(B) a contingency has occurred which materially and
adversely affects the interbank eurodollar market, as the case
may be, or
(C) the effective cost to such Lender of funding a proposed
Funding Segment of the Euro-Rate Portion from a Corresponding
Source of Funds shall exceed the Euro-Rate applicable to such
Funding Segment, or
(ii) at any time any Lender shall have determined in good faith
(which determination shall be conclusive) that the making, commitment
to make, maintenance or funding of any part of the Euro-Rate Portion
has been made impracticable or unlawful by compliance by such Lender
or a Notional Euro-Rate Funding Office in good faith with any Law or
guideline or interpretation or administration thereof by any
Governmental Authority charged with the interpretation or
administration thereof or with any request or directive of any such
Governmental Authority (whether or not having the force of law);
then, and in any such event, the Agent or such Lender, as the case may be, shall
promptly notify the Borrower of such determination (and any Lender giving such
notice shall notify the Agent). Upon such date as shall be specified in such
notice (which shall not be earlier than the date such notice is given), the
obligation of each of the Potential Base Rate Lenders to
<PAGE> 48
allow the Borrower to select, convert to or renew the Euro-Rate Option shall be
suspended until the Agent or such Lender, as the case may be, shall have later
notified the Borrower (and any Lender giving such notice shall notify the Agent)
of the Agent's or such Potential Base Rate Lender's determination in good faith
(which determination shall be conclusive) that the circumstance giving rise to
such previous determination no longer exist. The obligation of each of the
Lenders which are not Potential Base Rate Lenders to allow the Borrower to
select, convert to or renew the Euro-Rate Option shall not be suspended,
provided that, in the case of a determination under clause A of subsection (i)
of this Section 2.06(e), the Euro-Rate shall be deemed to be the most recent
ascertainable Euro-Rate with a Euro-Rate Funding Period of one month (or, at the
option of the applicable Lender, such Lender's cost of funds as verified to the
Borrower and the Agent) until the Agent shall have later notified the Borrower
of the Agent's determination in good faith (which determination shall be
conclusive) that the circumstances giving rise to such previous determination no
longer exist.
If any Potential Base Rate Lender notifies the Borrower of a
determination under subsection (ii) of this Section 2.06(e), the Euro-Rate
Portion of the Loans of such Lender (the "Affected Lender") shall automatically
be converted to the Base Rate Option as of the date specified in such notice
(and accrued interest thereon shall be due and payable on such date). When such
Affected Lender later notifies the Borrower and the Agent of such Affected
Lender's determination in good faith (which determination shall be conclusive)
that the circumstances giving rise to such previous determination no longer
exist, any portion of the Term Loans of the Affected Lender bearing interest at
the Base Rate Option shall automatically be converted to the Euro-Rate Option in
accordance with paragraphs (c) and (d) of this Section 2.06 as of the date
specified in such notice (which specified date of conversion shall not be
earlier than the fourth Business Day after the date of such notice) and accrued
interest thereon shall be due and payable on such date.
If at the time the Agent or a Potential Base Rate Lender makes a
determination under subsection (i) or (ii) of this Section 2.06(e) the Borrower
previously has notified the Agent that it wishes to select, convert to or renew
the Euro-Rate Option with respect to any proposed Loans but such Loans have not
yet been made, such notification shall be deemed to provide for selection of,
conversion to or renewal of the Base Rate Option instead of the Euro-Rate Option
with respect to such Loans or, in the case of a determination by a Lender, such
Loans of such Lender.
2.07. CONVERSION OR RENEWAL OF INTEREST RATE OPTIONS.
<PAGE> 49
(a) CONVERSION OR RENEWAL. Subject to the provisions of Section
2.13(b) hereof, and if no Event of Default or Potential Default shall have
occurred and be continuing or shall exist, the Borrower may convert any part of
its Tranche 1 Loans or Tranche 2 Loans from any interest rate Option or Options
to one or more different interest rate Options and may renew the Euro-Rate
Option as to any Funding Segment of the Euro-Rate Portion of the Tranche 1
Loans, Tranche 2 Loans or Tranche 3 Loans:
(i) At any time with respect to conversion from the Base Rate
Option; or
(ii) At the expiration of any Funding Period with respect to
conversions from or renewals of the Euro-Rate Option as to the Funding
Segment corresponding to such expiring Funding Period.
Whenever the Borrower desires to convert or renew any interest rate Option or
Options, the Borrower shall provide to the Agent Standard Notice setting forth
the following information:
(v) Whether such renewal is to apply to Tranche 1 Loans, Tranche
2 Loans or Tranche 3 Loans;
(w) The date, which shall be a Business Day, on which the
proposed conversion (in the case of Tranche 1 Loans and Tranche 2
Loans only) or renewal is to be made;
(x) The principal amounts selected in accordance with Section
2.06(d) hereof of the Base Rate Portion and each Funding Segment of
the Euro-Rate Portion to be converted from or renewed;
(y) The interest rate Option or Options selected in accordance
with Section 2.06(a) hereof and the principal amounts selected in
accordance with Section 2.06(d) hereof of the Base Rate Portion and
each Funding Segment of the Euro-Rate Portion to be converted to (in
the case of Tranche 1 Loans and Tranche 2 Loans only); and
(z) With respect to each Funding Segment to be converted to (in
the case of Tranche 1 Loans and Tranche 2 Loans only) or renewed, the
Funding Period selected in accordance with Section 2.06(c) hereof to
apply to such Funding Segment.
Standard Notice having been so provided, after the date specified in such
Standard Notice, interest shall be calculated upon the
<PAGE> 50
principal amount of the Loans as so converted or renewed. Interest on the
principal amount of any part of the Loans converted or renewed (automatically or
otherwise) shall be due and payable on the conversion or renewal date.
(b) FAILURE TO CONVERT OR RENEW. Absent due notice from the
Borrower of conversion or renewal in the circumstances described in Section
2.07(a)(ii) hereof, (i) any part of the Euro-Rate Portion of the Tranche 1 Loans
or the Tranche 2 Loans for which such notice is not received shall be converted
automatically to the Base Rate Option on the last day of the expiring Funding
Period and (ii) any part of the Euro-Rate Portion of the Tranche 3 Loans for
which such notice is not received shall be renewed with a Funding Period of one
month.
2.08. PREPAYMENTS GENERALLY. Whenever the Borrower desires or is
required to prepay any part of its Loans, it shall provide Standard Notice to
the Agent setting forth the following information:
(i) Whether such prepayment is to be applied to the Tranche 1
Loans, the Tranche 2 Loans or the Tranche 3 Loans;
(ii) The date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(iii) The total principal amount of such prepayment, which shall
be the sum of the principal amounts selected pursuant to clause
(a)(iv) of this Section 2.08; and
(iv) The principal amounts selected in accordance with Section
2.06(d) hereof of the Base Rate Portion and each part of each Funding
Segment of the Euro-Rate Portion to be prepaid.
Standard Notice having been so provided, on the date specified in such Standard
Notice, the principal amounts of the Base Rate Portion and each part of the
Euro-Rate Portion specified in such notice, together with interest on each such
principal amount to such date, shall be due and payable.
2.09. OPTIONAL PREPAYMENTS. (a) The Borrower shall have the
right at its option from time to time to prepay its Loans in whole or part
without premium or penalty (subject, however, to Section 2.13(b) hereof):
(i) At any time with respect to any part of the Base Rate
Portion; or
<PAGE> 51
(ii) At the expiration of any Funding Period with respect to
prepayment of the Euro-Rate Portion with respect to any part of the
Funding Segment corresponding to such expiring Funding Period.
Any such prepayment shall be made in accordance with Section 2.08 hereof.
(b) Optional prepayment, if made, shall be in integral multiples
of $1,000,000.
(c) Unless the Borrower elects (which it may do) to apply an
optional prepayment to the Term Loans in the inverse order of their scheduled
maturities, optional prepayments of the Term Loans shall be applied as follows:
(i) First, to the next scheduled installment of principal due
under the Term Loans (it being understood that if, on the
date of such next scheduled installment, there are
installments due under the Tranche 2 Loans and the Tranche 3
Loans, such optional prepayments shall be applied on a pro
rata basis among the two).
(ii) Second, to the remaining installments due under the Term
Loans, on a pro rata basis among all the installments.
2.10. MANDATORY PREPAYMENTS.
(a) BORROWING BASE. If on any date any Borrowing Base Certificate
is required to be furnished pursuant to Section 2.16(e) hereof the aggregate
principal amount of the Total Tranche 1 Credit Exposure of the Tranche 1 Lenders
exceeds the Borrowing Base, the Borrower shall prepay (on the prepayment date
described in the last sentence of this paragraph) a principal amount of the
Tranche 1 Loans (and, to the extent of undrawn Letters of Credit, provide cash
collateral therefor in accordance with the terms hereof) in an aggregate amount
not less than the amount of such excess. The provision of cash collateral in
accordance with Section 2.25 hereof for Letters of Credit issued under this
Agreement shall be equivalent to the making of a prepayment under this Section
2.10(a). Concurrently with the delivery of any Borrowing Base Certificate which
shows such an excess, the Borrower shall give notice to the Agent of such
prepayment in accordance with Section 2.08 hereof, which notice shall specify a
prepayment date no later than three Business Days after the date of delivery of
such Borrowing Base Certificate.
<PAGE> 52
(b) INSURANCE PROCEEDS AND CONDEMNATION AWARDS. The Borrower
shall prepay a principal amount of the Loans from time to time in an amount not
less than the amount of Net Proceeds (as defined in Section 2.06 of the
Mortgage) of casualty insurance or of any condemnation award not used for the
payment of costs of restoring improvements and equipment in accordance with such
Section 2.06. Such prepayment shall be made on the earliest date on which it
shall have been determined that the Borrower will not, or is not entitled under
such Section 2.06 to, apply such proceeds to such restoration. Such prepayment
shall be applied as set forth in Exhibit KK-1997.
(c) APPLICABILITY OF CERTAIN PROVISIONS. Prepayments required by
this Section 2.10 are subject to all of the terms and conditions applicable to
prepayments generally pursuant to Section 2.08 hereof and Section 2.13(b) hereof
and to all of the terms and conditions applicable to optional prepayments
pursuant to Section 2.09 hereof, except that Sections 2.08(a)(iv) and 2.09(b)
hereof shall not apply to such prepayments to the extent necessary to comply
with this Section 2.10. If the Borrower is required to give notice of a
prepayment but for any reason fails to give a notice in accordance with the
provisions of this Agreement, the amount as to which the Borrower is required to
have given notice of prepayment shall nevertheless be deemed due and payable as
of the date required to have been prepaid (for purposes of calculating interest
on such amounts pursuant to Section 2.12(c) hereof and otherwise).
2.11. INTEREST PAYMENT DATES. Interest on the Base Rate Portion
shall be due and payable in arrears on each Regular Payment Date. Interest on
each Funding Segment of the Euro-Rate Portion shall be due and payable on the
last day of the corresponding Euro-Rate Funding Period and, if such Euro-Rate
Funding Period is longer than three months, also every third month during such
Funding Period. After maturity of any part of the Loans (by acceleration or
otherwise), interest on such part of the Loans shall be due and payable on
demand.
2.12. PRO RATA TREATMENT; PAYMENTS GENERALLY; INTEREST ON OVERDUE
AMOUNTS.
(a) PRO RATA TREATMENT.
(i) TRANCHE 1 LOANS. Each borrowing and conversion and renewal of
interest rate Options hereunder shall be made, and all payments made
in respect of principal, interest, Tranche 1 Commitment Fees, and
Letter of Credit Fees due from the Borrower hereunder with respect to
Tranche 1 Loans or under the Tranche 1 Notes shall be applied Pro Rata
among the Tranche 1 Lenders, except for
<PAGE> 53
payments of interest involving an Affected Lender as provided in
Section 2.06(e) hereof and payments to a Lender subject to a
withholding deduction under Section 2.14(c) hereof and payments of the
Commitment Fee, which shall be calculated in accordance with Section
2.02(a)(i) hereof. The failure of any Tranche 1 Lender to make a
Tranche 1 Loan (or the failure of any other Lender to make any other
Loan) shall not relieve any other Tranche 1 Lender of its obligation
to lend hereunder, but neither the Agent nor any other Lender shall be
responsible for the failure of any other Lender to make a Tranche 1
Loan.
(ii) TRANCHE 2 LOANS. Each borrowing and conversion and renewal
of interest rate Options hereunder shall be made, and all payments
made in respect of principal, interest and Tranche 2 Commitment Fees
due from the Borrower hereunder with respect to Tranche 2 Loans or
under the Tranche 2 Notes shall be applied Pro Rata among the Tranche
2 Lenders, except for payments of interest involving an Affected
Lender as provided in Section 2.06(e) hereof and payments to a Lender
subject to a withholding deduction under Section 2.14(c) hereof. The
failure of any Tranche 2 Lender to make a Tranche 2 Loan (or the
failure of any other Lender to make any other Loan) shall not relieve
any other Tranche 2 Lender of its obligation to lend hereunder, but
neither the Agent nor any other Lender shall be responsible for the
failure of any other Lender to make a Tranche 2 Loan.
(iii) TRANCHE 3 LOANS. Each borrowing and renewal of interest
rate Options hereunder shall be made, and all payments made in respect
of principal and interest due from the Borrower hereunder with respect
to Tranche 3 Loans or under the Tranche 3 Notes shall be applied Pro
Rata among the Tranche 3 Lenders, except for payments of interest
involving an Affected Lender as provided in Section 2.06(e) hereof and
payments to a Lender subject to a withholding deduction under Section
2.14(c) hereof. The failure of any Tranche 3 Lender to make a Tranche
3 Loan (or the failure of any other Lender to make any other Loan)
shall not relieve any other Tranche 3 Lender of its obligation to lend
hereunder, but neither the Agent nor any other Lender shall be
responsible for the failure of any other Lender to make a Tranche 3
Loan.
(b) PAYMENTS GENERALLY. All payments and prepayments to be made
by any Loan Party in respect of principal, interest, fees, indemnity, expenses
or other amounts due from any Loan Party hereunder or under any Loan Document
shall be payable in Dollars at 12:00 o'clock Noon, Pittsburgh time, on the day
when
<PAGE> 54
due without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, and an action therefor shall immediately accrue,
without setoff, counterclaim, withholding or other deduction of any kind or
nature, except for payments to a Lender subject to a withholding deduction under
Section 2.14(c) hereof. Except for payments under Sections 2.13, 2.22 and 9.06
hereof, such payments shall be made to the Agent at its Office in Dollars in
funds immediately available at such Office, and payments under Sections 2.13,
2.22 and 9.06 hereof shall be made to the applicable Lender or Issuing Bank at
such domestic account as it shall specify to the Borrower from time to time in
funds immediately available at such account. Any payment or prepayment received
by the Agent or such Lender or Issuing Bank after 12:00 o'clock Noon, Pittsburgh
time, on any day shall be deemed to have been received on the next succeeding
Business Day. The Agent shall distribute to the Lenders all such payments
received by it from any Loan Party as promptly as practicable after receipt by
the Agent, but in any event by 2:00 o'clock P.M., Pittsburgh time, if received
by 12:00 o'clock Noon, Pittsburgh time.
(c) INTEREST ON OVERDUE AMOUNTS. To the extent permitted by law,
after there shall have become due (by acceleration or otherwise) principal,
interest, fees, indemnity, expenses or any other amounts due from any Loan Party
hereunder or under any other Loan Document, such amounts shall bear interest for
each day until paid (before and after judgment), payable on demand, at a rate
per annum (in each case based on a year of 365 days and actual days elapsed)
which for each day shall be equal to the following:
(i) In the case of any part of the Euro-Rate Portion of any
Loans, (A) until the end of the applicable then-current Funding Period
at a rate per annum 2% above the rate otherwise applicable to such
part, and (B) thereafter in accordance with the following clause (ii);
and
(ii) In the case of any other amount due from any Loan Party
hereunder or under any Loan Document, 2% above the then-current Base
Rate Option applicable to Tranche 1 Loans or Tranche 2 Loans.
To the extent permitted by law, interest accrued on any amount which has become
due hereunder or under any Loan Document shall compound on a day-by-day basis,
and hence shall be added daily to the overdue amount to which such interest
relates.
<PAGE> 55
2.13. ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
(a) INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES,
RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES, ETC. If any Law or guideline
or interpretation or application thereof by any Governmental Authority charged
with the interpretation or administration thereof or compliance with any request
or directive of any Governmental Authority (whether or not having the force of
law) now existing or hereafter adopted:
(i) subjects any Lender or any Notional Euro-Rate Funding Office
to any tax or changes the basis of taxation with respect to this
Agreement, the Notes, the Loans or payments by any Loan Party of
principal, interest, commitment fee or other amounts due from the
Borrower hereunder or under the Notes (except for taxes on the overall
net income or overall gross receipts of such Lender or such Notional
Euro-Rate Funding Office imposed by the jurisdictions (federal, state
and local) in which the Lender's principal office or Notional
Euro-Rate Funding Office is located),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to
extend credit extended by, assets (funded or contingent) of, deposits
with or for the account of, other acquisitions of funds by, such
Lender or any Notional Euro-Rate Funding Office (other than
requirements expressly included herein in the determination of the
Euro-Rate hereunder),
(iii)imposes, modifies or deems applicable any capital adequacy
or similar requirement (A) against assets (funded or contingent) of,
or credits or commitments to extend credit extended by, any Lender or
any Notional Euro-Rate Funding Office, or (B) otherwise applicable to
the obligations of any Lender or any Notional Euro-Rate Funding Office
under this Agreement, or
(iv) imposes upon any Lender or any Notional Euro-Rate Funding
Office any other condition or expense with respect to this Agreement,
the Notes or its making, maintenance or funding of any Loan or any
security therefor,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Lender, any Notional Euro-Rate Funding Office or, in the case of clause (iii)
hereof, any Person controlling a Lender, with respect to this Agreement,
<PAGE> 56
the Notes or the making, maintenance or funding of any Loan (or, in the case of
any capital adequacy or similar requirement, to have the effect of reducing the
rate of return on such Lender's or controlling Person's capital, taking into
consideration such Lender's or controlling Person's policies with respect to
capital adequacy) by an amount which such Lender deems to be material (such
Lender being deemed for this purpose to have made, maintained or funded each
Funding Segment of the Euro-Rate Portion from a Corresponding Source of Funds),
such Lender may from time to time notify the Borrower of the amount determined
in good faith (using any averaging and attribution methods) by such Lender
(which determination shall be conclusive absent manifest error) to be necessary
to compensate such Lender or such Notional Euro-Rate Funding Office for such
increase, reduction or imposition. Such amount shall be due and payable by the
Borrower to such Lender fifteen Business Days after such notice is given,
together with an amount equal to interest on such amount from the date two
Business Days after the date demanded until such due date at the Base Rate
Option applicable to Term Loans. A certificate by such Lender as to the amount
due and payable under this Section 2.13(a) from time to time and the method of
calculating such amount shall be conclusive absent manifest error. Each Lender
agrees that it will use good faith efforts to notify the Borrower of the
occurrence of any event that would give rise to a payment under this Section
2.13(a); PROVIDED, however, that any failure of such Lender to give any such
notice shall have no effect on any Loan Party's obligations hereunder.
(b) FUNDING BREAKAGE. In addition to all other amounts payable
hereunder, if and to the extent for any reason any part of any Funding Segment
of any Euro-Rate Portion of the Loans becomes due (by acceleration or
otherwise), or is paid, prepaid or converted to another interest rate Option
(whether or not such payment, prepayment or conversion is mandatory or automatic
and whether or not such payment or prepayment is then due), on a day other than
the last day of the corresponding Funding Period (the date such amount so
becomes due, or is so paid, prepaid or converted, being referred to as the
"Funding Breakage Date"), the Borrower shall pay each Lender an amount ("Funding
Breakage Indemnity") determined by such Lender as follows:
(i) first, calculate the following amount: (A) the principal
amount of such Funding Segment of the Loans owing to such Lender which
so became due, or which was so paid, prepaid or converted, times (B)
the greater of (x) zero or (y) the rate of interest applicable to such
principal amount on the Funding Breakage Date minus the Treasury Rate
as of the Funding Breakage Date, times (C) the number of days from
<PAGE> 57
and including the Funding Breakage Date to but not including the last
day of such Funding Period, times (D) 1/360;
(ii) the Funding Breakage Indemnity to be paid by the Borrower to
such Lender shall be the amount equal to the present value as of the
Funding Breakage Date (discounted at the Treasury Rate as of such
Funding Breakage Date, and calculated on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed) of the amount
described in the preceding clause (i) (which amount described in the
preceding clause (i) is assumed for purposes of such present value
calculation to be payable on the last day of the corresponding Funding
Period).
Such Funding Breakage Indemnity shall be due and payable on demand, and each
Lender shall, upon making such demand, notify the Agent of the amount so
demanded. In addition, the Borrower shall, on the due date for payment of any
Funding Breakage Indemnity, pay to such Lender an additional amount equal to
interest on such Funding Breakage Indemnity from the Funding Breakage Date to
but not including such due date at the Base Rate Option (calculated on the basis
of a year of 365 days and actual days elapsed). The amount payable to each
Lender under this Section 2.13(b) shall be determined in good faith by such
Lender, and such determination shall be conclusive.
2.14 TAXES.
(a) PAYMENTS NET OF TAXES. All payments made by any Loan Party
under this Agreement or any other Loan Document shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING (x) in the case of each Lender and the Agent, net income taxes (but
not withholding taxes imposed on gross interest income) imposed on such Lender
or the Agent (as the case may be) by the United States, and net income taxes and
franchise taxes imposed on such Lender or the Agent (as the case may be) by the
jurisdiction under the laws of which such Lender or the Agent (as the case may
be) is organized or by any political subdivision thereof, and (y) in the case of
each Lender, net income taxes and franchise taxes imposed on such Lender by the
jurisdiction in which is located the Lender's lending office which makes or
books a particular extension of credit hereunder or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deduction, charges,
withholdings and liabilities being referred to as "Taxes"). If any Loan Party
shall be required by law to deduct any Taxes from or in respect of any sum
payable under this Agreement or any other Loan Document to the Lender or the
Agent, (i) the sum payable shall be increased as may be
<PAGE> 58
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) such Lender or
the Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Loan Party shall make such
deductions, and (iii) such Loan Party shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) OTHER TAXES. In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made under this
Agreement or any other Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Document (hereinafter referred to as "Other Taxes").
(c) INDEMNITY. The Borrower will indemnify each Lender and the
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) paid by such Lender or the Agent (as the case
may be) and any liability (including, without limitation, penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. This indemnification
shall be made within 30 days from the date such Lender or the Agent (as the case
may be) makes written demand therefor.
(d) RECEIPTS, ETC. Within 45 days after the date of any payment
of Taxes or Other Taxes, the Borrower will furnish to the Agent the original or
a certified copy of a receipt evidencing payment thereof.
(e) OTHER. Without prejudice to the survival of any other
agreement of the Borrower hereunder, the obligations of the Borrower contained
in this Section 2.14 shall survive the payment in full of all other obligations
of the Borrower under this Agreement and the other Loan Documents, termination
of all commitments to extend credit under, and all letters of credit issued
under, the Loan Documents, and all other events and circumstances whatever.
Nothing in this Section 2.14 or otherwise in this Agreement shall require the
Agent or any Lender to disclose to the Borrower any of its tax returns (or any
other information that it deems to be confidential or proprietary).
(f) WITHHOLDING TAX EXEMPTION.
(i) Each Lender organized under the laws of a jurisdiction
outside the United States shall, on the date such
<PAGE> 59
Lender becomes party to this Agreement, and from time to time thereafter if
requested in writing by the Borrower or the Agent, provide the Agent and the
Borrower with the forms prescribed by the United States Internal Revenue Service
certifying as to such Lender's status for purposes of determining exemption
from, or reduced rate applicable to, United States withholding taxes with
respect to payments to be made to such Lender under this Agreement and the other
Loan Documents; PROVIDED, that a Lender shall not be obligated to provide any
such form after the date such Lender becomes party to this Agreement if such
Lender is not legally able to do so.
(ii) The Borrower shall not be required to indemnify any Lender,
or to pay any additional amounts to any Lender, in respect of United States
withholding taxes (or any withholding tax imposed by a state of the United
States that applies only when such United States withholding tax is imposed),
pursuant to Sections 2.14(a) or 2.14(c), to the extent that: (A) the obligation
to withhold amounts with respect to United States withholding tax existed on the
date such Lender became a party to this Agreement; PROVIDED, that this clause
(A) shall not apply to a Lender that became a Lender as a result of an
assignment made or other action taken at the request of the Borrower, or (B) the
obligation to make such indemnification or to pay such additional amounts would
not have arisen but for a failure of such Lender to comply with the provisions
of Section 2.14(f)(i).
(iii) If the Borrower is required under Section 2.14(a) or
2.14(c) to indemnify any Lender organized under the laws of a jurisdiction
outside the United States, or to pay additional amounts to any such Lender, in
respect of United States withholding taxes (or any withholding tax imposed by a
state of the United States that applies only when such United States withholding
tax is imposed), and such Lender (herein the "Tax Affected Lender") does not
waive the requirement for such indemnification or payment after request by the
Borrower that it do so, then, if the Borrower finds a financial institution
which offers in writing to purchase all such Tax Affected Lender's outstanding
Notes and Commitments, in accordance with Section 9.14(c), at a price equal to
the full outstanding principal amount thereof together with accrued and unpaid
interest and fees to the date of purchase and all other amounts accrued or
payable to such Tax Affected Lender to the date of purchase (including but not
limited to funding breakage under Section 2.13(b) to the extent such date of
purchase falls within a Euro-Rate Funding Period), such Tax Affected Lender will
accept such offer. Nothing in this Section 2.14(f) shall limit the rights of the
Agent and the Issuing Bank under Section 9.14(c) or shall require a Lender which
is also the Agent or the Issuing Bank to accept any such offer.
<PAGE> 60
(iv) The lender designated on Exhibit EE (the "Designated
Lender") makes the following representations and covenants: (A) it is not a bank
as such term is used in Section 881(c)(3)(A) of the Code, (B) it is not a
10-percent shareholder of the Borrower as that term is used in Section
881(c)(3)(B) of the Code, (C) it is not a controlled foreign corporation as that
term is used in Section 881(c)(3)(C) of the Code, (D) it is the beneficial owner
of the rights which it holds under this Agreement, (E) it will provide the
Borrower with a completed Form W-8 or other appropriate statement to the effect
that it is not a U.S. person in such form and with such other information as
will satisfy the requirements of Section 881(c)(2)(B)(ii) of the Code, and (F)
it will notify the Borrower and the Agent of any change relevant to its ability
to make the representations and covenants provided in (A) through (E) above.
2.15. FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
(a) NOTIONAL FUNDING. Each Lender shall have the right from time
to time, prospectively or retrospectively, without notice to the Borrower, to
deem any branch, subsidiary or affiliate of such Lender to have made, maintained
or funded any part of the Euro-Rate Portion at any time. Any branch, subsidiary
or affiliate so deemed shall be known as a "Notional Euro-Rate Funding Office."
Such Lender shall deem any part of the Euro-Rate Portion of the Loans or the
funding therefor to have been transferred to a different Notional Euro-Rate
Funding Office if such transfer would avoid or cure an event or condition
described in Section 2.06(e)(ii) hereof or would lessen compensation payable by
the Borrower under Section 2.13(a) hereof, and if such Lender determines in its
sole discretion that such transfer would be practicable and would not have a
material adverse effect on such part of the Loans, such Lender or any Notional
Euro-Rate Funding Office (it being assumed for purposes of such determination
that each part of the Euro-Rate Portion is actually made or maintained by or
funded through the corresponding Notional Euro-Rate Funding Office). Notional
Euro-Rate Funding Offices may be selected by such Lender without regard to such
Lender's actual methods of making, maintaining or funding Loans or any sources
of funding actually used by or available to such Lender.
(b) ACTUAL FUNDING. Each Lender shall have the right from time to
time to make or maintain any part of the Euro-Rate Portion by arranging for a
branch, subsidiary or affiliate of such Lender to make or maintain such part of
the Euro-Rate Portion. Such Lender shall have the right to (i) hold any
applicable Note payable to its order for the benefit and account of such branch,
subsidiary or affiliate or (ii) request the
<PAGE> 61
Borrower to issue one or more promissory notes in the principal amount of such
Euro-Rate Portion, in substantially the form attached hereto as Exhibit
A-1-1997, Exhibit A-2-1997 or Exhibit A-3-1997, as the case may be, with the
blanks appropriately filled, payable to such branch, subsidiary or affiliate and
with appropriate changes reflecting that the holder thereof is not obligated to
make any additional Loans to the Borrower. The Borrower agrees to comply
promptly with any request under subsection (ii) of this Section 2.15(b). If any
Lender causes a branch, subsidiary or affiliate to make or maintain any part of
the Euro-Rate Portion hereunder, all terms and conditions of this Agreement
shall, except where the context clearly requires otherwise, be applicable to
such part of the Euro-Rate Portion and to any note payable to the order of such
branch, subsidiary or affiliate to the same extent as if such part of the
Euro-Rate Portion were made or maintained and such note were a Revolving Credit
Note or Term Loan Note, as the case may be, payable to such Lender's order.
2.16. BORROWING BASE.
(a) BORROWING BASE. The "Borrowing Base" at any time shall mean
the sum, at the date of the most recent Borrowing Base Certificate required to
be furnished pursuant to Section 2.16(e) hereof, of
(i) 80% of the Depreciated Book Value of Specified Fixed Assets,
PLUS
(ii) the sum of (A) 85% of the Net Value of Eligible Receivables;
PLUS
(B) the sum of 65% of the Net Value of Commercial Grade Finished
Goods, PLUS 50% of the Net Value of Other Finished Goods, PLUS 65% of the Net
Value of Work in Process, PLUS 65% of the Net Value of Cold Mill Work in Process
Inventory, plus 65% of the Net Value of Direct Reduced Iron Inventory, PLUS 65%
of the Net Value of Scrap, PLUS 50% of the Net Value of Other Raw Materials,
PLUS 30% of the Net Value of Spares, in each case which are owned by the
Borrower and which meet each of the requirements for Eligible Inventory set
forth in Section 2.16(d) hereof and in the case of Commercial Grade Finished
Goods and Other Finished Goods are held for sale by the Borrower in the ordinary
course of its business; PROVIDED that the sum calculated under this subclause
(ii)(B) shall not constitute more than 65% of the sum calculated under this
clause (ii).
(b) ELIGIBLE RECEIVABLES. "Eligible Receivable" at any time shall
mean all rights to payments due and to become due to the Borrower (each such
right, a "Receivable" and
<PAGE> 62
collectively, "Receivables") which meet each of the following requirements at
such time:
(i) The Borrower has good title to such Receivable, free and
clear of any Lien, except for the Liens in favor of the Agent for the
benefit of the Lenders and the Agent securing the Obligations, and
such Receivable is subject to such a valid and perfected Lien in favor
of the Agent;
(ii) Such Receivable constitutes an "account" as defined in the
Uniform Commercial Code as in effect in the State of Indiana (and,
accordingly, without limitation, is not evidenced by any promissory
note or other instrument);
(iii) Such Receivable arises from the sale of goods or rendering
of services performed by the Borrower in the ordinary course of its
business. Such transaction was effected pursuant to the Borrower's
ordinary and customary policies, practices and procedures, including
but not limited to credit policies;
(iv) Such Receivable is collectible, is not disputed, and
represents an unconditional payment obligation in favor of the
Borrower. All services in connection with such Receivable have been
rendered and all merchandise sold in connection with such Receivable
has been shipped (other than merchandise with respect to Receivables
not exceeding $5,000,000 in the aggregate at any time, which
merchandise is being temporarily held pending shipment) and has not
been subject to return, rejection, repossession, dispute, offset,
defense or counterclaim (including but not limited to any claim for
credits, allowances or adjustments). No contra account or other
obligation, contingent or otherwise, exists from the Borrower to such
obligor;
(v) Such Receivable has been fully invoiced by the Borrower, is
payable by its terms in full in Dollars on ordinary trade terms, and
in any event is payable no later than 30 days (or with respect to
Receivables aggregating no more than $10,000,000 and the obligor of
which is not Heidtman or Preussag, no later than 60 days) after its
original invoice date. The due date of such Receivable has not been
extended. Such Receivable is payable by the obligor to the lockbox
account referred to in the Security Documents and the obligor has been
so instructed;
(vi) The related invoice has not remained unpaid for more than 90
days past its original invoice date;
<PAGE> 63
(vii) The obligor on such Receivable (A) is a Person whose
principal office is located in the United States (unless the
obligations of such Person or such Receivable are backed up by a
Letter of Credit or export credit insurance in an amount and in a
manner reasonably satisfactory to, and issued by an issuer reasonably
satisfactory to, the Agent), (B) is not the Borrower or an Affiliate
of the Borrower, other than Heidtman, General Electric Corporation or
one of its Affiliates, J.H. Whitney and Company or one of its
Affiliates or Preussag or one of its Affiliates, (C) is not the United
States of America, any State, municipality or Governmental Authority
(unless the security interest of the Agent therein is effectively
perfected and assigned under the Federal Assignment of Claims Act or
other relevant statute in a manner satisfactory to the Agent) and (D)
is not insolvent, subject to any bankruptcy, insolvency or similar
proceeding or unable to pay its debts as they become due;
(viii) Such Receivable shall not have arisen out of a contract or
agreement which by its terms purports to forbid or make void or
unenforceable any assignment thereof or Lien thereon;
(ix) In the event a single obligor (other than Heidtman or
Preussag) shall account for more than 10% of the aggregate dollar
amount of all rights to payment due and to become due to the Borrower,
the Receivables owed by such obligor shall only include the dollar
amount equal to said 10%;
(x) On or prior to September 30, 1997, in the event the dollar
amount of all rights to payment due and to become due to the Borrower
from Heidtman shall exceed $12,000,000, the Receivables owed by
Heidtman shall only include $12,000,000;
(xi) After September 30, 1997, in the event Heidtman shall
account for more than the Applicable Heidtman Percentage Limit of the
aggregate dollar amount of all rights to payment due and to become due
to the Borrower, the Receivables owed by Heidtman shall only include
the dollar amount equal to said Applicable Heidtman Percentage Limit
("Applicable Heidtman Percentage Limit" being defined as (x) 40% from
October 1, 1997 to September 30, 1998, inclusive, (y) 35% from October
1, 1998 to September 30, 1999, inclusive, and (z) 30% thereafter);
(xii) In the event Preussag shall account for more than the 30%
of the aggregate dollar amount of all rights to payment due and to
become due to the Borrower, the
<PAGE> 64
Receivables owed by Preussag shall only include the dollar amount
equal to said 30%; and
(xiii) Not more than 20% of the aggregate number or aggregate
amount of all invoices (excluding amounts in dispute) of the Borrower
to the obligor on such Receivable remain unpaid 90 days past their
respective invoice dates.
Notwithstanding the foregoing, "Eligible Receivable" shall not include (A) any
Receivable with respect to which the account debtor's obligation to pay is
conditional upon such account debtor's approval or is otherwise subject to any
repurchase obligation or return right, as with sales made on a bill-and-hold
(except as permitted by clause (iv) above), guaranteed sale, sale-and-return,
sale on approval or consignment basis; (B) any Receivable with respect to which
the account debtor is domiciled or has its principal place of business or chief
executive office in Indiana, Minnesota, New Jersey or any other state denying
creditors access to its courts in the absence of a Notice of Business Activities
Report (which in Indiana, Minnesota and New Jersey are currently required by
Burns In. Stat. Ann. ss. 6-8.1-6-6, 1988 Minn. Sess. Law Serv. Sec. 41 (West)
and N.J. Stat. Ann. ss. 14A.13-18, respectively) or other similar filing, unless
a current Notice of Business Activities Report or similar filing has been made
with the applicable state agency (and a copy thereof provided to the Agent) or
unless an exemption from such requirement exists; or (C) any Receivable
generated by the sale of merchandise which is being held pending shipment in any
public warehouse or premises leased by the Borrower, or any other premises not
owned by the Borrower, if the bailee, landlord or owner thereof has not
consented in writing to the existence and first priority of the Liens in favor
of the Agent for the benefit of the Lenders and the Agent securing the
Obligations and the Agent's right to enter such warehouse or premises and take
possession of and remove such merchandise. Any Receivable which is at any time
an Eligible Receivable, but which subsequently fails to meet any of the
foregoing requirements, shall forthwith cease to be an Eligible Receivable until
such time as it once again meets all of the foregoing requirements.
The "Net Value" of an Eligible Receivable shall be its face amount, net of any
discount for prompt payment (and net of any other amount representing payment of
finance charges, late charges, or interest (however denominated)), and net of
any portion thereof which constitutes payment of sales, use or other taxes.
(c) CERTAIN ADJUSTMENTS AND EXCLUSIONS. The Agent, upon the
direction of the Required Lenders, from time to time may adjust the percentages
or dollar amounts set forth in Section
<PAGE> 65
2.16(a) or exclude any otherwise Eligible Receivables from the class of Eligible
Receivables, in each case based on reasonable determinations as to the
creditworthiness of the obligor, as to the aggregate amount of receivables owing
by such obligor and its affiliates, or as to such other and further eligibility
standards as the Required Lenders may reasonably elect to impose from time to
time; provided, however, that neither the percentages nor the dollar amounts set
forth in Section 2.16(a) may be increased without the written consent of all the
Lenders. The Agent shall give notice to the Borrower of the terms of any such
adjustment or exclusion at least thirty days prior to the effective date
thereof. Except as otherwise expressly stated in such notice, all such
exclusions shall be continuing and cumulative, and an exclusion as to any
obligor shall apply in the aggregate to all receivables of such obligor and its
affiliates. The Borrower shall, not later than one Business Day after the Agent
effects any such exclusion, deliver to the Agent a revised Borrowing Base
Certificate reflecting the Borrowing Base as redetermined in accordance with
such exclusion. The making of a Revolving Credit Loan in reliance on a Borrowing
Base Certificate shall not affect the Lenders' right later to exclude any
receivables in accordance with this Section 2.16(c). No Eligible Receivable
excluded under this Section 2.16(c) shall be included by the Borrower in any
later Borrowing Base Certificate without written permission by the Agent.
(d) ELIGIBLE INVENTORY. "Eligible Inventory" shall mean at any
time (i) Commercial Grade Finished Goods, (ii) Other Finished Goods, (iii)
Scrap, (iv) Other Raw Materials, (v) Spares, (vi) Work in Process, (vii) Cold
Mill Work in Process Inventory and (viii) Direct Reduced Iron Inventory, in each
case owned by the Borrower and held for sale by the Borrower in the ordinary
course of its business which meet each of the following requirements at such
time:
(i) The Borrower has good title to such Inventory, free and clear
of any Lien, except for the Liens in favor of the Agent for the
benefit of the Lenders and the Agent securing the Obligations, and
such Inventory and proceeds thereof is subject to such a valid and
perfected Lien in favor of the Agent;
(ii) Such Inventory is in good and merchantable condition, is
readily salable by the Borrower in the ordinary course of its business
and has not been held by the Borrower for more than 180 days;
(iii) Such Inventory is located in the United States and is in
the possession of the Borrower; and
<PAGE> 66
(iv) Such Inventory conforms to such other eligibility
standards as the Required Lenders reasonably may impose from time to
time by notice to the Borrower of such eligibility standards at least
thirty days prior to the effective date thereof.
Notwithstanding the foregoing, no Inventory shall constitute Eligible Inventory
(A) if, at the request of the Borrower, the Lenders release their security
interest therein, (B) if it is produced in violation of the Fair Labor Standards
Act and subject to the so-called "hot goods" provision contained in Title 219,
ss.215(a)(1) of the United States Code, (C) if it is finished goods held for
consumption by the Borrower and not for sale in the ordinary course of business,
(D) if it is full, hard cold rolled steel or cold rolled steel in the process of
annealing and tempering, or (E) if it is located in any public warehouse or
premises leased by the Borrower, or any other premises not owned by the
Borrower, where the bailee, landlord or owner thereof has not consented in
writing to the existence and first priority of the Liens in favor of the Agent
for the benefit of the Lenders and the Agent securing the Obligations and the
Agent's right to enter such warehouse or premises and take possession of and
remove such Inventory. Any Inventory which is at any time Eligible Inventory,
but which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be Eligible Inventory until such time as it once again meets
all of the foregoing requirements.
The "Net Value" of Eligible Inventory shall be the Borrower's book value of such
Eligible Inventory at lower of cost or market, net of all reserves against such
Eligible Inventory required by GAAP, with "cost" calculated on a first-in,
first-out basis, all determined in accordance with GAAP.
(e) BORROWING BASE CERTIFICATES. From time to time as specified
herein the Borrower shall furnish to the Agent a certificate ("Borrowing Base
Certificate") substantially in the form of Exhibit D hereto, appropriately
completed, signed by a Responsible Officer of the Borrower and setting forth the
Borrowing Base and the other information required therein. Borrowing Base
Certificates shall be delivered to the Agent:
(i) on the first Business Day of each calendar quarter, and if on
any day during any calendar month Revolving Credit Loans are
outstanding, on the first Business Day of the next succeeding month;
(ii) as required by Section 2.16(c) hereof; and
<PAGE> 67
(iii) not later than two Business Days after the reasonable
request therefor by the Agent at the direction of the Required Lenders
from time to time.
To the extent the Borrower is required to deliver a Borrowing Base Certificate
on a particular day (A) the Eligible Receivables reflected on such Borrowing
Base Certificate and the Net Value applicable thereto shall be determined as of
a day (which shall be specified in the Borrowing Base Certificate) not earlier
than the Business Day before the day the Borrower is required to deliver such
Borrowing Base Certificate, and (B) the Eligible Inventory reflected on such
Borrowing Base Certificate and the Net Value applicable thereto shall be
determined as of a day (which shall be specified in the Borrowing Base
Certificate) not earlier than the Business Day before the day the Borrower is
required to deliver such Borrowing Base Certificate, PROVIDED, however, that
such date of determination may be a day not earlier than 40 days before the day
the Borrower is required to deliver such Borrowing Base Certificate, if the
Borrowing Base Certificate includes certification that there has been no
material decrease in the Net Value of Eligible Inventory since such specified
date. The Borrowing Base set forth in any such Borrowing Base Certificate shall
be effective until delivery of a subsequent Borrowing Base Certificate.
(f) Any failure to comply with the requirements of Section 2.10
with respect to a principal amount of Loans not exceeding the lesser of
$5,000,000 and an amount equal to 15% of the Borrowing Base for a period not
longer than five Business Days shall be deemed to have been waived by the
Lenders if the Agent, in the exercise of its sole and absolute discretion,
determines such waiver to be appropriate.
2.17. THE LETTER OF CREDIT SUBFACILITY.
(a) GENERAL. The Issuing Bank has issued Letters of Credit
pursuant to the Original Agreement, which remain outstanding. Subject to the
terms and conditions of this Agreement, and relying upon the representations and
warranties herein set forth and upon the agreements of the Tranche 1 Lenders set
forth in Sections 2.19 and 2.20 hereof, the Issuing Bank agrees to issue Letters
of Credit for the account of the Borrower at any time or from time to time on or
after the Restatement Date; PROVIDED, however, that (i) the Issuing Bank shall
have no obligation to, and shall not, issue any Letter of Credit if the
aggregate Letter of Credit Exposure upon such issuance would exceed $25,000,000
and (ii) the Issuing Bank shall have no obligation to, and shall not, issue any
Letter of Credit if the aggregate Total Tranche 1 Credit Exposure of all Tranche
1
<PAGE> 68
Lenders upon such issuance would exceed the lesser of (x) the aggregate Tranche
1 Committed Amounts of the Tranche 1 Lenders at such time and (y) the Borrowing
Base at such time. The issuance of a Letter of Credit shall be equivalent to the
making of a Tranche 1 Loan in accordance with Section 2.01 hereof.
(b) TERMS OF LETTERS OF CREDIT. The Borrower shall not request
any Letter of Credit to be issued except within the following limitations: (i)
each Letter of Credit shall have an expiration date no later than the earlier of
(A) 12 months after the date of issuance thereof and (B) the date which is 60
days prior to the Tranche 1 Maturity Date, (ii) shall be denominated in Dollars
and (iii) shall be payable only against sight drafts (and not time drafts).
(c) LETTERS OF CREDIT SATISFACTORY TO ISSUING BANK. Each Letter
of Credit shall be satisfactory in form, substance and beneficiary to the
Issuing Bank in its discretion. Each Standby Letter of Credit shall be used by
the Borrower as a standby letter of credit to provide credit enhancement for
workers' compensation obligations, contract performance guarantees, and like
bonding requirements, all in the ordinary course of business of the Borrower.
The provisions of this Section 2.17(c) represent only an obligation of the
Borrower to the Issuing Bank and the Tranche 1 Lenders; the Issuing Bank shall
have no obligation to the Tranche 1 Lenders to ascertain the purpose of any
Letter of Credit, and the rights and obligations of the Tranche 1 Lenders and
the Issuing Bank among themselves shall not be impaired or affected by a breach
of this Section 2.17(c).
(d) LETTER OF CREDIT FEE. The Borrower shall pay to the Agent for
the account of each Tranche 1 Lender a fee (the "Letter of Credit Fee") equal to
0.35% per annum for Trade Letters of Credit and a rate per annum equal to the
Applicable Margin for Tranche 1 Loans under the Euro-Rate Option for the
relevant day for Standby Letters of Credit (in each case based on a year of 365
or 366 days, as the case may be, and actual days elapsed), for each Letter of
Credit for each day from and including the date of issuance thereof to and
including the date of expiration or termination thereof, on the Letter of Credit
Undrawn Availability on such day. Such Letter of Credit Fee shall be due and
payable for the preceding period for which such fee has not been paid on each of
the following dates: (i) each Regular Payment Date, (ii) the date of each
drawing on such Letter of Credit, and (iii) the date of expiration or
termination of such Letter of Credit.
(e) FACING FEE; ADMINISTRATION FEES. The Borrower shall pay to
the Agent, for the sole account of the Issuing Bank,
<PAGE> 69
for each Letter of Credit, on the date of issuance of such Letter of Credit, a
fee (the "Letter of Credit Facing Fee") equal to 0.25% of the stated amount of
such Letter of Credit. In addition, the Borrower shall pay to the Agent, for the
sole account of the Issuing Bank, such other administration, maintenance,
amendment, drawing and negotiation fees as may be customarily charged by the
Issuing Bank from time to time in connection with letters of credit.
2.18. PROCEDURE FOR ISSUANCE AND AMENDMENT OF LETTERS OF CREDIT.
(a) REQUEST FOR ISSUANCE. The Borrower may from time to time
request, upon at least three Business Days' notice, the Issuing Bank to issue a
Letter of Credit by:
(i) delivering to the Issuing Bank and the Agent a written
request to such effect, specifying the date on which such Letter of
Credit is to be issued, the expiration date thereof, and the stated
amount thereof, and
(ii) delivering to the Issuing Bank an application, in such form
as may from time to time be approved by the Issuing Bank (the "Letter
of Credit Application"), completed to the satisfaction of the Issuing
Bank, together with such other certificates, documents and other
papers and information as the Issuing Bank may request.
Upon issuing each such Letter of Credit, the Issuing Bank shall promptly notify
the Agent (by telephone or otherwise), and furnish the Agent with the proposed
form of Letter of Credit to be issued. The Agent shall, promptly upon receiving
such notice, notify the Tranche 1 Lenders of such proposed Letter of Credit
(which notice shall specify the stated amount and term of such proposed Letter
of Credit), and shall determine, as of the close of business on the Business Day
before such proposed issuance, whether such proposed Letter of Credit complies
with the limitations set forth in Sections 2.17(a) and 2.17(b) hereof. Unless
such limitations are not satisfied, or unless the Required Lenders have given
notice to the Agent to cease issuing Letters of Credit pursuant to Section
2.18(c)(ii) hereof, the Agent shall notify the Issuing Bank (in writing or by
telephone promptly confirmed in writing) that the Issuing Bank is authorized to
issue such Letter of Credit. If the Issuing Bank issues a Letter of Credit, it
shall deliver the original of such Letter of Credit to the beneficiary thereof
or as the Borrower shall otherwise direct, and shall promptly notify the Agent
thereof and furnish a copy thereof to the Agent.
<PAGE> 70
(b) REQUEST FOR EXTENSION OR INCREASE. The Borrower may from time
to time request the Issuing Bank to extend the expiration date of an outstanding
Letter of Credit or increase the Letter of Credit Undrawn Availability of such
Letter of Credit. Such extension or increase shall for all purposes hereunder be
treated as though the Borrower had requested issuance of a replacement Letter of
Credit (except only that the Issuing Bank may, if it elects, issue a notice of
extension or increase in lieu of issuing a new Letter of Credit in substitution
for the outstanding Letter of Credit).
(c) LIMITATIONS ON ISSUANCE, EXTENSION AND AMENDMENT.
(i) As between the Issuing Bank, on the one hand, and the Agent
and the Lenders, on the other hand, the Issuing Bank shall be
justified and fully protected in issuing such Letter of Credit after
receiving authorization from the Agent as provided in Section 2.18(a)
hereof, notwithstanding any subsequent notices to the Issuing Bank,
any knowledge of an Event of Default (unless the Issuing Bank shall
have received a notice specifying that such Event of Default is an
"Event of Default" under this Agreement) or Potential Default, any
knowledge of failure of any condition specified in Section 4.02 hereof
to be satisfied, any other knowledge of the Issuing Bank, or any other
event, condition or circumstance whatsoever. The Issuing Bank may
amend, modify or supplement Letters of Credit or Letter of Credit
Applications, or waive compliance to any condition of issuance or
payment, without the consent of, and without liability to, the Agent
or any Lender, provided that any such amendment, modification or
supplement that extends the expiration date or increases the Letter of
Credit Undrawn Availability of an outstanding Letter of Credit shall
be subject to Sections 2.17(a) and (b) hereof.
(ii) As between the Agent, on the one hand, and the Lenders, on
the other hand, the Agent shall not authorize issuance of any Letter
of Credit if the Agent shall have received, at least two Business Days
before authorizing such issuance, from the Required Lenders an
unrevoked written notice that any condition precedent set forth in
Section 4.02 will not be satisfied and expressly requesting that the
Agent direct the Issuing Bank to cease to issue Letters of Credit.
Absent such notice, or unless the Agent determines that the applicable
limitations set forth in Sections 2.17(a) and 2.17(b) hereof are not
satisfied, the Agent shall be justified and fully protected, as
against the Lenders, in authorizing the Issuing Bank to issue such
Letter of Credit, notwithstanding any subsequent notices to the Agent,
any knowledge of an Event of Default or Potential
<PAGE> 71
Default, any knowledge of failure of any condition specified in
Section 4.02 hereof to be satisfied, any other knowledge of the Agent,
or any other event, condition or circumstance whatsoever.
2.19. LETTER OF CREDIT PARTICIPATING INTERESTS.
(a) GENERALLY. Concurrently with the issuance of each Letter of
Credit, the Issuing Bank automatically shall be deemed, irrevocably and
unconditionally, to have sold, assigned, transferred and conveyed to each other
Tranche 1 Lender, and each other Tranche 1 Lender automatically shall be deemed,
irrevocably and unconditionally, severally to have purchased, acquired, accepted
and assumed from the Issuing Bank, without recourse to, or representation or
warranty by, the Issuing Bank, an undivided interest, in a proportion equal to
such Tranche 1 Lender's Pro Rata share, in all of the Issuing Bank's rights and
obligations in, to or under such Letter of Credit, the related Letter of Credit
Application, the Letter of Credit Reimbursement Obligations, and all collateral,
guarantees and other rights from time to time directly or indirectly securing
the foregoing (such interest of each Tranche 1 Lender being referred to herein
as a "Letter of Credit Participating Interest"). Amounts other than Letter of
Credit Reimbursement Obligations and Letter of Credit Fees payable from time to
time under or in connection with a Letter of Credit or Letter of Credit
Application shall be for the sole account of the Issuing Bank. On the date that
any Purchasing Lender becomes a party to this Agreement in accordance with
Section 9.14 hereof, Letter of Credit Participating Interests in any outstanding
Letters of Credit held by the Tranche 1 Lender from which such Purchasing Lender
acquired its interest hereunder shall be proportionately reallotted between such
Purchasing Lender and such transferor Tranche 1 Lender (and, to the extent such
transferor Tranche 1 Lender is the Issuing Bank, the Purchasing Lender shall be
deemed to have acquired a Letter of Credit Participating Interest from such
transferor Tranche 1 Lender to such extent).
(b) OBLIGATIONS ABSOLUTE. Notwithstanding any other provision
hereof, each Tranche 1 Lender hereby agrees that its obligation to participate
in each Letter of Credit issued in accordance herewith, its obligation to make
the payments specified in Section 2.20 hereof, and the right of the Issuing Bank
to receive such payments in the manner specified therein, are each absolute,
irrevocable and unconditional and shall not be affected by any event, condition
or circumstance whatever. The failure of any Tranche 1 Lender to make any such
payment shall not relieve any other Tranche 1 Lender of its funding obligation
hereunder on the date due, but no Tranche 1 Lender shall be
<PAGE> 72
responsible for the failure of any other Tranche 1 Lender to meet its funding
obligations hereunder.
2.20. LETTER OF CREDIT DRAWINGS AND REIMBURSEMENTS.
(a) BORROWER'S REIMBURSEMENT OBLIGATION. The Borrower hereby
agrees to reimburse the Issuing Bank, by making payment to the Agent for the
account of the Issuing Bank in accordance with Section 2.12(b) hereof on the
date of each payment made by the Issuing Bank under any Letter of Credit,
without notice, protest or demand, all of which are hereby waived, and an action
therefor shall immediately accrue. To the extent such payment is not timely
made, the Borrower hereby agrees to pay to the Agent, for the account of the
Issuing Bank, on demand, interest on any Letter of Credit Unreimbursed Draws for
each day from and including the date of such payment by the Issuing Bank until
paid (before and after judgment) in accordance with Section 2.12(c) hereof, at
the rate per annum set forth in Section 2.12(c)(ii) hereof.
(b) PAYMENT BY LENDERS ON ACCOUNT OF UNREIMBURSED DRAWS. If the
Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in
full therefor on such payment date in accordance with Section 2.20(a) hereof,
the Issuing Bank will promptly notify the Agent thereof (which notice may be by
telephone), and the Agent shall forthwith notify each Tranche 1 Lender (which
notice may be by telephone promptly confirmed in writing) thereof. No later than
the Agent's close of business on the date such notice is given, each such
Tranche 1 Lender will pay to the Agent, for the account of the Issuing Bank, in
immediately available funds, an amount equal to such Tranche 1 Lender's Pro Rata
share of the unreimbursed portion of such payment by the Issuing Bank, PROVIDED
such notice is given no later than 2:00 o'clock P.M., Pittsburgh time. If and to
the extent that any Tranche 1 Lender fails to make such payment to the Issuing
Bank on such date, such Tranche 1 Lender shall pay such amount on demand,
together with interest, for the Issuing Bank's own account, for each day from
and including the date of the Issuing Bank's payment to and including the date
of repayment to the Issuing Bank (before and after judgment) at the following
rates per annum: (i) for each day from and including the date of such payment by
the Issuing Bank to and including the second Business Day thereafter, at a rate
set forth in Section 9.14.
(c) DISTRIBUTIONS TO LENDERS. If, at any time, after there occurs
a Letter of Credit Unreimbursed Draw and the Issuing Bank has received from any
Tranche 1 Lender such Tranche 1 Lender's share of such Letter of Credit
Unreimbursed Draw, and the Issuing Bank receives any payment or makes any
application of funds on account of the Letter of Credit Reimbursement Obligation
<PAGE> 73
arising from such Letter of Credit Unreimbursed Draw, the Issuing Bank will pay
to the Agent, for the account of such Tranche 1 Lender, such Tranche 1 Lender's
Pro Rata share of such payment.
(d) RESCISSION. If any amount received by the Issuing Bank on
account of any Letter of Credit Reimbursement Obligation shall be avoided,
rescinded or otherwise returned or paid over by the Issuing Bank for any reason
at any time, whether before or after the termination of this Agreement (or the
Issuing Bank believes in good faith that such avoidance, rescission, return or
payment is required, whether or not such matter has been adjudicated), each such
Tranche 1 Lender will, promptly upon notice from the Agent or the Issuing Bank,
pay over to the Agent for the account of the Issuing Bank its Pro Rata share of
such amount, together with its Pro Rata share of any interest or penalties
payable with respect thereto.
(e) EQUALIZATION. If any Tranche 1 Lender receives any payment or
makes any application on account of its Letter of Credit Participating Interest,
such Tranche 1 Lender shall forthwith pay over to the Issuing Bank, in Dollars
and in like kind of funds received or applied by it the amount in excess of such
Tranche 1 Lender's ratable share of the amount so received or applied.
2.21. OBLIGATIONS ABSOLUTE. The payment obligations of the
Borrower and of the Tranche 1 Lenders under Section 2.20 shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
(a) any lack of validity or enforceability of this Agreement, any
Letter of Credit or any other Loan Document;
(b) the existence of any claim, set-off, defense or other right
which the Borrower or any other Person may have at any time against
any beneficiary or transferee of any Letter of Credit (or any Persons
for whom any such beneficiary or transferee may be acting), the
Issuing Bank, any Lender, or any other Person, whether in connection
with this Agreement, the transactions contemplated hereby or any
unrelated transaction;
(c) any draft, certificate, statement or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;
<PAGE> 74
(d) payment by the Issuing Bank under any Letter of Credit
against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit, or payment by the Issuing
Bank under the Letter of Credit in any other circumstances in which
conditions to payment are not met, except any such wrongful payment
resulting solely from the gross negligence or willful misconduct of
the Issuing Bank; or
(e) any other event, condition or circumstance whatever, whether
or not similar to any of the foregoing.
The Borrower bears the risk of, and neither the Issuing Bank, any of its
directors, officers, employees or agents, nor any Lender, shall be liable or
responsible for any of, the foregoing matters, the use which may be made of any
Letter of Credit, or acts or omissions of the beneficiary or any transferee in
connection therewith, except for such person's gross negligence or willful
misconduct.
2.22. ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES. Without
limitation of any provision of Section 2.13(a) hereof, the Issuing Bank and each
Tranche 1 Lender shall be entitled to the benefit of Section 2.13(a) hereof, and
the Borrower shall pay additional compensation to the Issuing Bank and each
Tranche 1 Lender in accordance with such Section 2.13(a), in respect of this
Agreement, the Letters of Credit and Letter of Credit Participating Interests,
to the same extent and in the same manner as if the word "Lender," in each place
in which it occurs in such Section 2.13(a), were replaced with "Lender or
Issuing Bank," and the word "Loan," in each place in which it occurs in such
Section 2.13(a), were replaced with "Loan, Letter of Credit or Letter of Credit
Participating Interest."
2.23. FURTHER ASSURANCES. The Borrower hereby agrees, from time
to time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Bank more fully to effect the
purposes of this Agreement and the issuance of the Letters of Credit hereunder.
2.24. LETTER OF CREDIT APPLICATIONS. The representations,
warranties and covenants by the Borrower under, and the rights and remedies of
the Issuing Bank under, the Continuing Letter of Credit Agreement and any Letter
of Credit Application relating to any Letter of Credit are in addition to, and
not in limitation or derogation of, representations, warranties and covenants by
the Borrower under, and rights and remedies of the Issuing Bank and the Lenders
under, this Agreement, the Loan Documents, and applicable Law. The Borrower
<PAGE> 75
acknowledges and agrees that all rights of the Issuing Bank under any Letter of
Credit Application shall inure to the benefit of each Tranche 1 Lender to the
extent of its Tranche 1 Commitment Percentage as fully as if such Lender was a
party to such Letter of Credit Application. In the event of any inconsistency
between the terms of this Agreement and any Letter of Credit Application, this
Agreement shall prevail.
2.25. CASH COLLATERAL FOR LETTERS OF CREDIT.
(a) CASH COLLATERAL FOR LETTER OF CREDIT EXPOSURE IN CERTAIN
CIRCUMSTANCES. To the extent that this Agreement or any other Loan Document
requires a payment or prepayment to be made with respect to the Tranche 1 Loans,
such provision shall be construed as follows: after payment in full of the
outstanding Tranche 1 Loans, then, to the extent of the excess, if any, of the
aggregate Letter of Credit Exposure at such time over the balance in the Letter
of Credit Collateral Account, an amount equal to the remainder of the amount so
required to be paid by the Borrower shall immediately be paid by the Borrower to
the Agent for deposit in the Letter of Credit Collateral Account. In addition,
the Borrower agrees that, without limitation of the foregoing or of any other
provisions of this Agreement or the Loan Documents requiring collateral for the
Letters of Credit or other Obligations in whole or in part, and without
limitation of other rights and remedies under this Agreement or any Loan
Document or at law or in equity, if all of the Loans become due and payable
pursuant to Section 7.02 hereof, the Borrower shall immediately pay to the
Agent, for deposit in the Letter of Credit Collateral Account, an amount equal
to the excess, if any, of the aggregate Letter of Credit Exposure at such time
over the balance in the Letter of Credit Collateral Account.
(b) LETTER OF CREDIT COLLATERAL ACCOUNT. The Agent shall maintain
in its own name at its Office a deposit account (the "Letter of Credit
Collateral Account"), which shall bear interest (added to the deposit balance)
in accordance with the Agent's ordinary practices for deposit accounts of like
size and nature, over which the Agent shall have sole dominion and control, and
the Borrower shall have no right to withdraw any funds deposited therein. The
Agent shall deposit into the Letter of Credit Collateral Account such funds as
are required to be paid therein by Section 2.25(a). As security for the payment
of all Obligations, the Borrower hereby grants, conveys, assigns, pledges,
transfers to the Agent, and creates in the Agent's favor a continuing Lien on
and security interest in, the Letter of Credit Collateral Account, all amounts
from time to time on deposit therein, all proceeds of the conversion, voluntary
or involuntary, thereof into cash, instruments, securities or other property,
and all other proceeds thereof. The Borrower hereby
<PAGE> 76
represents, warrants, covenants and agrees that such Lien shall at all times be
valid and perfected, prior to all other Liens, and the Borrower shall take or
cause to be taken such actions and execute and deliver such instruments and
documents as may be necessary or, in the Agent's judgment, desirable to perfect
or protect such Lien. The Borrower shall not create or suffer to exist any Lien
on any amounts or investment held in the Letter of Credit Collateral Account
other than the Lien in favor of the Agent granted under this Section.
(c) APPLICATION OF FUNDS. The Agent shall apply funds in the
Letter of Credit Collateral Account: (i) on account of Letter of Credit
Reimbursement Obligations as and when the same become due and payable if and to
the extent that the Borrower fails directly to pay the same, and (ii) if no
Letter of Credit Reimbursement Obligations are due and payable, no Letters of
Credit are outstanding and the balance of the Letter of Credit Collateral
Account exceeds the aggregate Letter of Credit Exposure, the excess shall be
applied on account of the other Obligations secured hereby (it being understood
that, if no Event of Default or Potential Default has occurred or is continuing,
the Borrower may direct that such application be delayed for such time as is
necessary to avoid the requirement of a payment under Section 2.13(b)). If all
Obligations (other than Obligations constituting contingent obligations under
indemnification provisions which survive indefinitely, so long as no unsatisfied
claim has been made under any such indemnification provision) have been
indefeasibly paid in full in cash, all Commitments have terminated and all
Letters of Credit have expired, the Agent shall release to the Borrower all
remaining funds in the Letter of Credit Collateral Account.
2.26. CERTAIN PROVISIONS RELATING TO THE ISSUING BANK.
(a) GENERAL. The Issuing Bank shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, and no implied duties or responsibilities on the part of
the Issuing Bank shall be read into this Agreement or any Loan Document or shall
otherwise exist. The duties and responsibilities of the Issuing Bank to the
other Lender Parties under this Agreement and the other Loan Documents shall be
mechanical and administrative in nature, and the Issuing Bank shall not have a
fiduciary relationship in respect of any Lender Party or any other Person. The
Issuing Bank shall not be liable for any action taken or omitted to be taken by
it under or in connection with this Agreement or any other Loan Document, unless
caused by its own gross negligence or willful misconduct. The Issuing Bank shall
not be under any obligation to ascertain, inquire or give any notice relating to
(i) the performance or observance of any of the terms or
<PAGE> 77
conditions of this Agreement or any other Loan Document on the part of the
Borrower, (ii) the business, operations, condition (financial or otherwise) or
prospects of the Borrower or any other Person, or (iii) the existence of any
Event of Default or Potential Default. The Issuing Bank shall not be under any
obligation, either initially or on a continuing basis, to provide the Agent or
any Lender with any notices, reports or information of any nature, whether in
its possession presently or hereafter, except for such notices, reports and
other information expressly required by this Agreement to be so furnished.
(b) ADMINISTRATION. The Issuing Bank may rely upon any notice or
other communication of any nature (written or oral, including but not limited to
telephone conversations, whether or not such notice or other communication is
made in a manner permitted or required by this Agreement or any Loan Document)
purportedly made by or on behalf of the proper party or parties, and the Issuing
Bank shall not have any duty to verify the identity or authority of any Person
giving such notice or other communication. The Issuing Bank may consult with
legal counsel (including, without limitation, in-house counsel for the Issuing
Bank or in-house or other counsel for the Borrower), independent public
accountants and any other experts selected by it from time to time, and the
Issuing Bank shall not be liable for any action taken or omitted to be taken in
good faith in accordance with the advice of such counsel, accountants or
experts. Whenever the Issuing Bank shall deem it necessary or desirable that a
matter be proved or established with respect to the Borrower or Lender Party,
such matter may be established by a certificate of the Borrower or Lender Party,
as the case may be, and the Issuing Bank may conclusively rely upon such
certificate.
(c) INDEMNIFICATION OF ISSUING BANK BY LENDERS. Each Tranche 1
Lender hereby agrees to reimburse and indemnify the Issuing Bank and each of
their respective directors, officers, employees and agents (to the extent not
reimbursed by the Borrower and without limitation of the obligations of the
Borrower to do so), Pro Rata, from and against any and all amounts, losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature (including,
without limitation, the fees and disbursements of counsel (other than in-house
counsel) for the Issuing Bank or such other Person in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not the Issuing Bank or such other Person shall be designated a party
thereto) that may at any time be imposed on, incurred by or asserted against the
Issuing Bank, in its capacity as such, or such other Person, as a result of, or
arising out of, or in any way related to or by reason of, this Agreement, any
other Loan Document, any
<PAGE> 78
transaction from time to time contemplated hereby or thereby, or any transaction
financed in whole or in part or directly or indirectly with the proceeds of any
Letter of Credit, PROVIDED, that no Tranche 1 Lender shall be liable for any
portion of such amounts, losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements
resulting from the gross negligence or willful misconduct of the Issuing Bank or
such other Person, as finally determined by a court of competent jurisdiction.
2.27 THE SWINGLINE SUBFACILITY.
(a) GENERAL. Subject to the terms and conditions of this
Agreement, and relying upon the representations and warranties herein set forth
and upon the agreements of the Lenders set forth in Section 2.28 hereof, the
Swingline Lender may in its discretion make loans (the "Swingline Loans") to the
Borrower at any time or from time to time on or after the date hereof and to but
not including the Tranche 1 Maturity Date. The Swingline Lender shall not make
any Swingline Loan to the extent that the aggregate amount of Swingline Loans
outstanding would exceed $10,000,000 ("Swingline Subfacility Amount"). The
Swingline Lender shall not make any Swingline Loan to the extent that the
aggregate amount of Swingline Loans outstanding would exceed the Swingline
Current Availability most recently notified to it, as more fully provided in
Section 2.28(a) hereof.
(b) NATURE OF CREDIT. Within the limits of time and amount set
forth in this Section 2.27, and subject to the provisions of this Agreement, and
so long as the Swingline Lender is willing in its discretion to make Swingline
Loans, the Borrower may borrow, repay and reborrow Swingline Loans hereunder.
(c) SWINGLINE NOTE. The obligation of the Borrower to repay the
unpaid, principal amount of the Swingline Loans made to it by the Swingline
Lender and to pay interest thereon shall be evidenced in part by a promissory
note of the Borrower to the Swingline Lender, dated the Restatement Date (the
"Swingline Note") in substantially the form attached hereto as Exhibit B-1997,
with the blanks appropriately filled, payable to the order of the Swingline
Lender in a face amount equal to the Swingline Subfacility Amount.
(d) MATURITY. To the extent not due and payable earlier, the
Swingline Loans shall be due and payable on the Tranche 1 Maturity Date.
(e) MAKING OF SWINGLINE LOANS, ETC. The Borrower may request
Swingline Loans to be made in accordance with the
<PAGE> 79
provisions of Section 2.05 hereof, except that (x) the Agent need not notify
other Lenders of such request, and (y) Swingline Loans may be requested and made
in any amount of not less that $250,000 (subject to the overall limits of amount
set forth in this Section 2.27).
(f) REPAYMENT OF SWINGLINE LOANS, ETC. Without limitation of any
other provision hereof, the Swingline Lender may in its discretion and with
prior notice to the Borrower elect to apply to repayment of Swingline Loans any
amounts on deposit from time to time in accounts maintained with it
(individually or as Agent) by or for the benefit of the Borrower. The Borrower
may, in the alternative, prepay Swingline Loans in accordance with the
provisions of Section 2.09 hereof, except that the Borrower need give notice
only to the Agent and the Swingline Lender and the Agent need not notify other
Lenders of such request.
(g) INTEREST ON SWINGLINE LOANS. Each Swingline Loans shall,
until any Tranche 1 Lender shall have funded a participation therein under
Section 2.29, bear interest at such rate as may be agreed between the Borrower
and the Swingline Lender, and thereafter shall bear interest under the Base Rate
Option for Tranche 1 Loans. Interest on Swingline Loans shall be payable on each
Regular Payment Date and on the date of each payment of principal thereof.
2.28 LIMITATIONS ON THE MAKING OF SWINGLINE LOANS; SWINGLINE
CURRENT AVAILABILITY. The Agent shall calculate the Swingline Current
Availability each time there is a change in the aggregate outstanding principal
amount of the Tranche 1 Loans, the aggregate Letter of Credit Exposure or the
Tranche 1 Committed Amounts. The "Swingline Current Availability" at any time
shall be equal to the lesser of
(i) the Swingline Subfacility Amount, or
(ii) the amount equal to (A) the sum of the Tranche 1 Committed
Amounts of the Lenders at such time, minus (B) the sum of
the aggregate principal amount of Tranche 1 Loans and the
aggregate Letter of Credit Exposure at such time.
Each time the Swingline Current Availability changes, the Agent shall promptly
notify the Swingline Lender (by telephone promptly confirmed in writing) of such
fact, stating the new Swingline Current Availability. The Swingline Lender shall
not make any Swingline Loan to the extent that the aggregate principal amount of
Swingline Loans would exceed the Swingline Current Availability so notified to
the Swingline Lender.
<PAGE> 80
2.29. SWINGLINE LOAN PARTICIPATING INTERESTS.
(a) GENERALLY. At the discretion of the Swingline Lender at any
time, on one Business Day's notice to each Tranche 1 Lender, the Swingline
Lender may, subject to subsection (b) below, require each other Tranche 1 Lender
to purchase, acquire, accept and assume from the Swingline Lender, without
recourse to, or representation or warranty by, the Swingline Lender, an
undivided interest, in a portion equal to such Lender's Pro Rata share, in all
of the Swingline Lender's rights and obligations in, to or under the outstanding
Swingline Loans, together with accrued and unpaid interest thereon, and all
collateral, guarantees and other rights from time to time directly or indirectly
securing the foregoing (such interest of each Lender being referred to herein as
a "Swingline Loan Participating Interest"). On the date that any Purchasing
Lender becomes a party to this Agreement with a Tranche 1 Committed Amount in
accordance with Section 9.14 hereof, Swingline Loan Participating Interests in
any outstanding Swingline Loans held by the Tranche 1 Lender from which such
Purchasing Lender acquired its interest hereunder shall be proportionately
reallotted between such Purchasing Lender and such transferor Lender.
(b) OBLIGATIONS ABSOLUTE. Notwithstanding any other provision
hereof, each Tranche 1 Lender hereby agrees that its obligation to participate
in each Swingline Loan issued in accordance herewith, and its obligation to make
the payments specified in Section 2.05 hereof, are each absolute, irrevocable
and unconditional and shall not be affected by any event, condition or
circumstance whatsoever; provided, that no Tranche 1 Lender shall be obligated
to fund a participation if to do so would cause the Total Tranche 1 Credit
Exposure of such Lender to exceed its Tranche 1 Committed Amount. The failure of
any Tranche 1 Lender to make any such payment shall not relieve any other
Tranche 1 Lender of its funding obligation hereunder on the date due, but no
Tranche 1 Lender shall be responsible for the failure of any other Tranche 1
Lender to meet its funding obligations hereunder.
(c) PAYMENT BY LENDERS ON ACCOUNT OF SWINGLINE LOANS. If the
Swingline Lender desires to sell Swingline Loan Participating Interests to the
Tranche 1 Lenders, the Swingline Lender will promptly notify the Agent thereof
(which notice may be by telephone), and the Agent shall forthwith notify each
Tranche 1 Lender (which notice may be by telephone promptly confirmed in
writing) thereof. No later than the Agent's close of business on the Business
Day next succeeding the day such notice is given by the Agent, each such Tranche
1 Lender will pay
<PAGE> 81
to the Agent, for the account of the Swingline Lender, in immediately available
funds, an amount equal to such Lender's Pro Rata share of the outstanding
principal amount of the Swingline Loans and accrued and unpaid interest thereon.
If and to the extent that any Lender fails to make such payments to the
Swingline Lender on such date, such Lender shall pay such amount on demand,
together with interest, for the Swingline Lender's own account, for each day
from and including the date of the Swingline Lender's payment to and including
the date of repayment to the Swingline Lender (before and after judgment)
following rates per annum: (x) for each day from and including the date of such
nonpayment by such Lender to and including the second Business Day thereafter,
at the Federal Funds Effective Rate for such day, and (y) for each day
thereafter, at the rate applicable to the Swingline Loans for such day.
(d) DISTRIBUTIONS TO PARTICIPANTS. If, at any time, after the
Swingline Lender has made a Swingline Loan and has received from any Tranche 1
Lender such Lender's share of such Swingline Loan, the Swingline Lender receives
any payment or makes any application of funds on account of such Swingline Loan,
the Swingline Lender will pay to the Agent, for the account of such Lender, such
Lender's Pro Rata share of such payment.
(e) RECISSION. If any amount received by the Swingline Lender on
account of any Swingline Loan or interest thereon shall be avoided, rescinded or
otherwise returned or paid over by the Swingline Lender for any reason at any
time, whether before or after the termination of this Agreement (or the
Swingline Lender believes in good faith that such avoidance, recission, return
or payments is required, whether or not such matter has been adjudicated) each
Tranche 1 Lender which either has not previously funded a participation interest
in such Swingline Loan or has received a distribution under subsection (d) above
with respect to such amount will, promptly upon notice from the Agent or the
Swingline Lender, pay over to the Agent for the account of the Swingline Lender
such Lender's ratable share of such amount, together with its ratable share of
any interest or penalties payable with respect thereto.
(f) EQUALIZATION. If any Tranche 1 Lender receives any payment or
makes any application on account of its Swingline Loan Participating Interest,
such Lender shall forthwith pay over to the Agent, in dollars and in like kind
of funds received or applied by it the amount in excess of such Lender's ratable
share of the amount so received or applied.
<PAGE> 82
2.30. CERTAIN PROVISIONS RELATING TO THE SWINGLINE LENDER.
(a) GENERAL. The Swingline Lender shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Related Documents, and no implied duties or responsibilities on the part of the
Swingline Lender shall be read into this Agreement or any Related Document or
shall otherwise exist. The duties and responsibilities of the Swingline Lender
to the other Lender Parties under this Agreement and the Related Documents shall
be mechanical and administrative in nature, and the Swingline Lender shall not
have a fiduciary relationship in respect of any Lender Party or any other
person. The Swingline Lender shall not be liable for any action taken or omitted
to be taken by it under or in connection with this Agreement or any Related
Document, unless caused by its own gross negligence or willful misconduct, as
finally determined by a court of competent jurisdiction. The Swingline Lender
shall not be under any obligation to ascertain, inquire or give any notice
relating to (i) the performance or observance of any of the terms or conditions
of this Agreement or any Related Document, (ii) the businesses operations,
conditional (financial or otherwise) or prospects the Borrower or any other
person, or (iii) the existence of any Event of Default or Potential Default. The
Swingline Lender shall not be under any obligation, either initially or on a
continuing basis, to provide any person with any notices, reports or information
of any nature, whether in its possession presently or hereafter, except for such
notices, reports and other information expressly required by this Agreement to
be so furnished.
(b) ADMINISTRATION. The Swingline Lender may rely upon any notice
or other communication of any nature (written or oral, whether or not such
notice or other communication is made in a manner permitted or required by this
Agreement or any Related Document) purportedly made by or on behalf of the
proper party or parties, and the Swingline Lender shall not have any duty to
verify the identity or authority of any person giving such notice or other
communication. The Swingline Lender may consult with legal counsel (including
in-house counsel for the Swingline Lender or in-house or other counsel for the
Borrower), independent public accountants and any other experts selected by it
from time to time, and the Swingline Lender shall not be liable for any action
taken or omitted to be taken in good faith in accordance with the advice of such
counsel, accountants or experts. Whenever the Swingline Lender shall deem it
necessary or desirable that a matter be proved or established with respect to
the Borrower or any Lender Party, such matter may be established by a
certificate of the Borrower or such other Lender
<PAGE> 83
Party, as the case may be, and the Swingline Lender may conclusively rely upon
such certificate.
(c) INDEMNIFICATION OF SWINGLINE LENDER BY LENDERS. The Borrower hereby
indemnifies and holds the Swingline Lender harmless from and against any and all
claims, damages, losses, liabilities, expenses, actions, judgments and suits of
any kind or nature whatsoever (including reasonable attorneys' fees and
expenses) ("Swingline Lender Claims") that may at any time be imposed on,
incurred by or asserted against the Swingline Lender in its capacity as such as
a result of, or arising out of, or in any way relating to or by reason of, this
Agreement, any Related Document, any transaction contemplated hereby or thereby,
or any transaction financed, in whole or in part, directly or indirectly, with
the proceeds of Swingline Loan, except to the extent, but only to the extent,
any such Swingline Lender claims are caused by the Swingline Lender's gross
negligence or willful misconduct, as finally determined by a court of competent
jurisdiction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower hereby represents and warrants to each Lender Party as
follows:
3.01. CORPORATE STATUS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Loan Party has corporate power and authority
to own its property and to transact the business in which it is engaged or
presently proposes to engage. Each Loan Party is duly qualified to do business
as a foreign corporation and is in good standing in all jurisdictions in which
the ownership of its properties or the nature of its activities or both makes
such qualification necessary or advisable except where the failure to so qualify
could not have a Material Adverse Effect.
3.02. CORPORATE POWER AND AUTHORIZATION. Each Loan Party has corporate
power and authority to execute, deliver, perform, and take all actions
contemplated by, each Loan Document to which it is a party, and all such action
has been duly and validly authorized by all necessary corporate proceedings on
its part. Without limitation of the foregoing, the Borrower has the corporate
power and authority to borrow and request Letters of Credit to be issued
pursuant to the Loan Documents to the fullest extent permitted hereby and
thereby from time to time, and has taken all necessary corporate action to
authorize such borrowings and requests.
<PAGE> 84
3.03. EXECUTION AND BINDING EFFECT. This Agreement and each other Loan
Document to which any Loan Party is a party and which is required to be
delivered on or before the Restatement Date pursuant to Section 4.01 hereof has
been duly and validly executed and delivered by such Loan Party. This Agreement
constitutes, and each other Loan Document when executed and delivered by each
Loan Party which is a party thereto will constitute, the legal, valid and
binding obligation of the Borrower or such Loan Party, as the case may be,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
3.04. GOVERNMENTAL APPROVALS AND FILINGS. No approval, order, consent,
authorization, certificate, license, permit or validation of, or exemption or
other action by, or filing, recording or registration with, or notice to, any
Governmental Authority (collectively, "Governmental Action") is or will be
necessary in connection with execution and delivery of any Loan Document by any
Loan Party, consummation by any Loan Party of the transactions herein or therein
contemplated, performance of or compliance with the terms and conditions hereof
or thereof by any Loan Party, except for (i) government permits not yet
available which the Borrower has no reason to expect will not be received when
needed, (ii) recordings and filings necessary to perfect the Liens granted by
the Security Documents and (iii) matters set forth in Schedule 3.04. Each
Governmental Action referred to in such Schedule 3.04 has been duly obtained or
made, as the case may be, and is in full force and effect, and there is no
action, suit, proceeding or investigation pending or, to the Borrower's
knowledge, threatened which seeks or has a reasonable possibility of resulting
in the reversal, rescission, termination, modification or suspension of any such
Governmental Action. No Governmental Action referred to in such Schedule 3.04
requires any further act to be performed or condition to be satisfied by any
Person as a condition to continued effectiveness thereof, except as set forth in
such Schedule 3.04. With respect to each of the matters set forth in Schedule
3.04, no Loan Party made any application to any Governmental Authority in
connection therewith which application, when taken together with all amendments,
supplements and modifications thereto, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements contained therein not misleading.
3.05. ABSENCE OF CONFLICTS. Neither the execution and delivery of any
Loan Document by any Loan Party, nor consummation
<PAGE> 85
by any Loan Party of the transactions herein or therein contemplated, nor
performance of or compliance with the terms and conditions hereof or thereof by
any Loan Party does or will
(a) violate or conflict with any Requirement of Law, or
(b) violate, conflict with or result in a breach of any term or
condition of, OR constitute a default under, OR result in (or give rise
to any right, contingent or otherwise, of any Person to cause) any
termination, cancellation, prepayment or acceleration of performance
of, OR result in the creation or imposition of (or give rise to any
obligation, contingent or otherwise, to create or impose) any Lien upon
any of the property of any Loan Party (except for any Lien in favor of
the Agent for the benefit of the Lenders and the Agent securing the
Obligations) pursuant to, OR otherwise result in (or give rise to any
right, contingent or otherwise, of any Person to cause) any change in
any right, power, privilege, duty or obligation of any Loan Party under
or in connection with,
(i) the certificate or articles of incorporation or by-laws
(or other constituent documents) of any Loan Party,
(ii) any Contractual Obligations creating, evidencing or
securing any Indebtedness or Guaranty Equivalent to which any
Loan Party is a party or by which it or any of its properties
(now owned or hereafter acquired) may be subject or bound, or
(iii) any other Contractual Obligations of any Loan Party,
except (in the case of each of (a) and (b) above) for matters as to which a
consent, waiver, amendment or agreement which has been duly obtained and is in
full force and effect (all of which matters are set forth on Schedule 3.05
hereof), and the Agent and each Lender has received a true, correct and complete
copy of each such consent, waiver, amendment or agreement and of each of the
underlying agreements or instruments to which it relates and except for matters
which, individually or in the aggregate, could not have a Material Adverse
Effect.
3.06. PROJECTIONS. The Borrower has furnished to the Agent and each
Lender projections prepared by the Borrower demonstrating the projected
financial condition and results of operations of the Borrower for the period
commencing on January 1, 1997 and ending on December 31, 2002, which
<PAGE> 86
projections are accompanied by a written statement of the assumptions and
estimates underlying such projections. Such projections were prepared on the
basis of such assumptions and estimates. Such projections, assumptions and
estimates, as of the date of preparation thereof and as of the Restatement Date,
are reasonable, are made in good faith, represent the Borrower's best judgment
as to such matters on the date thereof and do not contain assumptions or methods
of calculation which are inconsistent with the requirements of the Loan
Documents. Nothing contained in this Section shall constitute a representation
or warranty that such future financial performance or results of operations will
in fact be achieved.
3.07. LABOR MATTERS. On the Restatement Date, no Loan Party is a party
to any collective bargaining agreements with respect to any of its employees.
3.08. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
writing to the Lenders, no Loan Party has any liability or obligation of any
nature whatever (whether absolute, accrued, contingent or otherwise, whether or
not due), forward or long-term commitments or unrealized or anticipated losses
from unfavorable commitments, except matters that, individually or in the
aggregate, could not have a Material Adverse Effect.
3.09. ACCURATE AND COMPLETE DISCLOSURE. All information provided (in
writing) by or on behalf of any Loan Party to the Agent or any Lender (or to the
Persons listed on Schedule 3.09 hereto) pursuant to or in connection with any
Loan Document or any transaction contemplated hereby or thereby (excluding,
however, for purposes of this Section 3.09, the projections described in Section
3.06 hereof) is true and accurate in all material respects on the date as of
which such information is dated (or, if not dated, when received by the Agent or
such Lender, as the case may be) and such information, taken as a whole, which
was provided on or prior to the time this representation is made or remade, does
not omit to state any material fact necessary to make such information not
misleading at such time in light of the circumstances in which it was provided.
3.10. COMMITMENTS. Other than as set forth on Schedule 3.10 hereto or
as permitted by Section 6.03 hereof, no Loan Party has received any commitments
for financing other than the Tranche 1 Commitments, the Tranche 2 Commitments
and the Tranche 3 Commitments.
3.11. SOLVENCY. On and as of the Restatement Date, after consummation
of the transactions contemplated herein and after giving effect to all Loans and
other obligations and
<PAGE> 87
liabilities being incurred on such respective dates in connection therewith, and
on the date of each subsequent Loan or other extension of credit hereunder and
after giving effect to application of the proceeds thereof in accordance with
the terms of the Loan Documents, each of the Borrower and each other Loan Party
is and will be Solvent.
3.12. MARGIN REGULATIONS. No part of the proceeds of any Loan hereunder
will be used for the purpose of buying or carrying any "margin stock," as such
term is used in Regulations G and U of the Board of Governors of the Federal
Reserve System, as amended from time to time, or to extend credit to others for
the purpose of buying or carrying any "margin stock". No Loan Party is engaged
in the business of extending credit to others for the purpose of buying or
carrying "margin stock". No Loan Party owns any "margin stock". Neither the
making of any Loan nor any use of proceeds of any such Loan will violate or
conflict with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, as amended from time to time.
3.13. SUBSIDIARIES. Except as otherwise specifically permitted by this
Agreement, the Borrower has no Subsidiaries other than IDI.
3.14. PARTNERSHIPS, ETC. Except as otherwise specifically permitted by
this Agreement, no Loan Party is a partner (general or limited) of any
partnership, is a party to any joint venture or is an owner (beneficially or of
record) of any equity or similar interest in any Person (including but not
limited to any interest pursuant to which the Borrower has or may in any
circumstance have an obligation to make capital contributions to, or be
generally liable for or on account of the liabilities, acts or omissions of such
other Person).
3.15. OWNERSHIP AND CONTROL. Schedule 3.15-1997 hereto states, as of
the Restatement Date, the authorized capitalization of each Loan Party, the
number of shares of each class of capital stock issued and outstanding of each
Loan Party and the number and percentage of outstanding shares of each such
class of capital stock and the names of the record owners of such shares and, to
the Borrower's knowledge, the beneficial owners of such shares. The outstanding
shares of capital stock of each Loan Party have been duly authorized and validly
issued and are, except as designated on such Schedule 3.15-1997, fully paid and
nonassessable. There are no options, warrants, calls, subscriptions, conversion
rights, exchange rights, preemptive rights or other rights, agreements or
arrangements (contingent or otherwise) which may in any circumstances now or
hereafter obligate any Loan Party to issue any shares of its capital stock
<PAGE> 88
or any other securities, except for matters set forth in such Schedule
3.15-1997, and except for matters which are permitted by the terms hereof and
notice of which is provided by the Borrower to the Agent. Schedule 3.15-1997
hereof describes as of the Restatement Date all options, rights, purchase
agreements, buy-sell agreements, restrictions on transfer, pledges, proxies,
voting trusts, powers of attorney, voting agreements and other agreements,
instruments or arrangements to which any Loan Party is a party or is subject or
bound, or to which any record or beneficial owner of capital stock of any Loan
Party is a party or is subject or bound, which pertain to any shares of capital
stock (now or hereafter outstanding) of any Loan Party, including any matter
which may affect beneficial or record ownership thereof or transferability
thereof or voting rights with respect thereto.
3.16. LITIGATION. Except as set forth in Schedule 3.16-1997 hereof (in
the case of the making of this representation and warranty on the Restatement
Date and on any other date prior to the date of the request for the initial Term
Loans), there is no pending or, to the Borrower's knowledge, threatened action,
suit, claim, proceeding or investigation by or before any Governmental Authority
against or affecting any Loan Party which could, if adversely determined, have a
Material Adverse Effect.
3.17. ABSENCE OF EVENTS OF DEFAULT. No event has occurred and is
continuing and no condition exists which constitutes an Event of Default or
Potential Default.
3.18. ABSENCE OF OTHER CONFLICTS. None of the Loan Parties is in
violation of or conflict with, or is subject to any contingent liability on
account of any violation of or conflict with:
(a) any Requirement of Law,
(b) its certificate or articles of incorporation or by-laws (or other
constituent documents), or
(c) any Contractual Obligations to which it is party, which violation
or conflict could have a Material Adverse Effect.
3.19. INSURANCE. Each Loan Party maintains with financially sound and
reputable insurers the insurance required by Section 5.02 hereof.
3.20. TITLE TO PROPERTY. Each Loan Party has good and marketable title
in fee simple to all real property owned or purported to be owned by it and good
title to all other property
<PAGE> 89
of whatever nature owned or purported to be owned by it, in each case free and
clear of all Liens, other than Permitted Liens.
3.21. INTELLECTUAL AND OTHER PROPERTY. Each Loan Party owns, or is
licensed or otherwise has the right to use, all the patents, trademarks, service
marks, names (trade, service, fictitious or otherwise), copyrights, technology,
processes, data bases and other rights, free from burdensome restrictions,
necessary to own and operate its properties and to carry on its business as
presently conducted and presently planned to be conducted without conflict with
the rights of others in any material respect.
3.22. TAXES. All tax and information returns required to be filed by or
on behalf of each Loan Party have been properly prepared, executed and filed,
except when the failure to do so could not have a Material Adverse Effect. All
taxes, assessments, fees and other governmental charges upon any Loan Party or
upon any of its properties, incomes, sales or franchises which are due and
payable have been paid other than those not yet delinquent and payable without
premium or penalty, and except for those being diligently contested in good
faith by appropriate proceedings, and in each case adequate reserves and
provisions for taxes have been made on the books of such Loan Party. The
reserves and provisions for taxes on the books of each Loan Party are adequate
for all open years and for its current fiscal period. The Borrower does not know
of any proposed additional assessment or basis for any material assessment for
additional taxes against any Loan Party (whether or not reserved against) except
assessments or basis therefor which could not have a Material Adverse Effect.
3.23. EMPLOYEE BENEFITS. Schedule 3.23-1997 hereof sets forth as of the
Restatement Date a list of all Plans and Multiemployer Plans, and all
information available to the Borrower with respect to the direct, indirect or
potential withdrawal liability to any Multiemployer Plan of any Loan Party or
any Controlled Group Member. On the Restatement Date, except as set forth in
Schedule 3.23-1997 hereof, no Loan Party has any liability (contingent or
otherwise) for or in connection with, and none of their respective properties is
subject to a Lien in connection with, any Pension-Related Event.
3.24. ENVIRONMENTAL MATTERS.
(a) Each Loan Party, and to the Borrower's knowledge each of its
Environmental Affiliates, is and has been in compliance with all applicable
Environmental Laws, except where the failure to so comply, individually or in
the aggregate, could not have a Material Adverse Effect. There are no
circumstances
<PAGE> 90
that may prevent or interfere with such compliance by any Loan Party in the
future.
(b) All Environmental Approvals necessary for the ownership and
operation of any Loan Party's properties, facilities and businesses as presently
owned and operated and as presently proposed to be owned and operated have been
issued and are in full force and effect.
(c) There is no Environmental Claim pending or, to the Borrower's
knowledge, threatened, and there are no past or present acts, omissions, events
or circumstances (including but not limited to any dumping, leaching,
deposition, removal, abandonment, escape, emission, discharge or release of any
Environmental Concern Material at, on or under any facility or property now or
previously owned, operated or leased by any Loan Party or, to Borrower's
knowledge, any of its Environmental Affiliates) that could form the basis of any
Environmental Claim, against any Loan Party or any of its Environmental
Affiliates, except matters which, individually or in the aggregate, could not
have a Material Adverse Effect.
(d) No facility or property now or previously owned, operated or leased
by any Loan Party is an Environmental Cleanup Site. Neither any Loan Party nor,
to Borrower's knowledge, any of its Environmental Affiliates has directly
transported or directly arranged for the transportation of any material
quantities of Environmental Concern Materials to any Environmental Cleanup Site,
except matters which, individually or in the aggregate, could not have a
Material Adverse Effect. No Lien exists, and no condition exists which could
result in the filing of a Lien, against any property of any Loan Party or any of
its Environmental Affiliates, under any Environmental Law.
3.25 POTENTIAL CONFLICTS OF INTEREST. As of the Restatement Date,
except for the Equity Agreements, the Employment Agreements and as set forth on
Schedule 3.25-1997, to the best knowledge of the Borrower, without independent
investigation, no Affiliate of the Borrower: (a) owns, directly or indirectly,
any interest in (excepting less than 5% stock holdings for investment purposes
in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any Person which is, or is engaged in
business as, a competitor, lessor, lessee, supplier, distributor, sales agent or
customer of, or lender to or borrower from, the Borrower or any of its
Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Borrower or any of its Subsidiaries
uses in the conduct of business; or (c) has any cause of action or other claim
whatsoever against, or owes any amount to, the Borrower or any of
<PAGE> 91
its Subsidiaries, except for claims in the ordinary course of business.
ARTICLE IV
CONDITIONS OF LENDING
---------------------
4.01. CONDITIONS TO INITIAL LOANS AND LETTERS OF CREDIT. The
effectiveness of the amendment and restatement of the Original Agreement
provided herein, and the obligation of each Lender Party to make the first Loans
or issue the first Letters of Credit on or after the Restatement Date, is
subject to the satisfaction, on or before the date of such first Loans or Letter
of Credit of the following conditions precedent, in addition to the conditions
precedent set forth in Sections 4.02 and 4.03 hereof:
(a) AGREEMENT; NOTES; FEES. The Agent shall have received an executed
counterpart of this Agreement for each Lender, duly executed by the
Borrower, and executed Tranche 1 Notes, Tranche 2 Notes and Tranche 3 Notes
conforming to the requirements hereof, duly executed on behalf of the
Borrower and each Lender shall have received the fees set forth in a letter
from the Borrower to the Agent dated on or about the date of execution
hereof.
(b) SECURITY DOCUMENTS AMENDMENTS. The Agent shall have received the
following, with a copy for each Lender:
(i) Executed copies of amendments to each of the Security
Documents listed on Schedule 4.01-1997 hereto, in form satisfactory to
the Agent, reflecting the execution and delivery of this Agreement and
the increase in the amount of the Obligations referred to in such
Security Documents;
(ii) Executed copies of a Supplement to the Mortgage, in
recordable form and otherwise in form satisfactory to the Agent,
reflecting the execution and delivery of this Agreement and the
increase in the amount of Obligations referred to in the Mortgage; and
(iii) Evidence of the completion of all recordings and filings of
or with respect to, and of all other actions with respect to, the
Security Documents as may be necessary or, in the opinion of the Agent,
desirable to create or perfect the Liens created or purported to be
created by such Security Documents as valid, continuing and perfected
Liens in favor of the Agent for the benefit of the Agent and the
Lenders
<PAGE> 92
securing the Obligations, prior to all other Liens; and evidence of the
payment of any necessary fee, tax or expense relating to such recording
or filing.
(c) CORPORATE PROCEEDINGS. The Agent shall have received, with a
counterpart for each Lender, certificates by the Secretary of each Loan
Party dated as of the Restatement Date as to (i) true copies of the
certificate or articles of incorporation and by-laws (or other constituent
documents) of such Loan Party in effect on such date, (ii) true copies of
all corporate action taken by such Loan Party relative to this Agreement and
the other Loan Documents (and amendments thereto) being delivered on the
Restatement Date and (iii) the incumbency and signature of the respective
officers of such Loan Party executing this Agreement, together with
satisfactory evidence of the incumbency of such Secretary or Assistant
Secretary. The Agent shall have received, with a copy for each Lender,
certificates from the appropriate Secretaries of State or other applicable
Governmental Authorities dated not more than 30 days before the Restatement
Date showing the good standing of each Loan Party in its state of
incorporation and each state in which it does business.
(d) LEGAL OPINIONS. The Agent shall have received, with an executed
counterpart for each Lender, opinions addressed to the Agent and each
Lender, dated the Restatement Date, of Barrett & McNagny, counsel to the
Borrower, as to such matters as may be requested by the Agent and in form
and substance satisfactory to the Agent.
(e) OFFICERS' CERTIFICATES. The Agent shall have received, with an
executed counterpart for each Lender, certificates from such officers of
each Loan Party as to such matters as the Agent or any Lender may request.
(f) FEES, EXPENSES, ETC. All fees and other compensation required to be
paid to the Agent or the Lenders pursuant hereto or pursuant to any other
written agreement on or prior to the Restatement Date shall have been paid
or received.
(g) ADDITIONAL MATTERS. The Agent shall have received such other
certificates, opinions, documents and instruments as may be requested by any
Lender. All corporate and other proceedings, and all documents, instruments
and other matters in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be satisfactory in form and
substance to the Agent and each Lender.
<PAGE> 93
4.02. CONDITIONS TO ALL LOANS OR LETTERS OF CREDIT. The obligation of
each Lender Party to make any Loan or issue any Letter of Credit is subject to
the performance by each Loan Party of its obligations to be performed hereunder
or under the other Loan Documents on or before the date of such Loan or of the
issuance of such Letter of Credit, satisfaction of the conditions precedent set
forth herein and in the other Loan Documents and to satisfaction of the
following further conditions precedent:
(a) NOTICE. Appropriate notice of such Loan or Letter of Credit shall
have been given by the Borrower as provided in ARTICLE II hereof.
(b) BORROWING BASE. In the case of Tranche 1 Loans and Letters of
Credit, the Agent shall have received a Borrowing Base Certificate, signed
by a Responsible Officer of the Borrower, complying with the provisions of
Section 2.16.
(c) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower in ARTICLE III hereof (excluding Section
3.06) or made by any Loan Party in each other Loan Document (other than in
the Assignment of Contracts) shall be true and correct in all material
respects on and as of such date as if made on and as of such date, both
before and after giving effect to the Loans or Letters of Credit requested
to be made or issued on such date; PROVIDED, however, that, with respect to
Section 3.16, the condition precedent in this paragraph (c) shall not be
deemed to be unsatisfied solely as a result of a pending or threatened
action, suit, proceeding or investigation (i) which is the subject of a
currently dated certificate of the Borrower delivered to the Agent stating
that the Borrower believes such action, suit, proceeding or investigation is
without merit and (ii) as to which the Required Lenders have reasonably
determined that an outcome adverse to each Loan Party affected thereby is
remote.
(d) NO DEFAULTS. No Event of Default or Potential Default shall have
occurred and be continuing on such date or after giving effect to the Loans
or Letters of Credit requested to be made or issued on such date.
(e) NO VIOLATIONS OF LAW, ETC. Neither the making, issuing nor use of
the Loans or Letters of Credit shall cause any Lender to violate or conflict
with any Requirement of Law.
<PAGE> 94
(f) NO MATERIAL ADVERSE CHANGE. There shall not have occurred a
material adverse change in the business, operations, assets or condition
(financial or otherwise) of the Borrower or of the Borrower Group since the
date of the most recently delivered audited financial statements provided to
the Agent in accordance with Section 5.01(a) hereof. There shall not have
occurred any other event, act or condition which could have a Material
Adverse Effect.
(g) DOLLAR LIMITS. The dollar limits set forth in Section 2.17 hereof
with respect to the issuance of all Letters of Credit and in Section 2.27
hereof with respect to Swingline Loans have been and are being complied
with.
Each request by the Borrower for any Loan or Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions set forth in
this Section 4.02 have been satisfied as of the date of such request (except
that no representation or warranty will be deemed to be made as to whether the
Required Lenders have made the determination referred to in the proviso to
paragraph (c) above). Failure of the Agent to receive notice from the Borrower
to the contrary before such Loan is made shall constitute a further
representation and warranty by the Borrower that the conditions referred to in
this Section 4.02 have been satisfied as of the date such Loan is made or Letter
of Credit is issued.
4.03. USE OF PROCEEDS OF INITIAL LOANS. The Borrower will request the
initial Loans to be made on the Restatement Date in an amount which is
sufficient to refinance all Loans outstanding under the Original Agreement on
the Restatement Date and the proceeds of such initial Loans will be used for
such purpose (subject to Section 2.13(b) of the Original Agreement). The
Commitments of the Lenders hereunder will, on the Restatement Date, replace the
Commitments of the Lenders under the Original Agreement.
ARTICLE V
AFFIRMATIVE COVENANTS
---------------------
The Borrower hereby covenants to the Agent and each Lender as follows:
5.01. BASIC REPORTING REQUIREMENTS.
(a) ANNUAL AUDIT REPORTS. As soon as practicable, and in any event
within 90 days after the close of each fiscal year of the Borrower, the Borrower
shall furnish to the Agent, with a copy for each Lender, consolidated and
consolidating statements
<PAGE> 95
of income, cash flows and changes in stockholders' equity of the Borrower and
the Borrower Group for such fiscal year and consolidated and consolidating
balance sheets of the Borrower and the Borrower Group as of the close of such
fiscal year, and notes to each, all in reasonable detail, setting forth in
comparative form the corresponding figures for the preceding fiscal year. Such
consolidated financial statements shall be accompanied by an opinion of Ernst &
Young or other independent certified public accountants of recognized national
standing selected by the Borrower. Such opinion shall be free of exceptions or
qualifications other than exceptions for accounting changes. Such opinion in any
event shall contain a written statement of such accountants substantially to the
effect that (i) such accountants examined such financial statements in
accordance with generally accepted auditing standards and accordingly made such
tests of accounting records and such other auditing procedures as such
accountants considered necessary in the circumstances and (ii) in the opinion of
such accountants such financial statements present fairly in all material
respects the financial position of the Borrower and the Borrower Group as of the
end of such fiscal year and the results of operations and cash flows and changes
in stockholders' equity for such fiscal year, in conformity with GAAP. The
Borrower shall deliver to the Agent, with a copy for each Lender, an Annual
Compliance Certificate in substantially the form set forth as Exhibit E hereto,
duly completed and signed by a Responsible Officer of the Borrower concurrently
with the delivery of the financial statements referred to in this Section
5.01(a).
(b) QUARTERLY REPORTS. As soon as practicable, and in any event within
60 days after the close of each of the first three fiscal quarters of each
fiscal year of the Borrower, the Borrower shall furnish to the Agent, with a
copy for each Lender, unaudited consolidated and (unless the Borrower has no
Subsidiaries) consolidating statements of income, cash flows and changes in
stockholders' equity of the Borrower and the Borrower Group for such fiscal
quarter and for the period from the beginning of such fiscal year to the end of
such fiscal quarter and unaudited consolidated and (unless the Borrower has no
Subsidiaries) consolidating balance sheets of the Borrower and the Borrower
Group as of the close of such fiscal quarter, and notes to each which would be
required to be included in a Form 10-Q quarterly report of the Borrower filed in
accordance with the Securities Exchange Act of 1934, all in reasonable detail,
setting forth in comparative form the corresponding figures for the same periods
or as of the same date during the preceding fiscal year (except for the balance
sheet, which shall set forth in comparative form the corresponding balance sheet
as of the prior fiscal year end). Such financial statements shall be certified
by a Responsible Officer of the Borrower as presenting
<PAGE> 96
fairly in all material respects the financial position of the Borrower and of
the Borrower Group as of the end of such fiscal quarter and the results of
operations and cash flows and changes in stockholders' equity for such fiscal
year, in conformity with GAAP, subject to normal and recurring year-end audit
adjustments. The Borrower shall deliver to the Agent, with a copy for each
Lender, a Quarterly Compliance Certificate in substantially the form set forth
as Exhibit F hereto, duly completed and signed by a Responsible Officer of the
Borrower concurrently with the delivery of the financial statements referred to
in this Section 5.01(b).
(c) BUSINESS PLAN. Prior to the end of each fiscal year of the
Borrower, the Borrower shall furnish to the Agent, with a copy for each Lender,
a certificate signed by a Responsible Officer on behalf of the Borrower
containing the Borrower Group's business plan for the next fiscal year.
(d) COMMERCIAL FINANCE REPORTS. At such times as the Agent or the
Required Lenders shall reasonably specify from time to time in writing, which
may be as frequently as quarterly (and which may be more frequently if a
Potential Default or Event of Default has occurred and is continuing), the
Borrower shall furnish to the Agent, with a copy for each Lender, a report of a
Responsible Officer of the Borrower setting forth such matters pertaining to the
working capital of the Borrower and of the Borrower Group and in such detail as
the Agent may specify from time to time, which may include, among other things,
information as to receivables (which may include, among other things, a breakout
of aging and collections, identification of each receivable, obligor, due date
and original invoice date, identification of write-offs and changes made in
reserves for bad debts, and identification of any extension of the maturity of,
refinancing or other material change in the terms of any receivables), inventory
(which may include, among other things, a breakdown of the amount of inventory
by type (raw materials, work-in-progress and finished goods), by location, and
identification of write-offs and write-downs), payables (which may include,
among other things, a breakout of aging and payments), sales, credits
collections, backlog, and forecasts.
(e) CERTAIN OTHER REPORTS AND INFORMATION. Promptly upon their becoming
available to the Borrower (and in any event, in the case of clauses (iv) and (v)
of this definition, within ninety days after the end of each fiscal quarter),
the Borrower shall deliver to the Agent, with a copy for each Lender, a copy of
(i) all regular or special reports, registration statements and amendments to
the foregoing which the Borrower shall file with the Securities and Exchange
Commission (or any successor thereto) or any securities exchange, (ii) all
reports, proxy
<PAGE> 97
statements, financial statements and other information distributed by the
Borrower to its stockholders, bondholders or the financial community generally,
(iii) all accountants' management letters pertaining to, all other reports
submitted by accountants in connection with any audit of, and all other material
reports from outside accountants with respect to, any Loan Party, (iv) quarterly
expenditure reports on the Phase II Project until substantially all such
expenditures have been made, and (v) upon commencement of the Borrower's Phase
III caster project, a expenditure budget for such project and quarterly
expenditure reports for such project until substantially all such expenditures
have been made.
(f) FURTHER INFORMATION. The Borrower will promptly furnish to the
Agent, with a copy for each Lender, such other information and in such form as
the Agent or any Lender may reasonably request from time to time.
(g) NOTICE OF CERTAIN EVENTS. Promptly upon becoming aware of any of
the following, the Borrower shall give the Agent notice thereof, together with a
written statement of a Responsible Officer of the Borrower setting forth the
details thereof and any action with respect thereto taken or proposed to be
taken by the Borrower:
(i) Any Event of Default or Potential Default.
(ii) Any material adverse change in the business, operations or
condition (financial or otherwise) or prospects of any Loan Party or of the
Borrower Group.
(iii) Any pending or threatened action, suit, proceeding or
investigation by or before any Governmental Authority against or affecting
any Loan Party which seeks damages in excess of $500,000 or which, if
adversely determined, could have a Material Adverse Effect.
(iv) Any material violation, breach or default by any Loan Party of or
under any agreement or instrument to which such Loan Party is a party
material to the business, operations, condition (financial or otherwise) or
prospects of such Loan Party, the Borrower or the Borrower Group.
(v) Any amendment or supplement to, or extension, renewal, refinancing,
or refunding of, or waiver by any other party thereto of any right under or
conditions of, any agreement or instrument creating, evidencing or securing
any Indebtedness or Guaranty Equivalent of any Loan Party, or any agreement
or instrument material to the business, operations, condition (financial or
otherwise) or prospects
<PAGE> 98
of any Loan Party or the Borrower Group, and any negotiations pertaining to
any of the foregoing.
(vi) Any Pension-Related Event. Such notice shall be accompanied by a
copy of any notice, request, return, petition or other document received by
any Loan Party or any Controlled Group Member from any Person, or which has
been or is to be filed with or provided to any Person (including without
limitation the Internal Revenue Service, PBGC or any Plan participant,
beneficiary, alternate payee or employer representative), in connection with
such Pension-Related Event.
(vii) Any Environmental Claim pending or threatened against any Loan
Party or any of its Environmental Affiliates, or any past or present acts,
omissions, events or circumstances (including but not limited to any
dumping, leaching, deposition, removal, abandonment, escape, emission,
discharge or release of any Environmental Concern Material at, on or under
any facility or property now or previously owned, operated or leased by any
Loan Party or any of its Environmental Affiliates) that could form the basis
of such Environmental Claim, which Environmental Claim, if adversely
resolved, individually or in the aggregate, could have a Material Adverse
Effect.
(viii) Any lapse or other termination of a government permit or other
Governmental Action (unless such permit or Action is no longer necessary) in
connection with the Loan Documents, the Heidtman Documents, the OmniSource
Documents, the other Project Agreements or matters contemplated therein, or
any dispute between any Loan Party and any Governmental Authority which may
have a Material Adverse Effect.
(ix) Any Loan Party becoming a party to a collective bargaining
agreement with respect to any of its employees.
(h) NOTICES UNDER OTHER AGREEMENTS. Concurrently with any Loan Party's
delivery or receipt thereof, the Borrower shall provide the Agent with copies of
any reports, certificates or notices furnished by any Loan Party to any other
party to any agreement or instrument creating, evidencing or securing any
Indebtedness or Guaranty Equivalent of any Loan Party, or any agreement or
instrument material to the business, operations, condition (financial or
otherwise) or prospects of any Loan Party or of the Borrower Group, or received
by any Loan Party from any other party to any of the foregoing.
<PAGE> 99
(i) VISITATION; VERIFICATION. Upon reasonable prior notice, the
Borrower shall permit (and cause each Loan Party to permit) the Agent or any
Lender or its accountants, attorneys or other agents to visit and inspect any of
the properties of any Loan Party, to examine its books and records and take
copies and extracts therefrom and to discuss its affairs with its directors,
officers, employees and independent accountants at such times and as often as
the Agent or any Lender may reasonably request; PROVIDED, that a Loan Party
shall have the right to have an officer present at any discussion with its
employees; and PROVIDED, further, that the Lenders (as opposed to the Agent)
shall not have any right under this Section to examine any proprietary technical
information of the Borrower; the foregoing shall not preclude walk-through
visits of the properties of a Loan Party by the Agent or any Lender. The
Borrower hereby authorizes (and directs each Loan Party to authorize) such
officers, employees and independent accountants to discuss with the Agent or any
Lender the affairs of any Loan Party. The Agent and the Lenders shall have the
right to examine and verify accounts, inventory and other properties and
liabilities of each Loan Party from time to time, and the Borrower shall
cooperate with the Agent and the Lenders in such verification. Any such
inspection or examination shall be for the protection of the Agent and the
Lenders and neither the Agent nor any Lender shall have any responsibility to
any Loan Party or any other Person for any deficiency in construction or
variance from specifications which may be revealed by any inspection by the
Agent or any Lender, whether or not discovered by any of such Persons.
(j) BORROWING BASE. The Borrower shall provide Borrowing Base
Certificates from time to time in accordance with Section 2.16 hereof.
(k) ENVIRONMENTAL AUDIT. The Agent or the Required Lenders shall have
the right from time to time upon reasonable notice to designate such Persons
("Environmental Auditors") as the Agent may select to visit, inspect and have
access to any of the properties, products or wastes of each Loan Party and, to
the extent possible, its Environmental Affiliates, for the purpose of
investigating whether there may be a basis for any Environmental Claim or any
condition which could result in any liability, cost or expense to the Agent or
any Lender; PROVIDED that unless an Event of Default or Potential Default shall
have occurred and be continuing, or unless there is reasonable cause, such
visitation and investigation shall not occur more than once during any period of
two calendar years. Such investigation may include, among other things, above
and below ground testing for the presence of Environmental Concern Materials and
such other tests as may be necessary or advisable in the opinion of the Agent,
after consultation with the Borrower. The Borrower will supply
<PAGE> 100
to the Environmental Auditors such historical and operational information,
including the results of all samples sent for analysis, correspondence with
Governmental Authorities and environmental audits or reviews regarding
properties, products and wastes of each Loan Party or its Environmental
Affiliates as are within its possession, custody or control, or which are
available to it, and will make available for meetings with the Environmental
Auditors appropriate personnel employed by or consultants retained by the
Borrower having knowledge of such matters.
5.02. INSURANCE. The Borrower shall, and shall cause each other Loan
Party to, (a) maintain with financially sound and reputable insurers insurance
with respect to the Phase I Project, the Phase II Project and its business and
against such liabilities, casualties and contingencies and of such types and in
such amounts as is satisfactory to the Required Lenders (including without
limitation product and other liability, casualty, workers' compensation and
umbrella coverage, and such insurance described on Schedule 5.02-1997 hereof),
(b) provide that such insurance cannot terminate, expire, be canceled or amended
in any material respect without 30 days' prior notice to the Agent, (c) furnish
to each Lender from time to time upon reasonable request the policies under
which such insurance is issued, certificates of insurance and such other
information relating to such insurance as such Lender may reasonably request,
(d) cause the insurance policies to contain (i) a "replacement cost
endorsement", (ii) a standard first mortgagee endorsement, without contribution,
substantially equivalent to the New York standard mortgagee endorsement, and
(iii) an endorsement that any loss shall be payable in accordance with the terms
of such policy notwithstanding any act or negligence of any Loan Party which
might otherwise give rise to a defense by the insurer, and (e) provide such
other insurance and endorsements as are required by this Agreement and the other
Loan Documents.
5.03. PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY CLAIMS.
The Borrower shall, and shall cause each other Loan Party to, pay or discharge
(a) on or prior to the date on which penalties attach thereto, all
taxes, assessments and other governmental charges imposed upon it or any of
its properties;
(b) on or prior to the date when due, all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons which,
if unpaid, might result in the creation of a Lien upon any such property;
and
<PAGE> 101
(c) on or prior to the date when due, all other lawful claims which, if
unpaid, might result in the creation of a Lien upon any such property or
which, if unpaid, might give rise to a claim entitled to priority over
general creditors of the Borrower or such Loan Party in a case under Title
11 (Bankruptcy) of the United States Code, as amended;
PROVIDED, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced the Loan Parties need not pay or discharge
any such tax, assessment, charge or claim so long as (x) the validity thereof is
contested in good faith and by appropriate proceedings diligently conducted and
(y) such reserves or other appropriate provisions as may be required by GAAP
shall have been made therefor.
5.04. PRESERVATION OF CORPORATE STATUS. The Borrower shall, and shall
cause each other Loan Party to, maintain its status as a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and, unless failure to do so could not have a
Material Adverse Effect, to be duly qualified to do business as a foreign
corporation and in good standing in all jurisdictions in which the ownership of
its properties or the nature of its business or both make such qualification
necessary or advisable.
5.05. GOVERNMENTAL APPROVALS AND FILINGS. The Borrower shall, and shall
cause each other Loan Party to, keep and maintain in full force and effect all
Governmental Actions necessary or advisable in connection with execution and
delivery of any Loan Document by any Loan Party, consummation by each Loan Party
of the transactions herein or therein contemplated, performance of or compliance
with the terms and conditions hereof or thereof by any Loan Party or to ensure
the legality, validity, binding effect, enforceability or admissibility in
evidence hereof or thereof.
5.06. MAINTENANCE OF PROPERTIES. The Borrower shall, and shall
cause each other Loan Party to, maintain or cause to be maintained in good
repair, working order and condition (ordinary wear and tear excepted) the
properties now or hereafter owned, leased or otherwise possessed by it so that
the business carried on in connection therewith may be conducted at all times in
accordance with customary mini-mill practice.
5.07. AVOIDANCE OF OTHER CONFLICTS. The Borrower shall, and shall cause
each other Loan Party to, not violate or conflict with, be in violation of or
conflict with, or be or remain subject to any liability (contingent or
otherwise) on account of any violation or conflict with
<PAGE> 102
(a) any Requirement of Law (including without limitation any
Environmental Law),
(b) its certificate or articles of incorporation of by-laws (or other
constituent documents), or
(c) any Contractual Obligations to which it is party, which violation
could have Material Adverse Effect.
5.08. FINANCIAL ACCOUNTING PRACTICES. The Borrower shall, and shall
cause each other Loan Party to, make and keep books, records and accounts which,
in reasonable detail, accurately and fairly reflect its transactions and
dispositions of its assets and maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (a) transactions are executed
in accordance with management's general or specific authorization, (b)
transactions are recorded as necessary (i) to permit preparation of financial
statements in conformity with GAAP, and (ii) to maintain accountability for
assets, (c) access to assets is permitted only in accordance with management's
general or specific authorization and (d) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
5.09. USE OF PROCEEDS. The Borrower shall apply the proceeds of the
Loans to refinance the Loans outstanding under the Original Agreement, for
working capital purposes and for other general corporate purposes. The Borrower
shall not use, or permit the use of, the proceeds of any Loans hereunder
directly or indirectly for any unlawful purpose, in any manner inconsistent with
Section 3.12 hereof, or inconsistent with any other provision of any Loan
Document.
5.10. CONTINUATION OF OR CHANGE IN BUSINESS. The Borrower shall, and
shall cause each other Loan Party to, continue to engage in its business as
currently contemplated, and, except as specifically permitted by Section
6.05(e), no Loan Party shall engage in any other business.
5.11. CONSOLIDATED TAX RETURN. The Borrower shall not, and shall not
permit any other Loan Party to, file or consent to the filing of any
consolidated income tax return with any Person other than a Loan Party.
5.12. FISCAL YEAR. The Borrower shall not change its fiscal year or
fiscal quarter or permit any other Loan Party to do so.
<PAGE> 103
5.13. FUTURE PROJECT AGREEMENTS. The Borrower shall furnish to the
Agent, with a copy for each Lender, certified copies of any Future Project
Agreements within five days of the execution and delivery thereof, together with
(i) a duly executed consent and agreement from each other party to such Future
Project Agreements, in substantially the form attached hereto as Exhibit V, with
such changes therein as the Required Lenders may reasonably approve and with the
blanks appropriately filled, (ii) if such Future Project Agreement is with a
Loan Party other than the Borrower, a duly executed assignment of contract
executed by such Loan Party substantially in the form of Exhibit HH hereto and
(iii) if such Future Project Agreement involves amounts in excess of $5,000,000,
an opinion addressed to the Agent and each Lender, of each such other party's
counsel addressing such matters as may reasonably be requested by the Agent.
ARTICLE VI
NEGATIVE COVENANTS
------------------
The Borrower hereby covenants to the Agent and each Lender as follows:
6.01. FINANCIAL COVENANTS.
(a) LEVERAGE RATIO. The Leverage Ratio shall not, for any period of
four consecutive fiscal quarters, exceed 5.0 to 1.
(b) TANGIBLE NET WORTH. From and after the Restatement Date, Tangible
Net Worth shall not at any time be less than the sum of (i) $187,000,000 and
(ii) 50% of Cumulative Net Income at such time.
(c) INTEREST COVERAGE. For any period of four consecutive fiscal
quarters, the ratio of EBITDA for such period to Interest Expense for such
period shall not be less than 2.0 to 1.
6.02. LIENS. The Borrower shall not, and shall not permit any other
Loan Party to, at any time create, incur, assume or suffer to exist any Lien on
any of its property (now owned or hereafter acquired), or agree, become or
remain liable (contingently or otherwise) to do any of the foregoing, except for
the following ("Permitted Liens"):
(a) Liens pursuant to the Security Documents in favor of the Agent for
the benefit of the Lenders and the Agent to secure the Obligations;
<PAGE> 104
(b) Liens which are granted by the Borrower pursuant to the Development
Package, or permitted refinancings thereof, whether existing on or after the
date hereof (and described on Schedule 6.02 hereof);
(c) Liens arising from taxes, assessments, charges or claims described
in Section 5.03 hereof that are not yet due or that remain payable without
penalty or to the extent permitted to remain unpaid under the proviso to
such Section 5.03 and under the second proviso contained in Section 2.07 of
the Mortgage;
(d) Deposits or pledges of cash or securities in the ordinary course of
business to secure (i) workmen's compensation, unemployment insurance or
other social security obligations, (ii) performance of bids, tenders, trade
contracts (other than for payment of money) or leases, (iii) stay, surety or
appeal bonds, or (iv) other obligations of a like nature incurred in the
ordinary course of business; and
(e) Easements, rights of way and other restrictions on the use of real
property which are described in Schedule B-I of the title insurance policy
insuring the Lien of the Mortgage.
(f) Liens described on Schedule 6.02(f) and Liens on property of the
Borrower securing all or part of the purchase price thereof, provided that:
(i) such Lien is created before or substantially simultaneously with the
purchase of such property by the Borrower, (ii) such Lien is confined solely
to the property so purchased and proceeds thereof, (iii) the aggregate
amount secured by all such Liens on any particular property at the time
purchased by the Borrower shall not exceed the lesser of the purchase price
of such property and the fair market value of such property at the time of
purchase, (iv) such property shall not consist of anything integral to
casters, rolling mills, cold mills, furnaces or the production of steel, (v)
the purchase price of such property shall have been included in the
calculation required by Section 6.13 hereof and (vi) the aggregate amount
secured by all Liens described in this Section 6.02(f) shall not at any time
exceed $5,000,000.
(g) Liens on accounts receivable of any Loan Party in favor of the
Borrower.
(h) Liens incurred in connection with governmental incentive financing
covering property of the Borrower comprising part of a new project having an
original total
<PAGE> 105
cost exceeding $200,000,000 which is constructed on a site other than on the
Project Site, which property covered by such Liens has an original cost not
exceeding, and secures Indebtedness not exceeding, $65,000,000 for each such
new project.
"Permitted Lien" shall in no event include any Lien imposed by, or required to
be granted pursuant to, ERISA or any Environmental Law. Nothing in this Section
6.02 shall be construed to limit any other restriction on Liens imposed by the
Security Documents or otherwise in the Loan Documents.
6.03. INDEBTEDNESS. The Borrower shall not, and shall not permit any
other Loan Party to, at any time create, incur, assume or suffer to exist any
Indebtedness, or agree, become or remain liable (contingently or otherwise) to
do any of the foregoing, except:
(a) Indebtedness to the Lenders and the Agent pursuant to this
Agreement and the other Loan Documents;
(b) The Indebtedness of the Borrower incurred pursuant to the
Development Package and refinancings thereof on the same terms (other than
interest rate or a longer maturity), each as listed on Schedule 6.03 hereof,
but in no case any extensions or renewals thereof, and the Indebtedness of
the Borrower incurred pursuant to the Reimbursement Agreement, dated as of
May 23, 1995, between the Borrower, National City Bank, Indiana and Indiana
Development Finance Authority and refinancings thereof on the same terms
(other than interest rate or a longer maturity);
(c) Accounts payable to trade creditors arising out of purchases of
goods or services in the ordinary course of business, provided that (i) such
accounts payable are payable not later than 90 days after the original
invoice date according to the original terms of sale, and (ii) as of the end
of each calendar month, not more than 15% of such accounts payable are more
than 90 days past due, and not more than 5% of such accounts payable are
more than 120 days past due, in each case according to the original terms of
sale (except to the extent that any such account payable is being contested
in good faith and by appropriate proceedings diligently conducted and so
long as such reserves or other appropriate provisions as may be required by
GAAP shall have been made with respect therefor);
(d) Any licensing or royalty fees owed by the Borrower in the ordinary
course of business, including such fees payable to SMS pursuant to the SMS
documents;
<PAGE> 106
(e) Indebtedness secured by Liens permitted by Section 6.02(f) or
Section 6.02(h) hereof;
(f) Unsecured Indebtedness of the Borrower in an aggregate principal
amount not exceeding $10,000,000 at any time outstanding;
(g) Indebtedness of another Loan Party to the Borrower as to which the
Borrower's rights are subject to a first perfected Lien in favor of the
Agent; and
(h) Indebtedness of a Subsidiary of the Borrower to the Borrower to the
extent permitted by Exhibit DD hereto.
6.04. GUARANTIES, INDEMNITIES, ETC. The Borrower shall not be or become
subject to or bound by any Guaranty Equivalent, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, and shall not
permit any other Loan Party to do so, except:
(a) Guaranty Equivalents existing on the Restatement Date and listed in
Schedule 6.04 hereto;
(b) Contingent liabilities arising from the endorsement of negotiable
or other instruments for deposit or collection or similar transactions in
the ordinary course of business;
(c) Indemnities by the Borrower or another Loan Party of the
liabilities of its directors or officers in their capacities as such
pursuant to provisions presently contained in their certificate or articles
of incorporation or by-laws (or other constituent documents) or as permitted
by Law;
(d) Contingent liabilities arising from the Interest Rate Protection
Agreements;
(e) Any Subsidiary Guaranty; and
(f) Indemnities by the Borrower under the Reimbursement Agreement
described in Section 6.03(b) hereof or related documents with respect to the
bond transactions contemplated by such Reimbursement Agreement.
6.05. LOANS, ADVANCES AND INVESTMENTS. The Borrower shall not, and
shall not permit any Loan Party to, at any time make or suffer to exist or
remain outstanding any loan or advance
<PAGE> 107
to, OR purchase, acquire or own (beneficially or of record) any stock, bonds,
notes or securities of, or any partnership interest (whether general or limited)
in, or any other interest in, OR make any capital contribution to or other
investment in, any other Person, or agree, become or remain liable (contingently
or otherwise) to do any of the foregoing, except:
(a) Loans and investments existing on the Restatement Date and listed
in Schedule 6.05-1997 hereof;
(b) Receivables owing to the Borrower arising from sales of inventory
under usual and customary terms in the ordinary course of business; and
loans and advances extended by the Borrower to subcontractors or suppliers
(excluding subcontractors or suppliers who are Affiliates of the Borrower)
under usual and customary terms in the ordinary course of business;
(c) Advances to officers and employees, other agents and independent
contractors of the Borrower to meet expenses incurred by such persons in the
ordinary course of business or for relocation and in amounts at any time
outstanding not exceeding $50,000 to any one officer or employee and
$500,000 in the aggregate;
(d) Cash Equivalent Investments;
(e) Investments of the Borrower (or, to the extent permitted by
paragraph (f) below, of a Subsidiary of the Borrower) in Subsidiaries,
partnerships or other joint ventures related to the Borrower's steel
production business which are included in the calculations to determine
compliance with Section 6.13 hereof and which in the aggregate, when added
to the aggregate amount paid for all acquisitions by the Borrower of all or
a substantial portion of the properties of another Person, do not exceed an
amount equal to $50,000,000 plus 35% of Cumulative Annual Change in Net
Worth in the case of investments in entities in which the Borrower or a
Subsidiary has an equity interest equal to or greater than 10% of the total
equity interests in the applicable entity and do not exceed an amount equal
to $10,000,000 plus 25% of Cumulative Annual Change in Net Worth in the case
of other investments;
(f) Investments in one or more Subsidiaries of the Borrower at the
times and in the amounts set forth on Exhibit DD-1997 hereto, but only for
so long as the operations of each such Subsidiary are conducted in
accordance with the requirements of such Exhibit and the Agent retains
pursuant to the Security Agreement a first
<PAGE> 108
perfected security interest in all outstanding shares of capital stock of
each such Subsidiary; and
(g) An investment in IDI and/or in equipment to be owned by the
Borrower which is related to processing product that is intended to be
manufactured by IDI in an aggregate amount not exceeding $30,000,000 and
funded solely with the Net Cash Proceeds of the issuance by the Borrower
after the Restatement Date of equity securities, but only upon execution and
delivery by IDI to the Agent of the IDI Guaranty and the IDI Security
Agreement.
By way of illustration, and without limitation, it is understood that the
Borrower (for example) shall be deemed to have made an advance to an Affiliate
of the Borrower (for example): (x) to the extent that the Borrower transfers any
property to or performs any service for such Affiliate, and (y) to the extent
that the Borrower pays any obligation of such Affiliate. The amount of such
advance shall be deemed to be, in the case of clause (x), the fair value of the
property so transferred or services so performed (but not less than cost), and
in the case of clause (y), the amount so paid by the Borrower.
6.06. DIVIDENDS AND RELATED DISTRIBUTIONS. The Borrower shall not
declare or make any Stock Payment, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, and shall not permit any
other Loan Party to do so, except as follows:
(a) The Borrower may, if no Event of Default or Potential Default
exists or is continuing or would result from the making of the purchase
described hereinafter, pay up to $5,500,000 in cash to repurchase stock of
the Borrower from any of the individuals employed by the Borrower listed on
Schedule 6.06 hereof, PROVIDED that a minimum aggregate equity interest in
the Borrower of 7.5% shall be owned by the remaining members of the
Borrower's management;
(b) A wholly-owned Subsidiary of the Borrower may pay dividends to the
Borrower; and
(c) The Borrower may, if no Event of Default or Potential Default
exists or is continuing or would result from the payment of the Stock
Payment described hereinafter, from and after the Restatement Date, make
Stock Payments in an aggregate cumulative amount not exceeding cumulative
Net Income for the period from January 1, 1997 through the then most
recently completed fiscal quarter.
<PAGE> 109
6.07. SALE-LEASEBACKS. Except as part of the Development Package as
described on Schedule 1.01A, the Borrower shall not at any time enter into or
suffer to remain in effect any transaction to which the Borrower is a party
involving the sale, transfer or other disposition by the Borrower of any
property (now owned or hereafter acquired), with a view directly or indirectly
to the leasing back of any part of the same property or any other property used
for the same or a similar purpose or purposes, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, and shall not permit any
other Loan Party to do so.
6.08. LEASES. Except as part of the Development Package as described on
Schedule 1.01A, the Borrower shall not at any time enter into or suffer to
remain in effect any lease, as lessee, of any property, or agree, become or
remain liable (contingently or otherwise) to do any of the foregoing, or permit
any other Loan Party to do so, except operating leases of data processing
equipment, office equipment, transportation equipment and other manufacturing
equipment or office space used by the lessee in the ordinary course of business,
provided that such leases will not result in the payment or accrual by the
Borrower Group of more than $2,000,000 in the aggregate in any twelve-month
period and no such lease has a term longer than seven years; and provided
further that such leases will not result in the payment or accrual by all Loan
Parties other than the Borrower of more than $100,000 in the aggregate in any
twelve-month period.
6.09. MERGERS, ACQUISITIONS, ETC. The Borrower shall not, and shall not
permit any other Loan Party to, (v) merge with or into or consolidate with any
other Person, except that a Loan Party which is a wholly-owned Subsidiary of the
Borrower may merge with the Borrower, provided that the Borrower shall be the
surviving corporation and no Event of Default or Potential Default shall occur
and be continuing or shall exist at such time or after giving effect to such
transaction, (w) liquidate, wind-up, dissolve or divide, (x) acquire all or any
substantial portion of the properties of any going concern or going line of
business, (y) acquire all or any substantial portion of the properties of any
other Person other than in the ordinary course of business, unless such
acquisition, if the cost thereof were treated as an investment for purposes of
Section 6.05(e) hereof, would not violate Section 6.05(e) or (z) agree, become
or remain liable (contingently or otherwise) to do any of the foregoing.
6.10. DISPOSITIONS OF PROPERTIES. The Borrower shall not, and shall not
permit any other Loan Party to, sell, convey, assign, lease, transfer, abandon
or otherwise dispose of, voluntarily or involuntarily, any of its properties, or
agree,
<PAGE> 110
become or remain liable (contingently or otherwise) to do any of the foregoing,
except:
(a) The Borrower and any other Loan Party may sell Inventory in the
ordinary course of business;
(b) The Borrower may, for cash, dispose of assets to non-Affiliates in
a maximum aggregate annual amount of $9,000,000, PROVIDED that all of the
Net Cash Proceeds from the sale are used to purchase replacement assets or,
if the disposed assets are not necessary for the efficient operation of its
business, to prepay Term Loans; and
(c) In addition to the asset sales permitted by paragraph (b) above and
notwithstanding the limitations set forth therein, the Borrower may dispose
of assets in a maximum aggregate annual amount of $1,000,000.
6.11. NO PLANS. The Borrower will not, and will not permit any other
Loan Party to, enter into any contract or arrangement pursuant to which any Plan
is maintained for any of its employees.
6.12. DEALINGS WITH AFFILIATES. The Borrower shall not, and shall not
permit any other Loan Party to, enter into or carry out any transaction with
(including, without limitation, purchase or lease property or services from,
sell or lease property or services to, loan or advance to, or enter into, suffer
to remain in existence or amend any contract, agreement or arrangement with) any
Affiliate of the Borrower, directly or indirectly, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except:
(a) Execution and performance of contracts, agreements and arrangements
in existence as of the Restatement Date and set forth in Schedule 6.12-1997
hereof;
(b) Directors, officers and employees of a Loan Party may be
compensated for services rendered in such capacity to such Loan Party
(including without limitation management fees paid by the Borrower to Keith
Busse and the Designated Managers), provided that such compensation is in
good faith and on terms no less favorable to such Loan Party than those that
could have been obtained in a comparable transaction on an arm's-length
basis from an unrelated Person, and the board of directors of the Borrower
(including a majority of the directors having no direct or indirect interest
in such transaction) approve the same;
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(c) The transactions between the Borrower and IDI described on Exhibit
CC hereto;
(d) Other transactions in the ordinary course of the Borrower's
business with Affiliates in good faith and on terms no less favorable to the
Borrower than those that could have been obtained in a comparable
transaction on an arm's-length basis from an unrelated Person, and, in the
case of any transaction involving consideration of $100,000 or more (other
than such a transaction involving consideration less than $1,000,000 and the
subject Affiliate would not be an Affiliate if the 5% figure appearing in
the penultimate sentence of the definition of "Affiliate" in Section 1.01
hereof were deemed to be 25% in the case of ownership or voting power by
GECC and its Affiliates or by J.H. Whitney and Company and its Affiliates),
as to which the board of directors of such Borrower (including a majority of
the directors having no direct or indirect interest in such transaction)
approve such transaction and determine that such terms are no less favorable
to the Borrower than those that could have been obtained in a comparable
transaction on an arm's-length basis from an unrelated Person; PROVIDED,
that the Borrower shall not enter into any such transaction or series of
related transactions (other than purchases of scrap inventory and sales of
finished goods) having a value in excess of $2,000,000 unless the Agent has
received a copy of the foregoing resolution of such board of directors to
the effect that such transaction is fair to the Borrower from a financial
point of view.
6.13. CAPITAL EXPENDITURES. The Borrower shall not, and shall not
permit any other Loan Party to, make any Capital Expenditures in any fiscal year
in excess of an aggregate amount of $50,000,000 unless the Borrower shall have
furnished to the Agent, with copies for the Lenders, at least 30 days prior to
the making of such Capital Expenditures, projections giving effect to the cost
of such Capital Expenditures which are in form and substance reasonably
satisfactory to the Required Lenders and which demonstrate that the Borrower
will comply with Section 6.01 hereof notwithstanding the making of such Capital
Expenditures.
6.14. LIMITATIONS ON MODIFICATION OF CERTAIN AGREEMENTS AND
INSTRUMENTS. The Borrower shall not amend, modify or supplement, or suffer any
amendment, modification or supplement to, the Stockholders' Agreement among the
stockholders of the Borrower or its certificate of incorporation or by-laws (or
similar constituent documents) except that the Borrower may, without the consent
of the Required Lenders, amend or modify the sections of its certificate of
incorporation or bylaws or
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Stockholders' Agreement listed on Schedule 6.14 hereto and may amend or modify
the Stockholders' Agreement to permit the addition of new stockholders whose
rights thereunder are not greater than the rights of the original stockholders.
6.15. LIMITATION ON OTHER RESTRICTIONS ON LIENS. The Borrower shall
not, and shall not permit any other Loan Party to, enter into, become or remain
subject to any agreement or instrument to which the Borrower or such Loan Party,
as the case may be, is a party or by which it or any of its properties (now
owned or hereafter acquired) may be subject or bound that would prohibit the
grant of any Lien upon any of its properties (now owned or hereafter required),
except:
(a) The Loan Documents;
(b) (i) Restrictions pursuant to non-assignment provisions of any
executory contract or of any lease by the Borrower as lessee, and (ii)
restrictions on granting Liens on property subject to a Permitted Lien for
the benefit of the holder of such Permitted Lien to the extent in existence
on the Restatement Date.
6.16. LIMITATION ON OTHER RESTRICTIONS ON AMENDMENT OF THE LOAN
DOCUMENTS, ETC. The Borrower shall not, and shall not permit any other Loan
Party to, enter into, become or remain subject to any agreement or instrument to
which the Borrower or such Loan Party, as the case may be, is a party or by it
or any of its properties (now owned or hereafter acquired) may be subject or
bound that would prohibit or require the consent of any Person to any amendment,
modification or supplement to any of the Loan Documents, except for the Loan
Documents.
6.17. MAINTENANCE OF BUSINESS. The Borrower shall not change its
primary line of business from that of either constructing, owning and operating
a steel mini-mill or constructing, owning and operating a steel mini-mill and
one or more scrap substitute manufacturing facilities, shall not permit IDI, if
it is organized, to change its primary line of business from that of
constructing, owning and operating one or more scrap substitute manufacturing
facilities.
6.18. SUBSIDIARIES. The Borrower shall not organize, incorporate,
acquire or otherwise suffer to exist any Subsidiaries, except IDI and except for
Subsidiaries acquired as permitted by Section 6.05 hereof.
<PAGE> 113
ARTICLE VII
DEFAULTS
--------
7.01. EVENTS OF DEFAULT. An Event of Default shall mean the occurrence
or existence of one or more of the following events or conditions (for any
reason, whether voluntary, involuntary or effected or required by Law):
(a) The Borrower shall fail to pay when due principal of any Loan or
any Letter of Credit Reimbursement Obligation, or shall fail to make any
required cash collateralization of outstanding Letters of Credit.
(b) Any Loan Party shall fail to pay when due interest on any Loan, any
fees, indemnity or expenses, or any other amount due hereunder or under any
other Loan Document and, if such failure is unintentional, such failure
shall have continued for a period of five Business Days.
(c) Any representation or warranty made by any Loan Party in or
pursuant to or in connection with any Loan Document, or deemed made by any
Loan Party in or pursuant to any Loan Document, or any statement made by any
Loan Party in any financial statement, certificate, report (excluding
projections in the Phase I Project Budget and the Phase II Project Budget,
each as defined in the Original Agreement) or exhibit furnished by any Loan
Party to the Agent or any Lender pursuant to or in connection with any Loan
Document, shall prove to have been false or misleading in any material
respect as of the time when made or deemed made (including by omission of
material information necessary to make such representation, warranty or
statement not misleading).
(d) The Borrower or any Loan Party shall default in the performance or
observance of any covenant contained in ARTICLE VI hereof, other than
Section 6.12, or any of the covenants contained in Sections 2.10, 2.16,
5.01(g)(i), 5.09, 5.10, or 5.12 hereof or any Section of the Security
Documents listed on Schedule 7.01(d) hereto.
(e) Any Loan Party shall default in the performance or observance of
any other covenant, agreement or duty under this Agreement or any other Loan
Document and (i) in the case of a default under Section 5.01 hereof (other
than as referred to in subsection (g)(i) thereof) such default shall have
continued for a period of ten days and (ii) in the case of any other default
such default shall have continued for a period of 30 days.
<PAGE> 114
(f) Any Cross-Default Event shall occur with respect to any
Cross-Default Obligation; PROVIDED, that if a Cross-Default Event would have
occurred with respect to a Cross-Default Obligation but for the grant of a
waiver or similar indulgence, a Cross-Default Event shall nevertheless be
deemed to have occurred if the Borrower gave or agreed to give any fee or
other monetary compensation for such waiver or indulgence. As used herein,
"Cross-Default Obligation" shall mean any Indebtedness of the Borrower in
excess of $2,000,000 in aggregate principal amount, or commitment of any
Person to make a loan or loans to the Borrower in the aggregate principal
amount in excess of $2,000,000. As used herein, "Cross-Default Event" with
respect to a Cross-Default Obligation shall mean the occurrence of any
default, event or condition which causes or which would permit any Person or
Persons to cause or which would with the giving of notice or the passage of
time or both would permit any Person or Persons to cause all or any part of
such Cross-Default Obligation to become due (by acceleration, mandatory
prepayment or repurchase, or otherwise) before its otherwise stated maturity
or to terminate its commitment to make loans to the Borrower, or failure to
pay all or any part of such Cross-Default Obligation at its stated maturity.
(g) One or more judgments for the payment of money shall have been
entered against the Borrower or any other Loan Party, which judgment or
judgments exceed $1,000,000 in the aggregate, and such judgment or judgments
shall have remained undischarged and unstayed for a period of forty-five
consecutive days.
(h) One or more writs or warrants of attachment, garnishment,
execution, distraint or similar process exceeding in value the aggregate
amount of $1,000,000 shall have been issued against the Borrower or any
other Loan Party or any of their respective properties and shall have
remained undischarged and unstayed for a period of forty-five consecutive
days.
(i) Any Governmental Action now or hereafter made by or with any
Governmental Authority in connection with any Loan Document is not obtained
or shall have ceased to be in full force and effect or shall have been
modified or amended or shall have been held to be illegal or invalid, unless
the same could not have a Material Adverse Effect.
(j) Any Security Document shall cease to be in full force and effect,
or any Lien created or purported to be created in any Collateral pursuant to
any Security Document
<PAGE> 115
(and not released in accordance herewith or therewith) shall fail to be
valid, enforceable and perfected Lien in favor of the Agent for the benefit
of the Lenders and the Agent securing the Obligations, prior to all other
Liens (except for Permitted Liens under Section 6.02(b), (e) or (f)), or any
Loan Party shall assert any of the foregoing.
(k) Any Loan Document shall cease to be in full force and effect, or
any Loan Party shall, or shall purport to, terminate, repudiate, declare
voidable or void or otherwise contest, any Loan Document or any obligation
or liability of any Loan Party thereunder.
(l) The Required Lenders shall have determined in good faith that an
event or condition has occurred which could have a Material Adverse Effect.
(m) Any one or more Pension-Related Events referred to in subsection
(a)(ii) or (b) of the definition of "Pension-Related Event" shall have
occurred; any one or more Pension-Related Events referred to in subsection
(e)(i) of the definition of "Pension-Related Event" shall have occurred and
such event shall not have been cured within fifteen days after the
occurrence thereof; or any one or more other one or more other
Pension-Related Events shall have occurred and the Required Lenders shall
determine in good faith (which determination shall be conclusive) that such
other Pension-Related Events, individually or in the aggregate, could have a
Material Adverse Effect.
(n) Any one or more of the events or conditions set forth in the
following clauses (i) or (ii) shall have occurred in respect of any Loan
Party or any of its Environmental Affiliates, and the Required Lenders shall
determine in good faith that such events or conditions, individually or in
the aggregate, could have a Material Adverse Effect: (i) any past or present
violation of any Environmental Law by such Person, or (ii) existence of any
pending or threatened Environmental Claim against any such Person, or
existence of any past or present acts, omissions, events or circumstances
that could form the basis of any Environmental Claim against any such
Person.
(o) A Change of Control or a Change of Management shall have occurred.
(p) The Borrower or any other Person shall default under the SMS
Documents, the Heidtman Documents, the OmniSource Documents or any of the
Phase II Project Major Equipment Supply Contracts (as defined in the
Original
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Agreement), and such defaults shall have continued without cure for such a
period as to have a material adverse impact on construction or operation of
the Phase I Project or of the Phase II Project.
(q) Any action or proceeding for the Condemnation (as defined in the
Mortgage) of all or a substantial portion of the properties of the Borrower
or any member of the Borrower Group shall be commenced and continue
undismissed for a period of forty-five days.
(r) Any of the Heidtman Documents or the OmniSource Documents shall be
materially and adversely amended or shall fail to be in full force and
effect if such amendment or failure could have a Material Adverse Effect.
(s) A proceeding shall have been instituted in respect of the Borrower,
any other Loan Party, Heidtman or OmniSource
(i) seeking to have an order for relief entered in respect of such
Person, or seeking a declaration or entailing a finding that such
Person is insolvent or a similar declaration or finding, or seeking
dissolution, winding-up, charter revocation or forfeiture, liquidation,
reorganization, arrangement, adjustment, composition or other similar
relief with respect to such Person, its assets or its debts under any
Law relating to bankruptcy, insolvency, relief of debtors or protection
of creditors, termination of legal entities or any other similar Law
now or hereafter in effect, or
(ii) seeking appointment of a receiver, trustee, liquidator,
assignee, sequestrator or other custodian for such Person or for all or
any substantial part of its property
and (A) in the case of the Borrower or any other Loan Party only, such
proceeding shall result in the entry, making or grant of any such order for
relief, declaration, finding, relief or appointment, or such proceeding
shall remain undismissed, undischarged and unstayed for a period of sixty
consecutive days, (B) in the case of Heidtman or OmniSource only, such
proceeding shall result in the entry, making or grant of any such order for
relief, declaration, finding, relief or appointment, or such proceeding
shall remain undismissed, undischarged and unstayed for a period of sixty
consecutive days and (C) in the case of Heidtman or OmniSource only, the
Required Lenders shall determine in
<PAGE> 117
good faith that such event could have a Material Adverse Effect.
(t) The Borrower, any other Loan Party, Heidtman or OmniSource shall
become insolvent; shall fail to pay, become unable to pay, or state that it
is or will be unable to pay, its debts as they become due; shall voluntarily
suspend transaction of its or his business; shall make a general assignment
for the benefit of creditors; shall institute (or fail to controvert in a
timely and appropriate manner) a proceeding described in Section 7.01(s)(i)
hereof, or (whether or not any such proceeding has been instituted) shall
consent to or acquiesce in any such order for relief, declaration, finding
or relief described therein; shall institute or take corporate action
authorizing the institution of (or fail to controvert in a timely and
appropriate manner) a proceeding described in Section 7.01(s)(ii) hereof, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such appointment or to the taking of possession by any such
custodian of all or any substantial part of its or his property; shall
dissolve, wind-up, revoke or forfeit its charter (or other constituent
documents) or liquidate itself or any substantial part of its property;
PROVIDED, however, that, in the case of Heidtman or OmniSource only, none of
the foregoing events or conditions set forth in this paragraph (w) shall
constitute an Event of Default unless the Required Lenders shall have
determined (which determination shall be conclusive) that such event or
condition could have a Material Adverse Effect.
7.02. CONSEQUENCES OF AN EVENT OF DEFAULT.
(a) If an Event of Default under Section 7.01 hereof (other than an
Event of Default specified in subsection (s) or (t) thereof) shall occur and be
continuing or shall exist, then, in addition to all other rights and remedies
which the Agent or any Lender may have hereunder or under any other Loan
Document, at law, in equity or otherwise, the Lenders shall be under no further
obligation to make Loans and the Issuing Bank shall be under no further
obligation to issue Letters of Credit hereunder, and the Agent shall, upon the
written request of the Required Lenders, by notice to the Borrower, from time to
time do any or all of the following:
(i) Declare the Commitments terminated, whereupon the Commitments will
terminate and any fees hereunder shall be immediately due and payable
without presentment, demand, protest or further notice of any kind, all of
which are
<PAGE> 118
hereby waived, and an action therefor shall immediately accrue.
(ii) Declare the unpaid principal amount of any or all of the Loans,
interest accrued thereon and all other Obligations (including without
limitation the obligation to cash collateralize outstanding Letters of
Credit) to be immediately due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby waived, and
an action therefor shall immediately accrue.
(iii) Exercise one or more of the remedies set forth in the Security
Documents.
(b) If an Event of Default specified in subsection (s) or (t) of
Section 7.01 hereof shall occur or exist, then, in addition to all other rights
and remedies which the Agent or any Lender may have hereunder or under any other
Loan Document, at law, in equity or otherwise, the Commitments shall
automatically terminate and the Lenders shall be under no further obligation to
make Loans and the Issuing Bank shall be under no further obligation to issue
Letters of Credit, and the unpaid principal amount of the Loans, interest
accrued thereon and all other Obligations (including without limitation the
obligation to cash collateralize outstanding Letters of Credit) shall become
immediately due and payable without presentment, demand, protest or notice of
any kind, all of which are hereby waived, and an action therefor shall
immediately accrue.
ARTICLE VIII
THE AGENT
---------
8.01. APPOINTMENT. Each Lender Party hereby irrevocably (subject to the
second sentence of Section 8.10 hereof) appoints Mellon to act as Agent for such
Lender Party under this Agreement and the other Loan Documents. Each Lender
Party hereby irrevocably (subject to the second sentence of Section 8.10 hereof)
authorizes the Agent to take such action on behalf of such Lender under the
provisions of this Agreement and the other Loan Documents, and to exercise such
powers and to perform such duties, as are expressly delegated to or required of
the Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto. Mellon hereby agrees to act as Agent on behalf of
the Lender Parties on the terms and conditions set forth in this Agreement and
the other Loan Documents, subject to its right to resign as provided in Section
8.10 hereof. Each Lender Party hereby irrevocably authorizes the Agent to
execute and deliver each of the Loan
<PAGE> 119
Documents and to accept delivery of such of the other Loan Documents as may not
require execution by the Agent. Each Lender Party agrees that the rights and
remedies granted to the Agent under the Loan Documents shall be exercised
exclusively by the Agent, and that no Lender Party shall have any right
individually to exercise any such right or remedy, except to the extent
expressly provided herein or therein.
8.02. GENERAL NATURE OF AGENT'S DUTIES. Notwithstanding anything to the
contrary elsewhere in this Agreement or in any other Loan Document:
(a) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the other Loan Documents, and no
implied duties or responsibilities on the part of the Agent shall be read
into this Agreement or any Loan Document or shall otherwise exist.
(b) The duties and responsibilities of the Agent under this Agreement
and the other Loan Documents shall be mechanical and administrative in
nature, and the Agent shall not have a fiduciary relationship in respect of
any Lender Party.
(c) The Agent is and shall be solely the agent of the Lender Parties.
The Agent does not assume, and shall not at any time be deemed to have, any
relationship of agency or trust with or for, or any other duty or
responsibility to, the Borrower or any other Person (except only for its
relationship as agent for, and its express duties and responsibilities to,
the Lender Parties as provided in this Agreement and the other Loan
Documents).
(d) The Agent shall be under no obligation to take any action hereunder
or under any other Loan Document if the Agent believes in good faith that
taking such action may conflict with any Law or any provision of this
Agreement or any other Loan Document, or may require the Agent to qualify to
do business in any jurisdiction where it is not then so qualified.
8.03. EXERCISE OF POWERS. The Agent shall take any action of the type
specified in this Agreement or any other Loan Document as being within the
Agent's rights, powers or discretion in accordance with directions from the
Required Lenders (or, to the extent this Agreement or such Loan Document
expressly requires the direction or consent of some other Person or set of
Persons, then instead in accordance with the directions of such other Person or
set of Persons). In the absence of such
<PAGE> 120
directions, the Agent shall have the authority (but under no circumstances shall
be obligated), in its sole discretion, to take any such action, except to the
extent this Agreement or such Loan Document expressly requires the direction or
consent of the Required Lenders (or some other Person or set of Persons), in
which case the Agent shall not take such action absent such direction or
consent. Any action or inaction pursuant to such direction, discretion or
consent shall be binding on all the Lender Parties. The Agent shall not have any
liability to any Person as a result of (x) the Agent acting or refraining from
acting in accordance with the directions of the Required Lenders (or other
applicable Person or set of Persons), (y) the Agent refraining from acting in
the absence of instructions to act from the Required Lenders (or other
applicable Person or set of Persons), whether or not the Agent has discretionary
power to take such action, or (z) the Agent taking discretionary action it is
authorized to take under this Section (subject, in the case of this clause (z),
to the provisions of Section 8.04(a) hereof).
8.04. GENERAL EXCULPATORY PROVISIONS. Notwithstanding anything to the
contrary elsewhere in this Agreement or any other Loan Document:
(a) The Agent shall not be liable for any action taken or omitted to be
taken by it under or in connection with this Agreement or any other Loan
Document, unless caused by its own gross negligence or willful misconduct.
(b) The Agent shall not be responsible for (i) the execution, delivery,
effectiveness, enforceability, genuineness, validity or adequacy of this
Agreement or any other Loan Document, (ii) any recital, representation,
warranty, document, certificate, report or statement in, provided for in, or
received under or in connection with, this Agreement or any other Loan
Document, (iii) any failure of any Loan Party or any Lender or Issuing Bank
to perform any of their respective obligations under this Agreement or any
other Loan Document, (iv) the existence, validity, enforceability,
perfection, recordation, priority, adequacy or value, now or hereafter, of
any Lien or other direct or indirect security afforded or purported to be
afforded by any of the Loan Documents or otherwise from time to time, (v)
caring for, protecting, insuring, or paying any taxes, charges or
assessments with respect to any Collateral or (vi) whether any Collateral
meets any requirement for eligibility, whether under the requirements of
Section 2.16 hereof or otherwise.
(c) The Agent shall not be under any obligation to ascertain, inquire
or give any notice relating to (i) the
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performance or observance of any of the terms or conditions of this
Agreement or any other Loan Document on the part of any Loan Party, (ii) the
business, operations, condition (financial or otherwise) or prospects of any
Loan Party, the Borrower Group or any other Person, or (iii) except to the
extent set forth in Section 8.05(f) hereof, the existence of any Event of
Default or Potential Default.
(d) The Agent shall not be under any obligation, either initially or on
a continuing basis, to provide any Lender Party with any notices, reports or
information of any nature, whether in its possession presently or hereafter,
except for such notices, reports and other information expressly required by
this Agreement or any other Loan Document to be furnished by the Agent to
such Lender Party.
8.05. ADMINISTRATION BY THE AGENT.
(a) The Agent may rely upon any notice or other communication of any
nature (written or oral, including but not limited to telephone conversations,
whether or not such notice or other communication is made in a manner permitted
or required by this Agreement or any Loan Document) purportedly made by or on
behalf of the proper party or parties, and the Agent shall not have any duty to
verify the identity or authority of any Person giving such notice or other
communication.
(b) The Agent may consult with legal counsel (including, without
limitation, in-house counsel for the Agent or in-house or other counsel for the
Borrower), independent public accountants and any other experts selected by it
from time to time, and the Agent shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts.
(c) The Agent may conclusively rely upon the truth of the statements
and the correctness of the opinions expressed in any certificates or opinions
furnished to the Agent in accordance with the requirements of this Agreement or
any other Loan Document. Whenever the Agent shall deem it necessary or desirable
that a matter be proved or established with respect to any Loan Party or any
Lender or Issuing Bank, such matter may be established by a certificate of the
Borrower or such Lender or Issuing Bank, as the case may be, and the Agent may
conclusively rely upon such certificate (unless other evidence with respect to
such matter is specifically prescribed in this Agreement or another Loan
Document).
(d) The Agent may fail or refuse to take any action unless it shall be
indemnified to its satisfaction from time to
<PAGE> 122
time against any and all amounts, liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature which may be imposed on, incurred by or asserted against the
Agent by reason of taking or continuing to take any such action.
(e) The Agent may perform any of its duties under this Agreement or any
other Loan Document by or through agents or attorneys-in-fact. The Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected and supervised by it with reasonable care.
(f) The Agent shall not be deemed to have any knowledge or notice of
the occurrence of any Event of Default or Potential Default unless the Agent has
received notice from a Lender or the Borrower referring to this Agreement,
describing such Event of Default or Potential Default, and stating that such
notice is a "notice of default". If the Agent receives such a notice, the Agent
shall give prompt notice thereof to each Lender and Issuing Bank.
8.06. LENDER NOT RELYING ON AGENT OR OTHER LENDERS. Each Lender
acknowledges as follows: (a) Neither the Agent nor any other Lender has made any
representations or warranties to it, and no act taken hereafter by the Agent or
any other Lender shall be deemed to constitute any representation or warranty by
the Agent or such other Lender to it. (b) It has, independently and without
reliance upon the Agent or any other Lender, and based upon such documents and
information as it has deemed appropriate, made its own credit and legal analysis
and decision to enter into this Agreement and the other Loan Documents. (c) It
will, independently and without reliance upon the Agent or any other Lender, and
based upon such documents and information as it shall deem appropriate at the
time, make its own decisions to take or not take action under or in connection
with this Agreement and the other Loan Documents.
8.07. INDEMNIFICATION. Each Lender agrees to reimburse and indemnify
the Agent and its directors, officers, employees and agents (to the extent not
reimbursed by the Borrower and without limitation of the obligations of the
Borrower to do so), Pro Rata, from and against any and all amounts, losses,
liabilities, claims, damages, reasonable expenses, obligations, penalties,
actions, judgments, suits, costs or disbursements of any kind or nature
(including, without limitation, the fees and disbursements of counsel for the
Agent or such other Person in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not the Agent or such
other Person shall be designated a party thereto) that may at any time be
imposed on, incurred by
<PAGE> 123
or asserted against the Agent or such other Person as a result of, or arising
out of, or in any way related to or by reason of, this Agreement, any other Loan
Document, any transaction from time to time contemplated hereby or thereby, or
any transaction financed in whole or in part or directly or indirectly with the
proceeds of any Loan or Letter of Credit, PROVIDED that no Lender shall be
liable for any portion of such amounts, losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements resulting solely from the gross negligence or willful misconduct
of the Agent or such other Person, as finally determined by a court of competent
jurisdiction. Payments under this Section shall be due and payable on demand,
and to the extent that any Lender fails to pay any such amount on demand, such
amount shall bear interest for each day from the fifth day after the date of
demand until paid (before and after judgment) at a rate per annum (calculated on
the basis of a year of 360 days and actual days elapsed) which shall be equal to
2% plus the Federal Funds Effective Rate.
8.08. AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its Commitments
and the Obligations owing to it, the Agent shall have the same rights and powers
under this Agreement and each other Loan Document as any other Lender and may
exercise the same as though it were not the Agent, and the terms "Issuing Bank,"
"Lenders," "holders of Notes" and like terms shall include the Agent in its
individual capacity as such. The Agent and its affiliates may, without liability
to account, make loans to, accept deposits from, acquire debt or equity
interests in, act as trustee under indentures of, and engage in any other
business with, the Borrower and any stockholder or affiliate of the Borrower, as
though the Agent were not the Agent hereunder.
8.09. HOLDERS OF NOTES. The Agent may deem and treat the Lender which
is payee of a Note as the owner and holder of such Note for all purposes hereof
unless and until a Transfer Supplement with respect to the assignment or
transfer thereof shall have been filed with the Agent in accordance with Section
9.14 hereof. Any authority, direction or consent of any Person who at the time
of giving such authority, direction or consent is shown in the Register as being
a Lender shall be conclusive and binding on each present and subsequent holder,
transferee or assignee of any Note or Notes payable to such Lender or of any
Note or Notes issued in exchange therefor.
8.10. SUCCESSOR AGENT. The Agent may resign at any time by giving 30
days' prior written notice thereof to the Lenders and the Borrower. The Agent
may be removed by the Required Lenders at any time by giving 30 days' prior
written notice thereof to the Agent, the other Lenders and the Borrower. Upon
any such resignation or removal, the Required Lenders shall
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have the right to appoint a successor Agent. If no successor Agent shall have
been so appointed and consented to, and shall have accepted such appointment,
within 90 days after such notice of resignation or removal, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent. Each successor
Agent shall be a commercial bank or trust company organized, or having a branch
or agency organized, under the laws of the United States of America or any State
thereof and having a combined capital and surplus of at least $500,000,000. Upon
the acceptance by a successor Agent of its appointment as Agent hereunder, such
successor Agent shall thereupon succeed to and become vested with all the
properties, rights, powers, privileges and duties of the former Agent, without
further act, deed or conveyance. Upon the effective date of resignation or
removal of a retiring Agent, such Agent shall be discharged from its duties
under this Agreement and the other Loan Documents, but the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted by it
while it was Agent under this Agreement. If and so long as no successor Agent
shall have been appointed, then any notice or other communication required or
permitted to be given by the Agent shall be sufficiently given if given by the
Required Lenders, all notices or other communications required or permitted to
be given to the Agent shall be given to each Lender, and all payments to be made
to the Agent shall be made directly to the Borrower or Lender for whose account
such payment is made.
8.11. ADDITIONAL AGENTS. If the Agent shall from time to time deem it
necessary or advisable, for its own protection in the performance of its duties
hereunder or in the interest of the Lender Parties, the Agent and the Borrower
shall execute and deliver a supplemental agreement and all other instruments and
agreements necessary or advisable, in the opinion of the Agent, to constitute
another commercial bank or trust company, or one or more other Persons approved
by the Agent, to act as co-agent or separate agent with respect to any part of
the Collateral, with such powers of the Agent as may be provided in such
supplemental agreement, and to vest in such bank, trust company or Person as
such co-Agent or separate agent, as the case may be, any properties, rights,
powers, privileges and duties of the Agent under this Agreement or any other
Loan Document.
8.12. CALCULATIONS. The Agent shall not be liable for any calculation,
apportionment or distribution of payments made by it in good faith. If such
calculation, apportionment or distribution is subsequently determined to have
been made in error, the sole recourse of any Lender Party to whom payment was
due but not made shall be to recover from the other Lender Parties any payment
in excess of the amount to which they are determined to be entitled or, if the
amount due was not paid by the Borrower, to recover such amount from the
Borrower.
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8.13. FUNDING BY AGENT. Unless the Agent shall have been notified in
writing by any Lender not later than 4:00 p.m., Pittsburgh time, on the day
before the day on which Loans are requested by the Borrower to be made that (or,
if the request for a Loan is made by the Borrower on the date such Loan is to be
made, then not later than 11:00 a.m. on such day.) such Lender will not make its
ratable share of such Loans, the Agent may assume that such Lender will make its
ratable share of the Loans, and in reliance upon such assumption the Agent may
(but in no circumstances shall be required to) make available to the Borrower a
corresponding amount. If and to the extent that any Lender fails to make such
payment to the Agent on such date, such Lender shall pay such amount on demand
(or, if such Lender fails to pay such amount on demand, the Borrower shall pay
such amount on demand), together with interest, for the Agent's own account, for
each day from and including the date of the Agent's payment to and including the
date of repayment to the Agent (before and after judgment) at the rate or rates
per annum set forth below. All payments to the Agent under this Section shall be
made to the Agent at its Office in Dollars in funds immediately available at
such Office, without set-off, withholding, counterclaim or other deduction of
any nature. If funds deliverable by any Lender to the Agent or by the Agent to
any Lender are not made available when required hereunder, the party which has
not made such funds available shall pay interest to the other at the Federal
Funds Effective Rate for the first three days such funds are not made available
and 2% in excess of the Federal Funds Effective Rate thereafter.
8.14. CO-AGENTS. The Senior Co-Agents and the Co-Agents shall have no
rights, duties or responsibilities in such capacity hereunder.
ARTICLE IX
MISCELLANEOUS
-------------
9.01. HOLIDAYS. Whenever any payment or action to be made or taken
hereunder or under any other Loan Document shall be stated to be due on a day
which is not a Business Day, such payment or action shall be made or taken on
the next following Business Day and such extension of time shall be included in
computing interest or fees, if any, in connection with such payment or action.
9.02. RECORDS. The unpaid principal amount of the Loans owing to each
Lender, the unpaid interest accrued thereon, the interest rate or rates
applicable to such unpaid principal amount, the duration of such applicability,
each Tranche 1 Lender's Tranche 1 Committed Amount, each Tranche 2 Lender's
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Tranche 2 Committed Amount and the accrued and unpaid Commitment Fees shall at
all times be ascertained from the records of the Agent, which shall be
conclusive absent manifest error. The unpaid Letter of Credit Reimbursement
Obligation, the unpaid interest accrued thereon and the interest rate or rates
applicable thereto shall at all times be ascertained from the records of the
Issuing Bank, which shall be conclusive absent manifest error.
9.03. AMENDMENTS AND WAIVERS. Neither this Agreement nor any Loan
Document may be amended, modified or supplemented except in accordance with the
provisions of this Section. The Agent, the Borrower and, if applicable, any
other Loan Party may from time to time amend, modify or supplement the
provisions of this Agreement or any other Loan Document for the purpose of
amending, adding to, or waiving any provisions thereof, releasing any
Collateral, or changing in any manner the rights and duties of the Borrower or
any Lender Party thereunder. Any such amendment, modification, waiver or
supplement made by Borrower and the Agent in accordance with the provisions of
this Section shall be binding upon the Borrower, each Loan Party and each Lender
Party. The Agent shall enter into such amendments, modifications or supplements
from time to time as directed by the Required Lenders, and only as so directed,
PROVIDED, that no such amendment, modification or supplement may be made which
will:
(a) Increase the Tranche 1 Committed Amount, the Tranche 2 Committed
Amount or the Tranche 3 Committed Amount of any Lender over the amount
thereof then in effect without the consent of all Lenders, or extend the
Tranche 1 Maturity Date, the Tranche 2 Conversion Date, the Tranche 2
Maturity Date or the Tranche 3 Maturity Date without the written consent of
each Lender affected thereby, or amend the proviso to Section 2.17(a) or the
proviso to Section 2.29(b) without the consent of all the Tranche 1 Lenders
or;
(b) Reduce the principal amount of or extend the scheduled final
maturity or time for any scheduled payment of principal of any Loan or
Letter of Credit Reimbursement Obligation, or reduce or increase the rate of
interest or extend or reduce the time for payment of interest borne by any
Loan or Letter of Credit Reimbursement Obligation, or reduce or postpone the
date for payment of any fees, expenses, indemnities or amounts payable under
any Loan Document, without the written consent of each Lender Party affected
thereby;
(c) Change the definition of "Required Lenders" or amend this Section
9.03, without the written consent of all the Lenders;
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(d) Amend or waive any of the provisions of ARTICLE VIII hereof, or
impose additional duties upon the Agent or otherwise adversely affect the
rights, interests or obligations of the Agent, without the written consent
of the Agent;
(e) Release any substantial amount of Collateral or any Guaranty
Equivalent, other than Liens on Collateral, the disposition of which is
expressly permitted under Section 6.10 hereof or any other section of the
Loan Documents and Liens on after-acquired Equipment to the extent such
Equipment is the subject of a purchase money security interest permitted
under Section 6.02(f) hereof, without the written consent of all the
Lenders;
(f) Reduce any Letter of Credit Unreimbursed Draw, or extend the time
for payment by the Borrower of any Letter of Credit Reimbursement
Obligation, without the written consent of each Lender affected thereby;
(g) Amend or waive any of the provisions of Sections 2.17 through 2.26,
or impose additional duties upon the Issuing Bank or otherwise adversely
affect the rights, interests or obligations of the Issuing Bank, without the
written consent of the Issuing Bank;
(h) Change any requirement for the consent of all Lenders without the
written consent of all Lenders or change any requirement for the consent of
all of a category of Lenders (that is, Revolving Credit Lenders, Term
Lenders, Tranche 1 Lenders, Tranche 2 Lenders or Tranche 3 Lenders) without
the written consent of all Lenders in such category; or
(i) Amend or waive any of the provisions of Sections 2.27 through 2.30,
or impose additional duties upon the Swingline Lender or otherwise adversely
affect the rights, interests or obligations of the Swingline Lender, without
the written consent of the Swingline Lender;
and PROVIDED FURTHER, that Transfer Supplements may be entered into in the
manner provided in Section 9.14 hereof. Any such amendment, modification or
supplement must be in writing and shall be effective only to the extent set
forth in such writing. Any Event of Default or Potential Default waived or
consented to in any such amendment, modification or supplement shall be deemed
to be cured and not continuing to the extent and for the period set forth in
such waiver or consent, but no such waiver or
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consent shall extend to any other or subsequent Event of Default or Potential
Default or impair any right consequent thereto.
9.04. NO IMPLIED WAIVER; CUMULATIVE REMEDIES. No course of dealing and
no delay or failure of the Agent or any Lender Party in exercising any right,
power or privilege under this Agreement or any other Loan Document shall affect
any other or future exercise thereof or exercise of any other right, power or
privilege; nor shall any single or partial exercise of any such right, power or
privilege or any abandonment or discontinuance of steps to enforce such a right,
power or privilege preclude any further exercise thereof or of any other right,
power or privilege. The rights and remedies of the Agent and the Lender Parties
under this Agreement and any other Loan Document are cumulative and not
exclusive of any rights or remedies which the Agent or any Lender Party would
otherwise have hereunder or thereunder, at law, in equity or otherwise.
9.05. NOTICES.
(a) Except to the extent otherwise expressly permitted hereunder or
thereunder, all notices, requests, demands, directions and other communications
(collectively "notices") under this Agreement or any Loan Document shall be in
writing (including telexed and telecopied communication) and shall be sent by
first-class mail, or by nationally-recognized overnight courier, or by telex or
telecopier (with confirmation in writing mailed first-class or sent by such an
overnight courier), or by personal delivery. All notices shall be sent to the
applicable party at the address stated on the signature pages hereof or in
accordance with the last unrevoked written direction from such party to the
other parties hereto, in all cases with postage or other charges prepaid. Any
such properly given notice to the Agent or any Lender Party shall be effective
when received. Any such properly given notice to the Borrower shall be effective
on the earliest to occur of receipt, telephone confirmation of receipt of telex
or telecopy communication, one Business Day after delivery to a
nationally-recognized overnight courier, or three Business Days after deposit in
the mail.
(b) Any Lender Party giving any notice to the Borrower or any other
party to a Loan Document shall simultaneously send a copy thereof to the Agent,
and the Agent shall promptly notify the other Lenders of the receipt by it of
any such notice.
(c) The Agent and each Lender Party may rely on any notice (whether or
not such notice is made in a manner permitted or required by this Agreement or
any Loan Document) purportedly made by or on behalf of the Borrower, and neither
the Agent nor
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any Lender Party shall have any duty to verify the identity or authority of any
Person giving such notice.
9.06. EXPENSES; TAXES; INDEMNITY.
(a) The Borrower agrees to pay or cause to be paid and to save the
Agent, the Issuing Bank and each of the Lender Parties harmless against
liability for the payment of all reasonable out-of-pocket costs and expenses
(including but not limited to reasonable fees and expenses of counsel, including
local counsel (but not separate counsel for any Lender other than Mellon in
connection with clause (i) below), auditors, consulting engineers, appraisers,
and all other professional, accounting, evaluation and consulting costs)
incurred by the Agent or any Lender from time to time arising from or relating
to (i) the administration and performance of this Agreement and the other Loan
Documents (including but not limited to collateral management fees and expenses
of field examinations and periodic commercial finance audits of the Borrower),
(ii) any requested amendments, modifications, supplements, waivers or consents
(whether or not ultimately entered into or granted) to this Agreement or any
Loan Document, and (iii) the enforcement or preservation of rights under this
Agreement or any Loan Document (including but not limited to any such costs or
expenses arising from or relating to (A) the creation, perfection or protection
of the Agent's Lien on any Collateral, (B) the protection, collection, lease,
sale, taking possession of, preservation of, or realization on, any Collateral,
including without limitation advances for storage, insurance premiums,
transportation charges, taxes, filing fees and the like, (C) collection or
enforcement of an outstanding Loan, Letter of Credit Reimbursement Obligation or
any other amount owing hereunder or thereunder by the Agent or any Lender Party,
and (D) any litigation, proceeding, dispute, work-out, restructuring or
rescheduling related in any way to this Agreement or the Loan Documents).
(b) The Borrower hereby agrees to pay all stamp, document, transfer,
recording, filing, registration, search, sales and excise fees and taxes and all
similar impositions now or hereafter determined by the Agent or any Lender
Parties to be payable in connection with this Agreement or any other Loan
Documents or any other documents, instruments or transactions pursuant to or in
connection herewith or therewith, and the Borrower agrees to save the Agent and
each Lender Party harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such fees, taxes or impositions.
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(c) The Borrower hereby agrees to reimburse and indemnify each of the
Indemnified Parties from and against any and all losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnified Party in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not such Indemnified Party shall be designated a party
thereto) that may at any time be imposed on, asserted against or incurred by
such Indemnified Party as a result of, or arising out of, or in any way related
to or by reason of, this Agreement or any other Loan Document, any transaction
from time to time contemplated hereby or thereby, or any transaction financed in
whole or in part or directly or indirectly with the proceeds of any Loan (and
without in any way limiting the generality of the foregoing, including any
violation or breach of any Environmental Law or any other Law by any Loan Party
or any of its Environmental Affiliates; any Environmental Claim arising out of
the management, use, control, ownership or operation of property by any of such
Persons, including all on-site and off-site activities involving Environmental
Concern Materials; any grant of Collateral; or any exercise by the Agent or any
Lender Party of any of its rights or remedies under this Agreement or any other
Loan Document; any breach of any representation or warranty, covenant or
agreement of any Loan Party); but excluding any such losses, liabilities,
claims, damages, expenses, obligations, penalties, actions, judgments, suits,
costs or disbursements to the extent resulting from the gross negligence or
willful misconduct of such Indemnified Party, as finally determined by a court
of competent jurisdiction. If and to the extent that the foregoing obligations
of the Borrower under this subsection (c), or any other indemnification
obligation of the Borrower hereunder or under any other Loan Document, are
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable Law.
9.07. SEVERABILITY. The provisions of this Agreement are intended to be
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
9.08. PRIOR UNDERSTANDINGS. This Agreement and the other Loan Documents
supersede all prior and contemporaneous understandings and agreements, whether
written or oral, among the
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parties hereto relating to the transactions provided for herein and therein.
9.09. DURATION; SURVIVAL. All representations and warranties of the
Borrower and each other Loan Party contained herein or in any other in the Loan
Document or made in connection herewith or therewith shall survive the making
of, and shall not be waived by the execution and delivery, of this Agreement or
any other Loan Document, any investigation by or knowledge of the Agent or any
Lender Party, the making of any Loan, the issuance of any Letter of Credit, or
any other event or condition whatever. All covenants and agreements of the
Borrower and each other Loan Party contained herein or in any other Loan
Document shall continue in full force and effect from and after the date hereof
so long as the Borrower may borrow hereunder and until payment in full of all
Obligations. Without limitation, all obligations of the Borrower hereunder or
under any other Loan Document to make payments to or indemnify the Agent or any
Lender shall survive the payment in full of all other Obligations, termination
of the Borrower's right to borrow hereunder, and all other events and conditions
whatever. In addition, all obligations of each Lender to make payments to or
indemnify the Agent or Issuing Bank shall survive the payment in full by the
Borrower of all Obligations, termination of the Borrower's right to borrow
hereunder, and all other events or conditions whatever.
9.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
9.11. LIMITATION ON PAYMENTS. The parties hereto intend to conform to
all applicable Laws in effect from time to time limiting the maximum rate of
interest that may be charged or collected. Accordingly, notwithstanding any
other provision hereof or of any other Loan Document, the Borrower shall not be
required to make any payment to or for the account of any Lender, and each
Lender shall refund any payment made by the Borrower, to the extent that such
requirement or such failure to refund would violate or conflict with nonwaivable
provisions of applicable Laws limiting the maximum amount of interest which may
be charged or collected by such Lender.
9.12. SET-OFF. The Borrower hereby agrees that, to the fullest extent
permitted by law, if an Event of Default shall have occurred and be continuing
or shall exist and if any Obligation of the Borrower shall be due and payable
(by acceleration or otherwise), each Lender Party shall have the right, without
notice to the Borrower, to set-off against and to
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appropriate and apply to such Obligation any indebtedness, liability or
obligation of any nature owing to the Borrower by such Lender Party, including
but not limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, whether or not evidenced by a
certificate of deposit, and including without limitation accounts in foreign
currencies) now or hereafter maintained by the Borrower with such Lender Party.
Such right shall be absolute and unconditional in all circumstances and, without
limitation, shall exist whether or not such Lender Party or any other Person
shall have given notice or made any demand to the Borrower or any other Person,
whether such indebtedness, obligation or liability owed to the Borrower is
contingent, absolute, matured or unmatured (it being agreed that such Lender
Party may deem such indebtedness, obligation or liability to be then due and
payable at the time of such setoff), and regardless of the existence or adequacy
of any collateral, guaranty or any other security, right or remedy available to
any Lender Party or any other Person. The Borrower hereby agrees that, to the
fullest extent permitted by law, any Participant and any branch, subsidiary or
affiliate of any Lender Party or any Participant shall have the same rights of
set-off as a Lender Party as provided in this Section (regardless of whether
such Participant, branch, subsidiary or affiliate would otherwise be deemed in
privity with or a direct creditor of the Borrower). The rights provided by this
Section are in addition to all other rights of set-off and banker's lien and all
other rights and remedies which any Lender Party (or any such Participant,
branch, subsidiary or affiliate) may otherwise have under this Agreement, any
other Loan Document, at law or in equity, or otherwise, and nothing in this
Agreement or any Loan Document shall be deemed a waiver or prohibition of or
restriction on the rights of set-off or bankers' lien of any such Person.
9.13. SHARING OF COLLECTIONS. The Lenders hereby agree among themselves
that if any Lender shall receive (by voluntary payment, realization upon
security, set-off or from any other source) any amount on account of the Loans,
interest thereon, or any other Obligation contemplated by this Agreement or the
other Loan Documents to be made by the Borrower pro rata to the Tranche 1
Lenders, the Tranche 2 Lenders or the Tranche 3 Lenders, as the case may be (or,
in the case of proceeds of Collateral, as contemplated by the Security
Agreement) in greater proportion than any such amount received by any other
applicable Lender, then the Lender receiving such proportionately greater
payment shall notify each other Lender and the Agent of such receipt, and
equitable adjustment will be made in the manner stated in this Section so that,
in effect, all such excess amounts will be shared ratably among all of the
applicable Lenders. The Lender receiving such excess amount shall purchase
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(which it shall be deemed to have done simultaneously upon the receipt of such
excess amount) for cash from the other applicable Lenders a participation in the
applicable Obligations owed to such other Lenders in such amount as shall result
in a ratable sharing by all applicable Lenders of such excess amount (and to
such extent the receiving Lender shall be a Participant). If all or any portion
of such excess amount is thereafter recovered from the Lender making such
purchase, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, together with interest or other amounts, if any,
required by Law to be paid by the Lender making such purchase. The Borrower
hereby consents to and confirms the foregoing arrangements. Each Participant
shall be bound by this Section as fully as if it were a Lender hereunder.
9.14. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; ASSIGNMENTS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Lender Parties, all future holders of
the Notes, the Agent and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights hereunder or interests
herein without the prior written consent of all the Lenders and the Agent, and
any purported assignment without such consent shall be void.
(b) PARTICIPATIONS. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable Law, at any time
sell participations to one or more commercial banks or other Persons (each a
"Participant") in a portion of its rights and obligations under this Agreement
and the other Loan Documents (including, without limitation, all or a portion of
its Commitments and the Loans owing to it and any Note held by it); PROVIDED,
that
(i) any such participation sold to a Participant which is not a Lender,
an affiliate of a Lender or a Federal Reserve Bank shall be made only with
the consent (which in each case shall not be unreasonably withheld) of the
Borrower and the Agent, unless an Event of Default has occurred and is
continuing, in which case the consent of the Borrower shall not be required,
(ii) any such Lender's obligations under this Agreement and the other
Loan Documents shall remain unchanged,
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(iii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations,
(iv) the parties hereto shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under
this Agreement and each of the other Loan Documents,
(v) such Participant shall be bound by the provisions of Section 9.13
hereof, and the Lender selling such participation shall obtain from such
Participant a written confirmation of its agreement to be so bound,
(vi) no Participant (unless such Participant is an affiliate of such
Lender, or is itself a Lender) shall be entitled to require such Lender to
take or refrain from taking action under this Agreement or under any other
Loan Document, except that such Lender may agree with such Participant that
such Lender will not, without such Participant's consent, take action of the
type described in subsections (a), (b), (c) or (e) of Section 9.03 hereof,
and
(vii) a Participant shall have the right to vote regarding amendments
to this Agreement only in connection with amendments which effect changes in
the amount of principal, interest rates, fees, maturity and material
releases of Collateral.
The Borrower agrees that any such Participant shall be entitled to the benefits
of Sections 2.13, 2.14, 2.22 and 9.06 with respect to its participation in the
Commitments and the Loans and Letters of Credit outstanding from time to time;
PROVIDED, that no such Participant shall be entitled to receive any greater
amount pursuant to such Sections than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred to
such Participant had no such transfer occurred.
(c) ASSIGNMENTS. Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable Law, at any time
assign all or a portion of its rights and obligations under this Agreement and
the other Loan Documents (including, without limitation, all or any portion of
its Commitments and Loans owing to it and any Note held by it) to any Lender,
any affiliate of a Lender or to one or more additional commercial banks or other
Persons (each a "Purchasing Lender"); PROVIDED, that
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(i) any such assignment to a Purchasing Lender which is not a Lender or
an affiliate of a Lender shall be made only with the consent (which in each
case shall not be unreasonably withheld) of the Borrower, the Agent and, if
the Purchasing Lender is to be a Revolving Credit Lender, the Issuing Bank,
unless an Event of Default has occurred and is continuing or exists, in
which case the consent of the Borrower shall not be required,
(ii) if a Lender makes such an assignment of less than all of its then
remaining rights and obligations under this Agreement and the other Loan
Documents, such assignment shall be in a minimum aggregate principal amount
of $5,000,000 of the Commitments and Loans then outstanding,
(iii) each such assignment shall be of a constant, and not a varying,
percentage of each Commitment of the transferor Lender and of all of the
transferor Lender's rights and obligations under this Agreement and the
other Loan Documents, and each such assignment which transfers any portion
of a Lender's Revolving Credit Commitment must transfer the same percentage
of such Lender's Tranche 1 Commitment and Tranche 2 Commitment;
(iv) each such assignment shall be made pursuant to a Transfer
Supplement in substantially the form of Exhibit C to this Agreement, duly
completed (a "Transfer Supplement").
In order to effect any such assignment, the transferor Lender and the Purchasing
Lender shall execute and deliver to the Agent a duly completed Transfer
Supplement (including the consents required by clause (i) of the preceding
sentence) with respect to such assignment, together with any Note or Notes
subject to such assignment (the "Transferor Lender Notes") and a processing and
recording fee of $2,500; and, upon receipt thereof, the Agent shall accept such
Transfer Supplement. Upon receipt of the Purchase Price Receipt Notice pursuant
to such Transfer Supplement, the Agent shall record such acceptance in the
Register. Upon such execution, delivery, acceptance and recording, from and
after the close of business at the Agent's Office on the Transfer Effective Date
specified in such Transfer Supplement
(x) the Purchasing Lender shall be a party hereto and, to the extent
provided in such Transfer Supplement, shall have the rights and obligations
of a Lender hereunder, and
(y) the transferor Lender thereunder shall be released from its
obligations under this Agreement to the extent so transferred (and, in the
case of an Transfer Supplement
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covering all or the remaining portion of a transferor Lender's rights and
obligations under this Agreement, such transferor Lender shall cease to be a
party to this Agreement) from and after the Transfer Effective Date.
On or prior to the Transfer Effective Date specified in an Transfer Supplement,
the Borrower, at its expense, shall execute and deliver to the Agent (for
delivery to the Purchasing Lender) new Notes evidencing such Purchasing Lender's
assigned Commitments or Loans and (for delivery to the transferor Lender)
replacement Notes in the principal amount of the Loans or Commitments retained
by the transferor Lender (such Notes to be in exchange for, but not in payment
of, those Notes then held by such transferor Lender). Each such Note shall be
dated the date and be substantially in the form of the predecessor Note. The
Agent shall mark the predecessor Notes "exchanged" and deliver them to the
Borrower. Accrued interest and accrued fees shall be paid to the Purchasing
Lender at the same time or times provided in the predecessor Notes and this
Agreement.
(d) REGISTER. The Agent shall maintain at its office a copy of each
Transfer Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive absent manifest error and the
Borrower, the Agent and the Lenders may treat each person whose name is recorded
in the Register as a Lender hereunder for all purposes of the Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) FINANCIAL AND OTHER INFORMATION. The Borrower authorizes the Agent
and each Lender to disclose to any Participant or Purchasing Lender (each, a
"transferee") and any prospective transferee any and all financial and other
information in such Person's possession concerning the Borrower, any Loan Party
and their affiliates which has been or may be delivered to such Person by or on
behalf of the Borrower in connection with this Agreement or any other Loan
Document or such Person's credit evaluation of the Borrower and affiliates. At
the request of any Lender, the Borrower, at the Borrower's expense, shall
provide to each prospective transferee the conformed copies of documents
referred to in Section 4 of the form of Transfer Supplement.
(f) TRANSFEREE OF DESIGNATED LENDER. The Designated Lender shall notify
the Borrower and the Agent of any transfer of all or part of its rights under
this Agreement and the Borrower shall record such transfer on its books. If the
Designated
<PAGE> 137
Lender transfers any of its rights under this Agreement to a
transferee that is organized under the laws of any jurisdiction other than the
United States or any state thereof, the Borrower, in its discretion, or the
Agent, on behalf of the Borrower, may require the transferee to make
representations and covenants similar to those set forth on behalf of the
Designated Lender in Section 2.14(f)(iv) of this Agreement.
9.15. CONFIDENTIALITY. Each of the Agent and the Lenders agree to keep
confidential any information relating to the Borrower received by it pursuant to
or in connection with this Agreement which is (a) trade information which the
Agent and the Lenders reasonably expect that the Borrower would want to keep
confidential, (b) technical information with respect to the Borrower's equipment
or operations, (c) information contained in the contracts described in Schedule
9.15 hereto, (d) financial or environmental information or (e) information which
is clearly marked "CONFIDENTIAL"; PROVIDED, however, that this Section 9.15
shall not be construed to prevent the Agent or any Lender from disclosing such
information (i) to any Affiliate that shall agree to be bound by this obligation
of confidentiality, (ii) upon the order of any court or administrative agency of
competent jurisdiction, (iii) upon the request or demand of any regulatory
agency or authority having jurisdiction over the Agent or such Lender (whether
or not such request or demand has the force of law), (iv) that has been publicly
disclosed, other than from a breach of this provision by the Agent or any
Lender, (v) that has been obtained from any person that is neither a party to
this Agreement nor an Affiliate of any such party, (vi) in connection with the
exercise of any right or remedy hereunder or under any other Loan Document,
(vii) as expressly contemplated by this Agreement or any other Loan Document or
(viii) to any prospective purchaser of all or any part of the interest of any
Lender which shall agree to be bound by the obligation of confidentiality in
this Agreement or the other Loan Documents if such prospective purchaser is a
financial institution or has been consented to by the Borrower, which consent
will not be withheld if such purchaser is not a competitor of the Borrower or an
Affiliate of a competitor of the Borrower.
9.16. GOVERNING LAW; SUBMISSION TO JURISDICTION: WAIVER OF JURY TRIAL;
LIMITATION OF LIABILITY.
(a) GOVERNING LAW. THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS (EXCEPT
TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH OTHER LOAN DOCUMENTS)
SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES.
<PAGE> 138
(b) CERTAIN WAIVERS. THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN
CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN
ALLEGHENY COUNTY, PENNSYLVANIA OR NEW YORK COUNTY, NEW YORK, SUBMITS TO THE
JURISDICTION OF SUCH COURTS, AND TO THE FULLEST EXTENT PERMITTED BY LAW
AGREES THAT IT WILL NOT BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER PARTY TO
BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM);
(ii) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING
OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY
CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED
LITIGATION BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER THE BORROWER;
(iii) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S.
MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE ADDRESS FOR NOTICES DESCRIBED
IN SECTION 9.05 HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN
SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER
MANNER PERMITTED BY LAW); AND
(iv) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED LITIGATION.
(c) LIMITATION OF LIABILITY. TO THE FULLEST EXTENT PERMITTED BY LAW, NO
CLAIM MAY BE MADE BY THE BORROWER AGAINST THE AGENT, ANY LENDER PARTY OR ANY
AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY OR AGENT OF ANY OF THEM FOR ANY
SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF
ANY CLAIM ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
OR ANY STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN
CONNECTION HEREWITH OR THEREWITH (WHETHER FOR BREACH OF CONTRACT, TORT OR ANY
OTHER THEORY OF LIABILITY). THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT
TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER SUCH CLAIM PRESENTLY EXISTS
OR ARISES HEREAFTER AND WHETHER OR NOT SUCH CLAIM IS KNOWN OR SUSPECTED TO EXIST
IN ITS FAVOR. THIS
<PAGE> 139
PARAGRAPH (C) SHALL NOT LIMIT ANY RIGHTS OF THE BORROWER ARISING SOLELY OUT OF
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
[This Space Intentionally Left Blank]
<PAGE> 140
9.17. TERMINATION OF AGREEMENT AMONG SECURED LENDERS. The Lenders and
the Agent hereby agree that the Agreement Among Secured Lenders, as defined in
the Original Agreement, is hereby terminated and shall no longer be applicable
to this Agreement, the Loans, the Collateral or the Security Documents.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement as of the date first
above written.
STEEL DYNAMICS, INC.
By /s/Tracy Shellabarger
----------------------------------------
Title: Vice President
<PAGE> 141
MELLON BANK, N.A., as Lender and as Agent
By /s/Roger Stanier
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $75,000,000.00
Tranche 1
Commitment Percentage: 30.00%
Initial Tranche 2
Committed Amount: $25,000,000.00
Tranche 2
Commitment Percentage: 25.00%
Tranche 3
Committed Amount: $5,000,000.00
Tranche 3
Commitment Percentage: 5.00%
Address for Notices:
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attn: Roger Stanier
Telephone: 412-234-2347
Telecopier: 412-234-8888
<PAGE> 142
KREDITANSTALT FUR WIEDERAUFBAU, as
Lender and as Senior Co-Agent
By /s/ Moellinger
----------------------------------------
Title: Senior Project Manager
By /s/ Radeke
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $0
Tranche 1
Commitment Percentage: 0%
Initial Tranche 2
Committed Amount: $0
Tranche 2
Commitment Percentage: 0%
Tranche 3
Committed Amount: $95,000,000.00
Tranche 3
Commitment Percentage: 95%
Address for Notices:
Palmengartenstrasse 5-9
60325 Frankfurt am Main Germany
Attn: Vera Voelkel
Telephone: 4969 7431 2571
Telecopier: 4969 7431 2016
<PAGE> 143
BANQUE NATIONALE DE PARIS, as Lender
and as Co-Agent
By /s/ Richard Cushing
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $28,571,428.57
Tranche 1
Commitment Percentage: 11.43%
Initial Tranche 2
Committed Amount: $11,428,571.43
Tranche 2
Commitment Percentage: 11.43%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
499 Park Avenue
New York, NY 10022-1278
Attn: Richard Cushing
Telephone: 212-418-8246
Telecopier: 212-418-8269
<PAGE> 144
COMERICA BANK, as Lender and as
Senior Co-Agent
By /s/ Phillip Coosaia
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $35,714,285.71
Tranche 1
Commitment Percentage: 14.29%
Initial Tranche 2
Committed Amount: $14,285,714.29
Tranche 2
Commitment Percentage: 14.29%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
500 Woodward Avenue
MC3269
Detroit, MI 48226
Attn: Phillip Coosaia
Telephone: 313-222-7044
Telecopier: 313-222-9516
<PAGE> 145
NBD BANK, N.A., as Lender and as
Co-Agent
By /s/ Robert Minardo
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $28,571,428.57
Tranche 1
Commitment Percentage: 11.43%
Initial Tranche 2
Committed Amount: $11,428,571.43
Tranche 2
Commitment Percentage: 11.43%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
1 Indiana Square, Suite 302
Indianapolis, IN 46266
Attn: John Otteson
Telephone: 317-266-7914
Telecopier: 317-266-6042
<PAGE> 146
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as Lender and as Co-Agent
By /s/ Hiroaki Nakamura
-------------------------------
Title: Joint General Manager
Initial Tranche 1
Committed Amount: $25,000,000.00
Tranche 1
Commitment Percentage: 10.00%
Initial Tranche 2
Committed Amount: $15,000,000.00
Tranche 2
Commitment Percentage: 15.00%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
277 West Monroe Street, Suite 2600
Chicago, IL 60606
Attn: Steven W. Ryan
Telephone: 312-855-1111
Telecopier: 312-855-8200
<PAGE> 147
BANK AUSTRIA AKTIENGESELLSCHAFT, as Lender
By /s/ J. Anthony Seay
----------------------------------------
Title: Vice President
By /s/ Jeanine Ball
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $17,857,142.86
Tranche 1
Commitment Percentage: 7.14%
Initial Tranche 2
Committed Amount: $7,142,857.14
Tranche 2
Commitment Percentage: 7.14%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
565 Fifth Avenue, 28th Floor
New York, NY
Attn: Jeanine Ball
Telephone: 212-880-1075
Telecopier: 212-880-1080
<PAGE> 148
FORT WAYNE NATIONAL BANK, as Lender
By /s/ Camalyn M. Marsh
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $7,142,857.14
Tranche 1
Commitment Percentage: 2.86%
Initial Tranche 2
Committed Amount: $2,857,142.86
Tranche 2
Commitment Percentage: 2.86%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
110 West Berry Street
Fort Wayne, IN 46802
Attn: Gerald P. Witte
Telephone: 219-426-0555
Telecopier: 219-461-6238
<PAGE> 149
NATIONAL CITY BANK, INDIANA, as
Lender
By /s/ Darlisa E. Davis
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $10,714,285.71
Tranche 1
Commitment Percentage: 4.29%
Initial Tranche 2
Committed Amount: $4,285,714.29
Tranche 2
Commitment Percentage: 4.29%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
101 West Washington Street
Suite 200E
Indianapolis, IN 46255
Attn: Reagan Rick
Telephone: 317-267-3607
Telecopier: 317-267-7965
and
Attn: Darlissa Davis
Telephone: 317-267-
Telecopier: 317-267-
<PAGE> 150
HARRIS TRUST AND SAVINGS, as Lender
By /s/ Peter Krawchuk
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $10,714,285.71
Tranche 1
Commitment Percentage: 4.29%
Initial Tranche 2
Committed Amount: $4,285,714.29
Tranche 2
Commitment Percentage: 4.29%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
111 West Monroe Street, 10th Floor
Chicago, IL 60603
Attn: Peter Krawchuk
Telephone: 312-461-2783
Telecopier: 312-461-5225
<PAGE> 151
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
as Lender
By /s/ Janet P. Sammona
----------------------------------------
Title: Vice President
Initial Tranche 1
Committed Amount: $10,714,285.71
Tranche 1
Commitment Percentage: 4.29%
Initial Tranche 2
Committed Amount: $4,285,714.29
Tranche 2
Commitment Percentage: 4.29%
Tranche 3
Committed Amount: $0
Tranche 3
Commitment Percentage: 0%
Address for Notices:
200 South Orange Avenue
MC 0-1043
Orlando, FL 32801
Attn: Christopher Black
Telephone: 407-327-2467
Telecopier: 407-327-6894
<PAGE> 1
EXHIBIT 11.1
Statement Re: Computation of Per Share Earnings
STEEL DYNAMICS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, -----------------------
---------------------------------- June 29, June 30,
1994 1995 1996 1996 1997
------- ------- ------ ------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding ......................... 20,787 28,083 34,571 30,803 47,851
Adjustment for Staff Accounting Bulletin No. 83 ............. 3,892 (a) 3,892 (a) -- 3,892 (a) --
Dilutive effect for options and warrants .................... N/A N/A N/A N/A N/A
------- -------- ------- -------- --------
Adjusted weighted average shares outstanding ................ 24,679 31,975 34,571 34,695 47,851
======= ======== ======= ======== ========
Income (loss) before income taxes and
extraordinary loss ......................................... $(8,880) $(19,888) $(2,559) $(14,112) $30,154
Extraordinary loss .......................................... -- -- (7,271)
------- -------- ------- -------- --------
Net income (loss) ........................................... $(8,880) $(19,888) $(9,830) $(14,112) $30,154
======= ======== ======= ======== ========
Income (loss) per share before income taxes
and extraordinary loss ..................................... $ (.36) $ (.62) $ (.07) $ (.41) $ .63
Per share effect of extraordinary loss ...................... -- -- (.21)
------- -------- ------- -------- --------
Net income (loss) per share ................................. $ (0.36)(b) $ (0.62)(b) $ (0.28)(b) $ (.41)(b) $ .63 (b)
======= ======== ======= ======== ========
</TABLE>
- ---------------
(a) Net income (loss) per share for the years ended December 31, 1994 and 1995
and the six months ended June 29, 1996 were 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. Net income
(loss) per share for the year ended December 31, 1996 excludes the
anti-dilutive effect of common stock equivalents.
(b) Fully diluted earnings per share is the same as primary earnings per
share.
<PAGE> 1
EXHIBIT 21.1
LIST OF REGISTRANT'S SUBSIDIARIES
Iron Dynamics, Inc.
4500 County Road 59
Butler, IN 46721
Telephone: (219) 868-8000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Steel Dynamics, Inc. at June 30, 1997 and the
Consolidated Statement of Operations for the six months ended June 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,293
<SECURITIES> 0
<RECEIVABLES> 36,989
<ALLOWANCES> 0
<INVENTORY> 56,829
<CURRENT-ASSETS> 117,328
<PP&E> 437,610
<DEPRECIATION> 27,338
<TOTAL-ASSETS> 552,603
<CURRENT-LIABILITIES> 56,652
<BONDS> 199,530
0
0
<COMMON> 479
<OTHER-SE> 294,474
<TOTAL-LIABILITY-AND-EQUITY> 552,603
<SALES> 200,777
<TOTAL-REVENUES> 200,777
<CGS> 150,180
<TOTAL-COSTS> 162,659
<OTHER-EXPENSES> (1,525)
<LOSS-PROVISION> 563
<INTEREST-EXPENSE> 3,995
<INCOME-PRETAX> 35,648
<INCOME-TAX> 5,494
<INCOME-CONTINUING> 30,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,154
<EPS-PRIMARY> (.63)
<EPS-DILUTED> 0
</TABLE>
