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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1996
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-21719
Steel Dynamics, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1929476
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
4500 County Road 59, Butler, IN 46721
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (219) 868-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on February 28,
1997 as reported on the Nasdaq National Market, was approximately, $956,958,020.
As of February 28, 1997, Registrant had outstanding 47,847,901 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be furnished pursuant to Item 10, Item 11 and Item
12 of Part III will be set forth in, and incorporated by reference from, the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held May 21, 1997, (the "1996 Proxy Statement"), which will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year ended December 31, 1996.
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STEEL DYNAMICS, INC.
Table of Contents
<TABLE>
<S> <C> <C> <C>
Part I
Page
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Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 7
Item 3. Legal Proceedings...................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders ................................ 8
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 8
Item 6. Selected Financial Data................................................................ 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 10
Item 8. Consolidated Financial Statements...................................................... 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures........................................... 29
Part III
Item 10. Directors and Executive Officers of the Registrant..................................... 29
Item 11. Executive Compensation................................................................. 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................................. 29
Item 13. Certain Relationships and Related Transactions......................................... 29
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................................ 33
</TABLE>
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PART I
ITEM 1. BUSINESS
(a) General
Steel Dynamics, Inc. (the "Company" or "SDI") is a corporation organized in 1993
under the laws of the State of Indiana. Steel Dynamics' principal executive
offices are located at 4500 County Road 59, Butler, Indiana 46721.
The Company owns and operates a new, state-of-the-art flat-rolled steel
mini-mill, which commenced commercial operations in January 1996. The Company
was founded in September 1993 by Keith E. Busse, Mark D. Millett and Richard P.
Teets, Jr. These individuals 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. Steel Dynamics'
goal is to become the low cost producer of a broad range of flat-rolled steel
products, including hot-rolled, cold-rolled and galvanized sheet, and to serve
more markets than any other flat-rolled mini-mill. In addition, the Company
intends to participate in the development and use of new technologies to produce
a broad range of steel products. Steel Dynamics commenced construction of the
mini-mill in October 1994 and commissioned it in December 1995. Actual
production of commercial grade steel commenced on January 2, 1996.
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 (the "Cold Mill Project"), contiguous to the mini-mill,
with a 1.0 million ton (2,000 pounds) annual capacity which is scheduled for
completion during the second half of 1997. Steel Dynamics also plans to add a
second melting furnace, a second caster and tunnel furnace, and an additional
coiler 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
construction of this addition will commence in 1997. In addition, through its
wholly-owned subsidiary, Iron Dynamics, Inc. ("IDI"), the Company intends to
construct a 520,000 metric tonne (2,204.6 pounds) annual capacity plant for the
manufacture of direct reduced iron ("DRI"). The Company expects this project to
be completed in 1998. The DRI, after further processing into 430,000 tonnes of
liquid pig iron, will be used in SDI's mini-mill as a steel scrap substitute.
IDI is an Indiana corporation.
(b) Industry Segments.
Steel Dynamics operates in the production and sale of hot-rolled and cold rolled
steel coils.
(c) Description of Business.
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. 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. Steel,
regardless of product type, is a commodity affected by 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." 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). With
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.
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In contrast, a mini-mill employs an electric arc furnace ("EAF") 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 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 the Company 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, 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.
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.
The Company's customers currently consist of intermediate steel processors,
steel service centers and end users including manufacturers of cold-rolled
strip, oil and gas transmission pipe, and mechanical and structural tubing. Of
Steel Dynamics' total net sales since the Company commenced operations, 71% 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.
Upon completion of the Cold Mill Project (expected to occur during the second
half of 1997), the Company 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 the Company 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.
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New Product Status
The Cold Mill Project
The Cold Mill Project is under construction adjacent to and south of the
existing hot mill. Design work and equipment specification for the Cold Mill
Project began in November 1995. Site preparation work began in July 1996, and
foundation work began in August 1996. Subject to any unforeseen future events,
construction is scheduled to be completed by the second half of 1997 at a
budgeted cost of approximately $200.0 million.
The IDI Project
The IDI Project consists of the design, construction, and operation of a
facility for the manufacture of DRI for use by Steel Dynamics (or, when desired,
for resale to others) as a steel scrap substitute. The Company has studied and
considered many alternative methods of securing a low cost source of steel scrap
substitute material. Some of these methods are in limited commercial use while
others have not been tested commercially, either for their ability to
successfully yield useable substitute iron units or, even if technologically
successful, their ability to do so at a cost that makes its use as a scrap
substitute commercially feasible. The existing commercial processes differ by
the type of raw feedstock they employ and the type of reductant that is used to
"reduce" the feedstock to useable or semi-finished iron units. The Company
currently intends to use the IDI Process, which uses low cost iron ore fines
that are ultimately reduced to DRI in a rotary hearth furnace using coal as the
reductant. The resulting DRI will be converted into liquid pig iron, intended to
yield a final iron content of 96% (with little sulphur and gangue).
New Project Status
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 electric arc furnace, a second thin-slab caster, a
second tunnel furnace, a second coiler and minor modifications to the meltshop
building. 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 total cost of the Caster Project is estimated to be
approximately $85.0 million. Subject to any unforeseen events, the Company
expects this project to be completed in 1998. All significant components of this
project have been ordered.
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. 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 beginning in the second half of 1997.
Sources and Availability of 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 conditions
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.
Steel scrap is the single most important raw material used in the Company's
steelmaking process, representing approximately 45% to 50% of the direct cost of
a ton of finished steel. All steel scrap, however, is not the same. As it
relates to final product quality, EAF flat-rolled producers, such as the
Company, can only tolerate a maximum .2% level of "residuals" (i.e. non-ferrous
metallic contamination such as copper, nickel, tin, chromium, and molybdenum,
which, once having been dissolved into steel cannot be refined out). In order
for the scrap melt to provide this level of quality under present circumstances
(without the anticipated availability of future scrap substitute products), the
mill must use approximately 60% of "low residual" steel scrap or an equivalent
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material. 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).
The Company uses various grades of higher residual (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 the Company will be able to
introduce the relatively pure pig iron that it expects to obtain from IDI's DRI
(commencing in 1998) and from Qualitech Steel Corporation's ("Qualitech") iron
carbide production facility, Steel Dynamics believes that it will be able to use
greater amounts of lower-priced higher residual scrap in its melt and still
remain within acceptable limits with the use of these scrap substitutes.
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 the
Company, 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. The Company has accomplished this through a
long-term scrap purchase agreement with OmniSource Corporation ("OmniSource"),
and, in addition to its own IDI Project, through a long-term purchase contract
for iron carbide with Qualitech.
Steel Scrap
The Company has entered into a six-year Agreement To Provide Scrap Purchasing
Services And Certain Priority Purchase Rights with OmniSource, an affiliate of
Heavy Metal, L.C., a stockholder of the Company. Pursuant to this agreement,
OmniSource has agreed to act as the Company's exclusive scrap purchasing agent
and to use its best efforts to locate and secure for the Company's mini-mill
such scrap supplies as the Company may from time-to-time wish to purchase, at
the lowest then available market prices for material of like grade, quantity and
delivery dates. The cost to the Company of OmniSource-owned scrap is the price
at which OmniSource, in bona fide market transactions, can actually sell
material of like grade, quality and quantity. With respect to general market
scrap, the cost to the Company is the price at which OmniSource can actually
purchase that scrap in the market (without mark-up or any other additional
cost). For its services, OmniSource receives a commission per gross ton of scrap
received by Steel Dynamics at its mini-mill. All final decisions regarding scrap
purchases belong to the Company, and SDI maintains the sole right to determine
its periodic scrap needs, including the extent to which it may employ steel
scrap substitutes in lieu of or in addition to steel scrap. No commission is
payable to OmniSource for scrap substitutes purchased or manufactured by the
Company.
During 1996, the Company purchased 1,069,000 tons of steel scrap from
OmniSource, and expects to purchase an average of 100,000 to 120,000 tons of
steel scrap per month once full production is reached in 1997. Thereafter,
although SDI expects that its total output in tons of flat-rolled steel coil
will increase from 1.4 million to approximately 2.4 million after the completion
of the Cold Mill and Caster Projects, the Company expects that its receipt of
substantial quantities of steel scrap substitute material, both iron carbide
from Qualitech and DRI from the IDI Project, will mitigate its continued
dependency on low residual steel scrap. Steel Dynamics believes that its scrap
purchasing relationship with OmniSource, an affiliate of one of the Company's
stockholders, provides the Company with excellent access to available steel
scrap within its primary scrap generation area.
Steel Scrap Substitutes
In June 1996, the Company entered into an Iron Carbide Off-Take Agreement (the
"Iron Carbide Agreement") with Qualitech, in whose parent SDI is a 4%
stockholder. The Iron Carbide Agreement is for five years, running from the time
that Qualitech begins commercial production of iron carbide, and is subject to
renewal. Qualitech is building a 660,000 tonne annual capacity iron carbide
facility in Corpus Christi, Texas, of which 300,000 tonnes annually is expected
to be sold to Steel Dynamics at a formula purchase price based on various
components of Qualitech's costs of production, which the Company believes is
favorable, and with a ceiling price which SDI believes will be favorable
relative to the price of steel scrap. The Company will also purchase iron
carbide from Qualitech during Qualitech's ramp-up commencing as early as 1998,
although the amount of iron carbide that SDI can anticipate receiving during
that period is unknown. In addition to the Iron Carbide Agreement, the Company
has formed IDI, which is designing and will construct a 520,000 tonne capacity
rotary hearth-based DRI production facility.
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Energy Resources
Electricity
The plant has an electric service contract with American Electric Power ("AEP")
that extends through 2005. 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 spot market price of
the alternate buyer in order to avoid interruption.
Gas
The Company uses approximately 3,200 decatherms (equivalent to 1 million BTUs or
1000 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. The Company also has an interruptible delivery contract with
NIPSCO/NIFL/Crossroads ("LDC") that extends through December 2000.
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.
Oxygen
Steel Dynamics uses oxygen, as well as nitrogen and argon for production
purposes, which it purchases from Air Products and Chemicals, Inc. ("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.
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 was issued. The registration certificate will be
issued upon submission of an appropriate specimen of the trademark.
Key Customers
The Company's largest customers, Heidtman Steel Products, Inc. ("Heidtman") and
Preussag Stahl AG ("Preussag") are also related parties. They accounted, in the
aggregate, for approximately 48% of Steel Dynamics' total net sales in 1996.
While the loss of either Heidtman or Preussag as a customer, or a significant
reduction in the business generated by Heidtman or Preussag, might have a
material adverse effect on the Company'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 net sales in 1996.
Backlog
The Company's hot-rolled steel coil backlog amounted to $78.8 million (222,800
tons) at December 31, 1996 and $39.1 million (126,000 tons) at December 31,
1995. Both backlog amounts represent orders taken during the Company's
production ramp-up to 1.4 million tons. The 1996 backlog is believed to be
generally firm, and approximately 100% of that amount is expected to be shipped
during 1997.
Competitive Conditions
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
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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 producers' hot-rolled coil
products, as well as a growing number of hot-rolled mini-mills. 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. 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.
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. 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.
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.
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, cash flows 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.
Employees
SDI's work force consisted of 325 employees as of February 28, 1997. In
addition, IDI had two employees as of February 28, 1997. The Company's employees
are not represented by labor unions. The Company believes that its relationship
with its employees is good.
Performance Based Incentive Compensation Program
SDI has established certain incentive compensation programs for its employees,
designed to encourage them to be productive by paying bonuses to groups of
employees, based on various measures of productivity. The programs are designed
to reward employees for productivity efforts. It is not unusual for a
significant amount of an employee's total compensation to consist of such
bonuses.
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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.
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 scrap
and scrap substitutes into finished steel. Costs of scrap and scrap substitutes,
over which the production employees have no control, are not considered.
The Company has also established a cash bonus plan for non-production employees,
including accountants, engineers, secretaries, accounting clerks and
receptionists. Bonuses under the plan are based upon the Company's return on
assets.
Foreign and Domestic Operations and Export Sales
Of the Company's total net sales in 1996, sales outside the continental United
States accounted for less than 5%. Pursuant to the Preussag Purchasing
Agreement, the Company has appointed Preussag its preferred distributor for all
sales to customers outside the United States, Canada and Mexico. 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.
ITEM 2. PROPERTIES
The Company's plant is located on a greenfield site, which is approximately 800
acres, in DeKalb County, Indiana. There are three main buildings that comprise
the mill. They are the meltshop building totaling 103,740 square feet, the
tunnel furnace building totaling 54,511 square feet and the hot mill building
totaling 283,558 square feet. 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. When completed, the Cold Mill facilities will consist of a
continuous pickle line, two hot dipped galvanizing lines, a semi-tandem two
stand reversing mill, batch annealing furnaces and a temper mill. The pickle
line will begin at the existing hot strip mill building. The Cold Mill
facilities will total approximately 550,000 square feet.
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
emission standards. 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 for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in no litigation which would have a material effect on
the results of operations, cash flows or on the financial condition of the
Company.
7
<PAGE> 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under symbol STLD.
The Company's Common Stock has been publicly traded since November 21, 1996, the
effective date of the initial public offering of its Common Stock.
The Company's initial public offering price was $16.00 per share. The high and
low sale prices per share from the first trading day subsequent to the initial
public offering through the end of the year were $21.00 and $16.75,
respectively.
As of December 31, 1996, there were 47,847,901 shares of Common Stock
outstanding and held beneficially by approximately 1,925 stockholders. Because
many of the shares were held by depositories, brokers and other nominees, the
number of record holders (approximately 260) is not representative of the
number of beneficial holders.
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. In addition,
pursuant to a Credit Agreement, as amended, dated as of June 30, 1994, with
Mellon Bank, N.A. and other participating banks, the Company is currently
restricted in its ability to pay cash dividends.
8
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following is selected audited consolidated financial data of the Company for
the period from September 7, 1993 (date of inception) through December 31, 1993
and as of and for the years ended December 31, 1994, 1995 and 1996. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of Steel Dynamics, Inc. and notes thereto contained elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
September 7, 1993
(Date of Inception) December 31,
through -----------------------------------------
December 31, 1993 1994 1995 1996
------------------- ---- ---- ----
(dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................................ $ - $ - $ 137 $252,617
Cost of goods sold .................................. - - 3,169 220,563
--------- --------
Gross profit (loss).................................. - - ( 3,032) 32,054
Selling, general and administrative expenses ........ 1,159 4,192 13,580 13,838
--------- -------- --------- --------
Income (loss) from operations ....................... (1,159) (4,192) (16,612) 18,216
Foreign currency gain (loss)......................... - (4,952) (3,272) 328
Interest expense .................................... (2) (43) (564) (22,684)
Interest income ..................................... 1 307 560 1,581
-------- -------- --------- --------
Loss before extraordinary loss....................... (1,160) (8,880) (19,888) (2,559)
-------- -------- ---------- --------
Extraordinary loss(1)................................ - - - (7,271)
-------- -------- --------- --------
Net loss............................................. $ (1,160) $ (8,880) $(19,888) $ (9,830)
======== ======== ======== =========
Net loss per share................................... $ (.07) $ (.36) $ (.62) $ (.28)
Shares used in computing net loss per share(2)....... 15,931 24,679 31,975 34,571
</TABLE>
<TABLE>
<CAPTION>
September 7, 1993
(Date of Inception) December 31,
through ---------------------------------------
December 31, 1993 1994 1995 1996
------------------ ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 117 $ 28,108 $ 6,884 $ 57,460
Working capital...................................... (29) 8,230 (14,488) 96,142
Net property, plant and equipment.................... 200 54,566 274,197 339,263
Total assets......................................... 521 94,618 320,679 522,291
Long-term debt (including current maturities)........ 800 11,949 223,054 207,343
Stockholders' equity (deficiency).................... (429) 62,536 62,972 264,566
Other Data:
Number of employees.................................. 3 30 214 293
Shares outstanding at year end....................... 13,436 28,060 28,645 47,803
Shipments (net tons)(3).............................. - - - 793,848
Hot band production (net tons)(3).................... - - - 814,561
Prime ton percentage(3).............................. - - - 89.0
Yield percentage(3).................................. - - - 87.4
Effective capacity utilization(3).................... - - - 58.2
Man-hours per net ton produced(3).................... - - - .71
</TABLE>
9
<PAGE> 12
- ----------
(1) The extraordinary loss of approximately $7.3 million relates to the
prepayment of debt with proceeds from the initial public offering.
(2) Net loss per share for the years ended December 31, 1994 and 1995 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 loss per share for the year ended December 31, 1996 excludes the
anti-dilutive effect of common stock equivalents.
(3) Commercial grade production began January 2, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Steel Dynamics, Inc. 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 Keith E. Busse, Mark D. Millett and Richard P. Teets, Jr.
These individuals 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 flat-rolled steel products,
including hot-rolled, cold-rolled and galvanized sheet, and to serve more
markets than any other flat-rolled mini-mill. In addition, the Company intends
to participate in the development and use of new technologies to produce a broad
range of steel products. Steel Dynamics commenced construction of the mini-mill
in October 1994 and commissioned it in December 1995.
Pursuant to the Company's plan to develop downstream processing facilities to
produce further value-added steel products, Steel Dynamics is currently
constructing a cold mill contiguous to the mini-mill, with a 1.0 million ton
annual capacity which is scheduled for completion during the second half of
1997. Steel Dynamics also plans to add a second melting furnace, a second caster
and tunnel furnace, and an additional coiler to expand its annual production
capacity of hot-rolled steel from 1.4 million tons to approximately 2.4 million
tons. The construction of this addition will commence in 1997. In addition,
through Iron Dynamics, Inc. the Company intends to construct a 520,000 tonne
annual capacity plant for the manufacture of direct reduced iron which the
Company expects to be completed in 1998. The DRI, after further processing into
430,000 tonnes of liquid pig iron, will be used in SDI's mini-mill as a steel
scrap substitute.
Management strategically located the Company's mini-mill within close proximity
to its natural customer base, steel service centers and other end users,
abundant supplies of automotive and other steel scrap , 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. The
Company has also sought to assure itself of a secure supply of steel scrap and
scrap substitute. To accomplish this objective, SDI has entered into a long-term
scrap purchasing services contract with OmniSource Corporation, one of the
largest scrap dealers in the Midwest and an affiliate of one of the Company's
stockholders. In addition, the Company has also sought to assure itself of a
secure supply of scrap substitute material for use as a lower cost complement to
steel scrap as part of the Company's melt mix. SDI has entered into a long-term
300,000 tonne per year "off-take" contract to purchase iron carbide from
Qualitech Steel Corporation's iron carbide facility currently under construction
in Corpus Christi, Texas which is expected to be completed in 1998. Additional
scrap substitute material will be provided through the IDI Project.
The Company's business strategy is to use advanced CSP hot-rolled 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.
10
<PAGE> 13
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 second 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 second half of 1997, the Company will be able to manufacture more
value-added products requiring more exacting tolerances, thinner gauges, finer
surface conditions, and galvanized coatings, thereby enabling it to charge
premium prices.
Of the Company's shipments through December 31, 1996, approximately 48% have
been purchased, in aggregate, by Heidtman Steel Products, Inc. and Preussag
Stahl AG pursuant to long-term "off-take" contracts based upon market pricing.
In addition to this stable baseload of demand, the Company is continually
seeking to attract new customers for its products. The Company had 18 customers
at the end of January 1996 and the number of the Company's customers has grown
to 116 at the end of 1996. SDI is also continually seeking to enter new markets.
Steel Dynamics believes that when the Cold Mill Project is completed, it will be
able to broaden its customer base, diversify its product mix and access more
profitable markets.
Cost of Goods Sold
All direct and indirect manufacturing costs are included in cost of goods sold.
The principal elements comprising Steel Dynamics' current cost 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.
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 have led to increased
demand for, and higher prices of, steel scrap. The Company believes that, over
the long-term, prices of steel scrap will continue to be volatile but its price
ranges will likely increase. As a result, Steel Dynamics has pursued a
three-part strategy to secure access to adequate supplies of steel scrap and
lower cost steel scrap substitute materials. First, the Company has entered into
a long-term steel scrap contract with OmniSource. Second, SDI has sought to
assure itself of a secure supply of scrap substitute material as a lower cost
complement for use in the melt mix with steel scrap through its iron carbide
"off-take" contract with Qualitech. Third, the Company is pursuing the IDI
Project to develop DRI.
The Company purchases its electricity from AEP, pursuant to a contract which
extends through 2005. The contract designates a portion of the Company's load as
"firm" with the majority of the load designated as "interruptible". The Company
has a "primary firm" natural gas delivery contract on the Panhandle Eastern
Pipeline that extends through May 2000 and an interruptible delivery contract
with NIPSCO/NIFL/Crossroads that extends through December 2000. The Company
believes the combined negotiated cost of natural gas and its transportation to
be favorable. The Company maintains a liquid propane tank farm on site with
sufficient reserves to sustain operations for approximately two weeks in the
event of an interruption in the natural gas supply. SDI purchases all of its
requirements for oxygen and argon from Air Products and Chemicals, Inc. ("Air
Products"), which built a large plant adjacent to the mini-mill. Air Products
uses its plant to supply other customers as well as the Company. As a result,
the Company has been able to buy its oxygen and argon at what SDI believes to be
favorable prices. Steel Dynamics generally purchases its other raw materials,
such as electrodes and alloys, in the open market from various sources and their
availability and price are subject to market conditions.
For manufacturing plant and equipment, the Company uses the units-of-production
method of depreciation.
The current work force of the Company consists of 327 employees as of February
28, 1997. Of this total, 57 employees relate to the Cold Mill and 2 are employed
by IDI. 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.
11
<PAGE> 14
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. Selling, general and administrative
expenses also include all non-capitalized start-up costs associated with the
construction of the Cold Mill Project, including all labor and benefits,
utilities and general supplies and services. The Company expects that these
costs will increase through the construction and start-up of the Cold Mill
Project. The Company may incur additional selling, general and administrative
expenses as a result of becoming a publicly-held company.
Interest Expense
During the construction of the mini-mill, the costs related to construction
expenditures are considered to be assets qualifying for interest capitalization
under Statement of Financial Accounting Standards ("SFAS") No. 34,
"Capitalization of Interest Cost." Capitalized interest for the year ended
December 31, 1994, 1995 and 1996 was $.3 million, $10.1 million and $1.0
million, respectively. Management expects that a majority of the interest on the
indebtedness incurred to finance the construction of the Cold Mill and the IDI
Projects will be capitalized.
Results of Operations
Net Sales
Net sales totaled approximately $252.6 million for 1996. SDI commenced
commercial production of primary grade steel on January 2, 1996 and has
continued to increase its net sales as its production of prime tons increased.
By the end of December 1996, the Company was operating at an annualized rate of
1,100,000 tons, or 79% of full capacity. In addition, the average sales price
per prime ton increased from $302 for January 1996 to $352 for December 1996.
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.
Cost of Goods Sold
Cost of goods sold totaled approximately $220.6 million, or 87% of net sales,
for 1996. 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
Selling, general and administrative was approximately $4.2 million, $13.6
million and $13.8 million 1994, 1995 and 1996, respectively.
Interest Expense
Interest expense totaled approximately $43,000, $564,000 and $22.7 million for
1994, 1995 and 1996, respectively. The low level of interest expense during 1994
and 1995 reflects the effect of capitalizing interest relating to constructed
assets.
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
commitments for equipment purchases denominated in a foreign currency exist as
of February 28, 1997. Foreign currency loss totaled approximately $5.0 million
and $3.3 million for 1994 and 1995, respectively. In 1996, the foreign currency
gain totaled $328,000.
12
<PAGE> 15
Interest Income
Interest income totaled approximately $307,000, $560,000 and $1.6 million for
1994, 1995 and 1996, respectively.
Extraordinary Loss
The Company used a portion of the net proceeds from its initial public offering
to prepay its subordinated notes in the fourth quarter of 1996. This prepayment
resulted in an extraordinary loss of approximately $7.3 million.
Taxes
At December 31, 1996, the Company had available net operating losses ("NOLs")
for federal income tax purposes of approximately $49.4 million of which $.2
million 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
for net deferred tax assets has been provided. The need for a valuation
allowance will continue to be evaluated in 1997, and if the circumstances
warrant, will be reduced or eliminated.
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. 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 from the
beginning of the year as a result of production and 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 private placements of the
Company's common stock earlier in 1996.
The Company issued $55.0 million principal amount of the subordinated notes
(together with warrants to purchase common stock) to finance a portion of the
construction of the mini-mill. The subordinated notes were repaid in November
1996 with a portion of the net proceeds from the Company's initial public
offering.
The Company's Credit Agreement provides for up to an aggregate of $300.0 million
of senior term loans and a $45.0 million revolving credit facility (the
"Revolving Credit Facility") for working capital purposes, subject to borrowing
base restrictions. Indebtedness outstanding under the Credit Agreement is
secured by a first priority lien on substantially all of the assets of the
Company. Of the $300.0 million in senior term loan commitments, the Company
borrowed $150.0 million for the construction of the mini-mill and $150.0 million
was designated and remains available for the construction of the Cold Mill
Project. As of December 31, 1996, $150.0 million of senior term loans were
outstanding and there were no outstanding borrowings under the Revolving Credit
Facility.
The Company is in the process of renegotiating the terms of the senior term
loans. It is anticipated that the amendment to the Credit Agreement will be
completed in the second quarter of 1997. The Company anticipates the amendment
will include revised pricing and covenants, which the Company believes will be
more favorable than the current agreement.
As of December 31, 1996, the Company's long-term debt (including the current
portion) was approximately $207.3 million. Approximately 72% of this
indebtedness bears interest at floating rates.
13
<PAGE> 16
The Company currently estimates that the funds required for the construction and
start-up of the Cold Mill, IDI and Caster Project will total approximately
$350.0 million.
The Company will use $20.0 million of the $25.4 million of net proceeds it
received from the private placement of its common stock in 1996 to finance a
portion of the IDI Project and intends to finance the remaining $45.0 million
with additional debt. Although IDI is negotiating to obtain the financing
needed, it has not yet secured a commitment. The Company anticipates that the
financing for the IDI project will be secured by the end of the second quarter
in 1997. However, no assurance can be given that the IDI financing commitment
currently being negotiated will be obtained on terms acceptable to the Company,
or at all.
The Company raised approximately $140.2 million (net of expenses) with its
initial public offering in November 1996. Approximately $56.0 million was used
to prepay the subordinated notes, including accrued interest and prepayment
fees. As of December 31, 1996, the Company had approximately $58.0 million
invested in short-term cash investments. This cash will be used to fund the
construction of the Caster Project as the costs of construction are incurred.
Approximately $26.2 million of the IPO proceeds were used for capital and
working capital needs through the end of the year. The Company intends to
finance the Cold Mill Project with cash on hand and borrowings available under
the Credit Agreement.
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. 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.
Inflation
SDI does not believe that inflation has had a material effect on its results of
operations.
14
<PAGE> 17
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................................................. 16
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. 17
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1996...................................................... 18
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended December 31, 1996...................................... 19
Consolidated Statements of Cash Flows for
each of the three years in the period ended December 31, 1996.......................................... 20
Notes to Consolidated Financial Statements............................................................... 21
</TABLE>
15
<PAGE> 18
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
16
<PAGE> 19
STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1996
------------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 6,884 $ 57,460
Accounts receivable, net of allowance for
doubtful accounts of $628 as of December 31, 1996.......................... 125 14,600
Accounts receivable-related parties............................................ 17,860
Inventories.................................................................... 13,580 65,911
Other current assets........................................................... 1,634 1,599
--------- ---------
Total current assets.................................................. 22,223 157,430
PROPERTY, PLANT, AND EQUIPMENT, NET................................................. 274,197 339,263
DEBT ISSUANCE COSTS, less accumulated
amortization of $32 and $1,548 as of December 31, 1995 and 1996, respectively. 12,211 12,405
RESTRICTED CASH..................................................................... 2,666 2,827
OTHER ASSETS ...................................................................... 9,382 10,366
--------- ---------
TOTAL ASSETS.......................................................... $ 320,679 $ 522,291
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 24,478 $ 28,968
Accounts payable-related parties............................................... 3,424 12,218
Accrued interest............................................................... 2,660 338
Accrued foreign currency loss.................................................. 1,013 261
Other accrued expenses......................................................... 3,078 8,597
Current maturities of long-term debt........................................... 2,058 11,175
--------- --------
Total current liabilities............................................. 36,711 61,557
LONG-TERM DEBT, less current maturities............................................. 220,996 196,168
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock voting, $.01 par value; 100,000,000 shares authorized;
28,644,722 and 47,803,341 shares issued and outstanding
as of December 31, 1995 and 1996, respectively............................. 286 478
Additional paid-in capital..................................................... 93,083 303,846
Amounts due from stockholders.................................................. (469)
Accumulated deficit............................................................ (29,928) (39,758)
--------- ---------
Total stockholders' equity............................................ 62,972 264,566
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 320,679 $ 522,291
========= =========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 20
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Net sales:
Unrelated parties ..................... $ 137 $ 130,886
Related parties ....................... 121,731
--------- --------- --------
Total net sales ................... 137 252,617
Cost of goods sold ......................... 3,169 220,563
--------- --------- --------
Gross profit (loss) ..................... (3,032) 32,054
Selling, general and administrative expenses $ 4,192 13,580 13,838
--------- --------- --------
Operating income (loss) .................... (4,192) (16,612) 18,216
Foreign currency gain (loss) ............... (4,952) (3,272) 328
Interest expense ........................... (43) (564) (22,684)
Interest income ............................ 307 560 1,581
--------- --------- --------
Loss before extraordinary loss ............. (8,880) (19,888) (2,559)
Extraordinary loss ......................... (7,271)
--------- --------- --------
Net loss .............................. $ (8,880) $ (19,888) $ (9,830)
========= ========= ========
Loss per share before extraordinary loss ... $ (.36) $ (.62) $ (.07)
Per share effect of extraordinary loss ..... (.21)
--------- --------- --------
Net loss per share .................... $ (.36) $ (.62) $ (.28)
========= ========= ========
Weighted average shares outstanding ........ 24,679 31,975 34,571
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 21
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
====== ======== ======== ========= ========= ========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 22
STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1994 1995 1996
--------- ----------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................. $ (8,880) $ (19,888) $ (9,830)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................... 13 876 19,403
Foreign currency loss (gain) ..................... 4,952 3,272 (328)
Extraordinary loss ............................... 7,271
Changes in certain assets and liabilities:
Accounts receivable ......................... (125) (32,335)
Inventories ................................. (13,580) (52,331)
Other assets ................................ (251) (788) 35
Accounts payable ............................ 691 6,441 13,284
Accrued expenses ............................ 796 4,822 3,197
-------- --------- ---------
Net cash used in operating activities ... (2,679) (18,970) (51,634)
-------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment .......... (43,709) (224,449) (83,720)
Proceeds from government grants ...................... 2,878 21,188 1,558
Purchase of short-term investments ................... (7,000)
Maturities of short-term investments ................. 7,000
Other ................................................ (549) (1,602) (984)
-------- --------- ---------
Net cash used in investing activities ... (41,380) (204,863) (83,146)
-------- --------- ---------
FINANCING ACTIVITIES:
Repayment of vendor/customer advances ................ (800)
Issuance of long-term debt ........................... 13,352 188,430 35,411
Repayments of long-term debt ......................... (57,927)
Issuance of common stock, net of expenses ............ 70,488 15,281 211,424
Debt issuance costs .................................. (10,990) (1,102) (3,552)
-------- --------- ---------
Net cash provided by financing activities 72,050 202,609 185,356
-------- --------- ---------
Increase (decrease) in cash and cash equivalents .......... 27,991 (21,224) 50,576
Cash and cash equivalents at beginning of year ............ 117 28,108 6,884
-------- --------- ---------
Cash and cash equivalents at end of year .................. $ 28,108 $ 6,884 $ 57,460
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................... $ 14 $ 8,000 $ 26,030
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Electric utility transmission facility loan
and other equipment obligation ...................... $ $ 24,349 $
======== ========= =========
</TABLE>
See notes to consolidated financial tatements.
20
<PAGE> 23
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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% and 91% of raw materials and supplies,
and 3% and 9% of finished products as of December 31, 1995 and 1996,
respectively. Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost of acquisition which includes
capitalized interest on construction-in-progress of $10.1 million and $1.0
million in 1995 and 1996, 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, respectively.
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
among other things, requires entities to review long-lived assets for impairment
whenever events or changes in circumstances indicate that their carrying value
may not be recoverable. Adoption of this standard had no effect on the Company's
financial position, results of operations or cash flows in 1996.
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.
21
<PAGE> 24
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Deferred tax assets and liabilities are computed based on differences between
the financial statement and income tax bases of assets and liabilities using
enacted income tax rates. Deferred income tax expense or benefit is based on the
change in deferred tax assets and liabilities from period to period, subject to
an ongoing assessment of realization of deferred tax assets.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, short-term
investments and accounts receivable. The Company places its cash with high
quality financial institutions and limits the amount of credit exposure from any
one institution. Generally, the Company does not require collateral or other
security to support customer receivables.
Foreign Currency Transactions
Transaction gains and losses incurred by the Company for equipment purchases
denominated in a foreign currency are recorded in results of operations
currently.
Net Loss Per Share
Net loss per share for the years ended December 31, 1994 and 1995 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 loss per share for the year ended December 31, 1996 excludes the
anti-dilutive effect of common stock equivalents.
2. PROPERTY, PLANT, AND EQUIPMENT (in thousands)
1995 1996
-------- ---------
Land and improvements............................ $ 5,309 $ 4,757
Buildings and improvements....................... 24,849 27,059
Plant, machinery and equipment................... 242,690 246,023
Construction-in-progress......................... 1,499 78,247
-------- ---------
274,347 356,086
Less accumulated depreciation.................... 150 16,823
-------- ---------
Property, plant, and equipment, net........... $274,197 $ 339,263
======== =========
22
<PAGE> 25
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Senior secured notes payable, principal and interest due semi-annually beginning
in 1997 through 2002, interest is variable (including the effect of the
interest rate cap, the weighted average rate was 8.6% and 8.0%
as of December 31, 1995 and 1996)......................................... $115,000 $150,000
8.01% municipal bond, principal and interest
due monthly through 2015................................................... 21,400 21,100
Electric utility, transmission facility and other equipment obligation at
interest rates ranging from 7% to 8%, collateralized by on-site substation
and related equipment, principal and interest due monthly or
quarterly through 2015..................................................... 37,397 36,243
11% senior subordinated promissory notes........................................ 49,257
-------- --------
Total debt................................................................. 223,054 207,343
Less current maturities......................................................... 2,058 11,175
-------- --------
Long-term debt............................................................... $220,996 $196,168
======== ========
</TABLE>
The Company entered into a credit agreement, as amended, with a syndicate bank
group, on June 30, 1994. Subject to the terms and conditions of the credit
agreement, borrowings of $150 million under senior secured notes were used to
fund the construction of the steel mini-mill, $150.0 million was designated and
remains available at December 31, 1996 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 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.
23
<PAGE> 26
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
Amount
-----------
1997........................................ $ 11,175
1998........................................ 41,376
1999........................................ 47,934
2000........................................ 56,597
2001........................................ 12,112
Thereafter............................ 38,149
---------
$ 207,343
=========
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.
The components of deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1996
----------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 1,002 $ 19,752
Tax assets expensed for books....................... 7,221 8,628
Other accrued expenses.............................. 2,236 3,824
---------- --------
Total deferred tax assets................................ 10,459 32,204
Less valuation allowance................................. (8,071) (11,937)
---------- --------
Net deferred tax assets.................................. 2,388 20,267
Deferred tax liabilities:
Depreciable assets ................................. (2,026) (19,348)
Amortization of fees................................ (41) (435)
Other............................................... (321) (484)
---------- --------
Total deferred tax liabilities........................... (2,388) (20,267)
---------- --------
Net deferred tax assets and liabilities.................. $ - $ -
========== ========
</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 $.2 million in 2009, $2.3 million in 2010 and $46.9
million in 2011. Because of the Company's limited operating history, a valuation
allowance for net deferred tax assets has been provided.
24
<PAGE> 27
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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, respectively.
Eligible individuals under the 1994 Plan may be granted options to purchase the
Company's Class A common stock at an exercise price per share of at least 100%
of fair market value at the date of grant. 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.
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.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1995 1996
--------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ ---------
<S> <C> <C> <C> <C>
1994 Plan
- -------------------------
Outstanding at beginning of year..................... 241,319 $3 572,427 $3
Granted.............................................. 331,108 5 81,374 11
Forfeited............................................ - - 8,418 3
Outstanding at end of year........................... 572,427 3 645,383 4
Options exercisable at end of year................... - - - -
1996 Plan
- -------------------------
Outstanding at beginning of year..................... - - - -
Granted.............................................. - - 94,408 16
Forfeited............................................ - - - -
Outstanding at end of year........................... - - 94,408 16
Options exercisable at end of year................... - - - -
</TABLE>
25
<PAGE> 28
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 loss and net loss
per share would have increased to the pro forma amounts indicated below (in
thousands, except per share data):
Years ended December 31,
---------------------------
1995 1996
----------- --------
Net loss:
As reported.......................... $(19,888) $ (9,830)
Pro forma............................ (19,972) (10,274)
Net loss per share:
As reported.......................... $ (.62) $ (.28)
Pro forma............................ (.63) (.30)
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 $132.0 million as of December 31, 1996.
7. LEGAL PROCEEDINGS
The Company, from time to time, is subject to claims relating to the conduct of
its business. In the opinion of management, any such matters presently
outstanding will not have a material adverse effect upon the Company's financial
position, cash flows or future results of operations.
8. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company sells hot-rolled coils to Heidtman and affiliates of Preussag and
purchases steel scrap resources from OmniSource. Heidtman, Preussag and
OmniSource are stockholders of the Company. During 1996, sales to Heidtman and
Preussag represented 36% and 12%, respectively, of the Company's total net
sales. The Company had sales of $91.8 million and $29.9 million during the
26
<PAGE> 29
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $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 $3.4 million and $12.0
million, respectively. At December 31, 1996, amounts owed to Heidtman and an
affiliate of Preussag totaled $2 million.
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.
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 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.
27
<PAGE> 30
STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except for per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------- ------------------------------------------------
<S> <C> <C> <C> <C>
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.
[INTENTIONALLY LEFT BLANK]
28
<PAGE> 31
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished pursuant to this item will be set forth
under the caption "Nominees (including all executive officers) for election of
Directors and alternate Directors" in the 1996 Proxy Statement, which will be
filed not later than 120 days after the end of the Company's fiscal year with
the Securities and Exchange Commission, and is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item will be set forth
under the caption "Executive Compensation" in the 1996 Proxy Statement, which
will be filed not later than 120 days after the end of the Company's fiscal year
with the Securities and Exchange Commission, and is incorporated herein by
reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished for this item will be provided under
the caption "Security Ownership" of certain beneficial owners and management" in
the 1996 Proxy Statement, which will be filed not later than 120 days after the
end of the Company's fiscal year with the Securities and Exchange Commission,
and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since commencing commercial production of steel in January 1996, through
December 31, 1996, the Company has sold 279,000 tons of its hot bands to
Heidtman Steel Products, Inc. (and its affiliated companies) for $91.8 million,
pursuant to a six-year Purchasing ("off-take") Agreement, dated October 29,
1993. 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 as of the Record Date. Keylock Investments Limited was one of
the Company's initial investors, becoming a stockholder in September 1993.
Pursuant to the Company's agreement with Heidtman, Heidtman has a six-year
obligation to purchase from the Company, and the Company is obligated to sell to
Heidtman, at least 30,000 tons of the Company's hot band products per month.
Heidtman also has priority purchase rights to the Company's secondary and field
claim material. The Company's pricing to Heidtman is determined by reference to
the lowest prices charged by other thin-slab mini-mills or conventional mills
for the same products, and the Company cannot charge Heidtman higher prices than
the lowest prices at which it offers its products to any other customer. In
addition, in 1995 the Company sold approximately 32 unimproved acres of its
plant site to Heidtman for $96,000, for the construction by Heidtman of a steel
center processing and storage facility.
Pursuant to a six-year ("off-take") Agreement with Preussag Stahl AG, dated
December 14, 1995, the Company sold 85,800 tons of its steel coil to Preussag
(or to its affiliate company) for an aggregate of $29.9 million during 1996.
Under this agreement, the Company is obligated to sell to Preussag, and Preussag
is required to purchase, not less than 12,000 tons per month of the Company's
available products, for either domestic or export use or resale, at market
prices determined by reference to the Company's price sheet and by reference to
prevailing competitive market prices charged to large customers by other mills
within the Company's marketing area. In addition, Preussag has been appointed as
the Company's preferred distributor for all export sales to customers outside
the United States, Canada and Mexico. Dr. Jurgen Kolb, a director of the
Company, is a member of the Executive Board of Preussag Stahl AG and Preussag
owns 6,089,865 shares of Common Stock, or 12.7% of the total outstanding shares
as of the Record Date.
Pursuant to a six-year Agreement to Provide Scrap Purchasing Services with
OmniSource Corporation, the Company purchased an aggregate of 1,069,000 tons of
steel scrap for $145.5 million during 1996, and paid OmniSource a total of $1.8
million in fees.
29
<PAGE> 32
Leonard Rifkin is the Chairman of the Board and Chief Executive Officer of
OmniSource and is a member of Steel Dynamics' Board of Directors designated by
the Heavy Metal, L.C. stockholder (the owner of 6,233,926 shares of the
Company's Common Stock, or 13.0% of the total outstanding shares as of the
Record Date. Leonard Rifkin, together with members of his family, and OmniSource
collectively own a controlling interest in Heavy Metal, L.C. 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
also entail use 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 at
which OmniSource can purchase that product. OmniSource is paid a commission per
gross ton of scrap received by the Company at its mini-mill. In addition,
OmniSource maintains a scrap handling facility, with its own equipment and
staff, on the Company's plant site. OmniSource does not pay rent for this
facility.
The Company has also entered into a five-year Iron Carbide Off-Take Agreement
with Qualitech Steel Corporation, dated June 29, 1996, 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. Steel
Dynamics owns approximately 4.3% of the common stock of Qualitech Steel
Holdings, Inc. ("Holdings"), the parent company of Qualitech. In addition, Keith
E. Busse, Leonard Rifkin, and William Laverack, directors of the Company, also
serve on Holdings' 12-member board of directors. OmniSource and Leonard 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'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 subject to certain other exceptions, to sublicense others or to use
any proprietary know-how or other intellectual property that constitutes the
"IDI Process" (as defined) or is part of the "IDI Project" (as defined) 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. Two representatives of Sumitomo serve as directors on IDI's five
person Board of Directors.
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 as of
the Record Date 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.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities
Exchange Act of 1934, Steel Dynamics, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
March 21, 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, and
supplements to this 1996 Annual Report on Form 10-K, filed pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, 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 performs 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 Exchange Act of 1934,
this 1996 Annual Report on Form 10-K has been signed below by the following
persons on behalf of Steel Dynamics, Inc. and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/S/ KEITH E. BUSSE
------------------------------------
Keith E. Busse President & Chief Executive Officer and Director
(Principal Executive Officer)
/S/ TRACY L. SHELLABARGER
------------------------------------
Tracy L. Shellabarger Vice President & Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
/S/ MARK D. MILLETT
------------------------------------
Mark D. Millett Vice President of Melting and Casting and Director
/S/ RICHARD P. TEETS, JR.
------------------------------------
Richard P. Teets, Jr. Vice President of Rolling and Finishing and Director
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
____________________________________
Paul B. Edgerley Director
/S/ WILLIAM D. STRITTMATTER
------------------------------------
William D. Strittmatter Director
/S/ LEONARD RIFKIN
------------------------------------
Leonard Rifkin Director
------------------------------------
John C. Bates Director
____________________________________
William Laverack, Jr. Director
/S/ JURGEN KOLB
------------------------------------
Jurgen Kolb Director
</TABLE>
32
<PAGE> 35
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a.) The following documents are filed as part of this Report:
I. Financial Statements:
See the Audited Consolidated Financial Statements and
Financial Statements Schedules of Steel Dynamics Inc. attached
hereto and described in the Index on page 15 of this Report.
II. Financial Statement Schedules:
See the Audited Consolidated Financial Statements and
Financial Statement Schedules of Steel Dynamics, Inc. attached
hereto and described in the Index on page 15 of this Report.
III. Exhibits:
Exhibit No.
-----------
3.1a Amended and Restated 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.
3.2a Filed as Exhibit 3.2 to the Company's 1996 Form S-1
and incorporated by reference herein.
3.2b* Bylaws of Iron Dynamics, Inc.
10.1a Amended and Restated Credit Agreement between Steel
Dynamics, Inc. and Mellon Bank, N.A., et al.
(including Amendments Nos. 1 through 5 thereto) Filed
as the identically numbered exhibit to the Company's
1996 Form S-1 and incorporated by reference herein.
10.1b Amendment No. 5 to Credit Agreement
Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by reference
herein.
10.1c Amendment No. 6 to Credit Agreement
Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by reference
herein.
10.1d Amendment No. 7 to Credit Agreement Filed as the
identically numbered exhibit to the Company's 1996
Form S-1 and incorporated by reference herein.
10.1e* Amendment No. 8 to Credit Agreement
10.2 Loan Agreement between Indiana Development Finance
Authority and Steel Dynamics, Inc. re Taxable
Economic Development Revenue bonds, Trust Indenture
between Indiana Development Finance Authority and NBD
Bank, N.A., as Trustee re Loan Agreement between
Indiana Development Finance Authority and Steel
Dynamics, Inc. Filed as the identically numbered
exhibit to the Company's 1996 Form S-1 and
incorporated by reference herein.
33
<PAGE> 36
10.3 Contract for electric Service between Steel Dynamics,
Inc. and American Electric Power Company
Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by
reference herein.
10.4 Industrial Gases Supply Agreement between Steel
Dynamics, Inc. and Air Products and Chemicals, Inc.
dated August 5, 1994 Filed as the identically
numbered exhibit to the Company'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
Company'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 Company'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
Company'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
Company'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
Company'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 Company'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 Company'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
Company'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
34
<PAGE> 37
Filed as the identically numbered exhibit to the
Company'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 Company'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
Company'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
Company'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
Company'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
Company'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 Company'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 Company'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
Company'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
Company'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 Company'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 Company'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
Company's 1996 Form S-1 and incorporated by
reference herein.
35
<PAGE> 38
10.27 Stockholders Agreement dated June 30, 1994
Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by
reference herein.
10.28 Amendment No. 1 to Stockholders Agreement
Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by
reference herein.
10.29 Amendment No. 2 to Stockholders Agreement
Filed as the identically numbered exhibit to the
Company's 1996 Form S-1 and incorporated by
reference herein.
10.30 Amendment No. 3 to Stockholders Agreement
Filed as the identically numbered exhibit to the
Company'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
Company'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
Company'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
Company'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
Company'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
Company'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 Company'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, Mesalina Anstalt, et.
al. dated June 30, 1994. Filed as the identically
numbered exhibit to the Company's 1996 Form S-1 and
incorporated by reference herein.
10.38* Employment Agreement between Iron Dynamics, Inc. and
Larry Lehtinen
11.1* Statement re Computation of Per Share Earnings
21.1* List of Registrants' Subsidiaries
23.1* Consent of Deloitte & Touche LLP
36
<PAGE> 39
24.1* Power of Attorney (included in Signature pages)
27.1* Financial Data Schedule
- ---------
* Filed herewith
37
<PAGE> 1
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
IRON DYNAMICS, INC.
I, SUE ANNE GILROY, Secretary of State of Indiana, hereby certify that Articles
of Incorporation of the above corporation have been presented to me at my office
accompanied by the fees prescribed by law; that I have found such Articles
conform to law; all as presented by the provisions of the Indiana Business
Corporation Law, as amended.
NOW, THEREFORE, I hereby issue to such corporation this Certificate of
Incorporation, and further certify that its corporate existence will begin June
12, 1995.
In Witness Whereof, I have
hereunto set my hand and
affixed the seal of the
State of Indiana, at the
City of Indianapolis, this
Twelfth day of June, 1995.
/s/
------
Deputy
<PAGE> 2
ARTICLES OF INCORPORATION 1995060912 Provided by: JOSEPH H. HOGSETT
State Form 4159 (R9 /9-93) APPROVED AND Secretary of State
Approved by State Board of Accounts 1992 FILED Corporations Division
302 W. Washington St.,
Rm. E018
Indianapolis, IN 46204
Telephone: (317) 232-6576
Indiana Code: 23-1-21-2
FILING FEE: $90.00
INSTRUCTIONS: Use 8 1/2 x 11 inch white paper for inserts.
Filing requirements - present original and
one copy to the address in the upper right
corner of this form.
- -------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
- -------------------------------------------------------------------------------
Indicate the appropriate act The undersigned, desiring to form a corporation
(herein after referred to as "Corporation") pursuant to the provisions of:
/X/Indiana Business Corporation Law /X/Indiana Professional Corporation Act 1983
As amended, executes the following Articles of Incorporation:
- -------------------------------------------------------------------------------
ARTICLE I - NAME
- -------------------------------------------------------------------------------
Name of Corporation
Iron Dynamics, Inc.
- -------------------------------------------------------------------------------
(the name must contain the word "Corporation," "Incorporated," "Limited,"
"Company" or an abbreviation of one of these words.)
- -------------------------------------------------------------------------------
ARTICLE II - REGISTERED OFFICE AND AGENT
- -------------------------------------------------------------------------------
Registered Agent: The name and street address of the Corporation's Registered
Agent and Registered Office for service of process are:
- -------------------------------------------------------------------------------
Name of Registered Agent
Keith E. Busse
- -------------------------------------------------------------------------------
Address of Registered Office (street or building) City State ZIP Code
4500 County Road 59 Butler Indiana 46721
- -------------------------------------------------------------------------------
Principal Office: The post office address of the principal office of the
Corporation is:
- -------------------------------------------------------------------------------
Post Office Address City State ZIP Code
4500 County Road 59 Butler IN 46721
- -------------------------------------------------------------------------------
ARTICLE III - AUTHORIZED SHARES
- -------------------------------------------------------------------------------
Number of shares: One Thousand (1,000) common shares, 1 (cent) par value
- -------------------------------------------------------------------------------
ARTICLE IV - INCORPORATORS
[the name(s) and address(es) of the Incorporators of the corporation]
- -------------------------------------------------------------------------------
NAME NUMBER AND STREET CITY STATE ZIP CODE
OR BUILDING
- -------------------------------------------------------------------------------
Robert S. Walters 215 East Berry Street Fort Wayne IN 46802
- -------------------------------------------------------------------------------
In Witness Whereof, the undersigned being all the incorporators of said
corporation execute these Articles of Incorporation and verify, subject to
penalties of perjury, that the statements contained herein are true, this 9th
day of June, 1995.
- -------------------------------------------------------------------------------
Signature Printed name
/s/ Robert S. Walters
- -------------------------------------------------------------------------------
This instrument was prepared by: (name)
Robert S. Walters, Esq.
- -------------------------------------------------------------------------------
Address (number, street, city and state, ZIP)
215 East Berry Street, Fort Wayne, IN 46802
- -------------------------------------------------------------------------------
<PAGE> 1
BYLAWS OF
IRON DYNAMICS, INC.
ARTICLE I
OFFICES
Section 1.1. Principal Office. The principal office of the Corporation
shall be at a place as may be designated by the Board of Directors.
Section 1.2. Other Offices. The Corporation may also have other
offices at such places as the Board of Directors may designate or the business
of the Corporation may require from time to time.
Section 1.3. Registered Office and Agent. The Corporation shall
maintain a Registered Office and Registered Agent as required by the Indiana
Business Corporation Law.
ARTICLE II
SHAREHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the shareholders of
the Corporation shall be held at such place (either within or without the State
of Indiana but which is reasonably convenient for shareholders to attend) and
time (not later than the end of the sixth month following the close of the
fiscal year) as may be fixed by the Board of Directors and designated in the
notice or waiver of notice of the meeting. At the annual meeting, the directors
for the ensuing year shall be elected and all such other business as may
properly be brought before the meeting shall be transacted. The Secretary of
the Corporation shall cause notice of the annual meeting to be given to each
shareholder of record of the Corporation entitled to vote either by delivery to
the shareholder in person or by depositing in the United States mail, postage
prepaid, in an envelope addressed to
<PAGE> 2
the shareholder's address shown in the Corporation's current record of
shareholders, a written or printed notice stating the place, day and hour of
the holding of the meeting. Notices shall be delivered personally or mailed no
fewer than ten (10) nor more than sixty (60) days before the date of the
meeting. If required by any provision of the Indiana Business Corporation Law
or by the Articles of Incorporation of the Corporation or if required by the
Board of Directors, the notice shall also state the purpose or purposes for
which the meeting is called.
Section 2.2. Special Meetings. Special meetings of the shareholders may
be held at the principal office of the Corporation or at any other place which
is reasonably convenient for shareholders to attend, as may be designated in the
notice or waiver of notice of the meeting. Special meetings may be called in
writing by the President, the Secretary or the Board of Directors. In addition,
special meetings may be called by the holders of at least twenty-five percent
(25%) of the outstanding shares of the Corporation entitled to vote upon the
business to be transacted at the meeting, if the holders sign, date and deliver
to the Corporation's Secretary one (1) or more written demands for the meeting
describing the purpose or purposes for which it is to be held. The Secretary of
the Corporation shall cause notice of the holding of a special meeting to be
given to each shareholder of record of the Corporation entitled to vote upon the
business to be transacted at the meeting either by delivery to the shareholder
personally or by depositing in the United States mail, postage prepaid, in an
envelope addressed to the shareholder's address shown in the Corporation's
current record of shareholders, a written or printed notice stating the place,
day, hour, and purpose or purposes for which such meeting is called. Notices
shall be delivered personally or mailed no fewer than ten (10) nor more than
sixty (60) days before the date of such meeting. Only business within the
purpose or purposes described in the notice of the meeting may be conducted at
the
2
<PAGE> 3
meeting, unless all shareholders are present in person or action is taken by
written consent pursuant to Section 2.10.
Section 2.3. Address of Shareholder. The address of a shareholder
appearing upon the Corporation's record of shareholders shall be deemed to be
the latest address of the shareholder that has been furnished in writing to the
Corporation by the shareholder.
Section 2.4. Waiver of Notice. A shareholder may waive notice of any
shareholder's meeting before or after the date and time specified in the notice.
The waiver must be in writing and be delivered to the Corporation for inclusion
in the minutes or filing with the corporate records. A shareholder's attendance
at a meeting: (1) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; and (2) waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
Section 2.5. Quorum. At any meeting of the shareholders the holders of
a majority of the outstanding shares of the Corporation entitled to vote who are
present in person or represented by proxy shall constitute a quorum for the
transaction of business. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is set
or is required to be set under the Indiana Business Corporation Law or
otherwise.
Section 2.6. Voting. Except as the Articles of Incorporation may
otherwise state, at each meeting of the shareholders, every shareholder owning
shares entitled to vote shall have the right to one (1) vote for each such share
standing in his name on the books of the Corporation. The
3
<PAGE> 4
shareholder may vote either in person or by proxy appointed in writing signed
by the shareholder or by the shareholder's duly authorized attorney-in-fact and
delivered to the Secretary of the Corporation or other officer or agent
authorized to tabulate votes at or before the time of the holding of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution unless a longer time is expressly provided therein.
Only shares which are fully paid and nonassessable may be voted. If the
name signed on a vote, consent, waiver, or proxy appointment does not correspond
to the name of its shareholder, the Corporation if acting in good faith is
nevertheless entitled to accept the vote, consent, waiver, or proxy appointment
and give it effect as the act of the shareholder if:
(1) the name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if
the Corporation requests, evidence of fiduciary status acceptable to
the Corporation has been presented with respect to the vote, consent,
waiver, or proxy appointment;
(2) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation
requests, evidence of this status acceptable to the Corporation has
been presented with respect to the vote, consent, waiver, or proxy
appointment;
(3) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to the vote, consent, waiver, or proxy appointment; or
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<PAGE> 5
(4) two (2) or more persons are the shareholder as co-tenants
or fiduciaries and the name signed purports to be the name of at least
one (1) of the co-owners and the person signing appears to be acting on
behalf of all the co-owners.
The Corporation is entitled to reject a vote, consent, waiver, or proxy
appointment if the Secretary or other officer or agent authorized to tabulate
votes, acting in good faith, has reasonable basis for doubt about the validity
of the signature on it or about the signatory's authority to sign for the
shareholder.
Section 2.7. Shareholder List. After the record date for, and more than
five (5) business days before, each shareholders' meeting, the Secretary of the
Corporation shall make, or cause to be made, an alphabetical list of the names
of the shareholders entitled to notice of the meeting, arranged by voting group
(and within each voting group by class or series of shares) and showing the
address of and the number of shares held by each shareholder. The list shall be
available for inspection and copying to the extent provided in the Indiana
Business Corporation Law.
Section 2.8. Fixing of Record Date.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders, to demand a special meeting, or to take any
other action, the Board of Directors may fix in advance a date, not more than
seventy (70) days before the date of such meeting or action, as the record date
for the determination of shareholders. In the absence of such a determination by
the Board of Directors, the date for the determination of shareholders shall be
ten (10) days before the date of the meeting or action.
Section 2.9. Order of Business. The order of business at annual
meetings and, so far as practicable, at all other meetings of shareholders
shall be:
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<PAGE> 6
(a) Proof of due notice of meeting.
(b) Ascertainment of quorum.
(c) Reading and disposal of any unapproved minutes.
(d) Reports of officers and committees.
(e) Unfinished business.
(f) New business.
(g) Election of Directors.
(h) Adjournment.
Section 2.10. Shareholder Action by Consent in Lieu of Meeting. Any
action required or permitted to be taken at any meeting of shareholders may be
taken without a meeting if the action is taken by all the shareholders entitled
to vote on the action. The action must be evidenced by one (1) or more written
consents describing the action taken, signed by all shareholders entitled to
vote on the action, and the written consents delivered to the Corporation for
inclusion in the minutes or filing with the corporate records.
Section 2.11. Meetings by Telephone or Other Means of Communication.
Any or all shareholders may participate in an annual or special shareholders'
meeting by, or through the use of, any means of communication by which all
shareholders participating may simultaneously hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
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<PAGE> 7
ARTICLE III
DIRECTORS
Section 3.1. Powers of Directors; Alternates. All corporate powers
shall be exercised by or under the authority of, and the business and affairs of
the Corporation managed under the direction of, the Board of Directors, subject
to any limitation set forth in the Articles of Incorporation or these bylaws.
Directors shall be elected pursuant to that certain Stock Purchase Agreement
dated September 10, 1996, entered into by Steel Dynamics Holdings, Inc., the
predecessor to Steel Dynamics, Inc., and Sumitomo Corporation and Sumitomo
Corporation of America (AAgreement@). The parties to the Agreement may designate
an alternate director to serve in any and all capacities for and in place of the
director for whom that person is an alternate, in case of the absence or
unavailability of the director. For purposes of these bylaws, any reference to
"director" shall be deemed to include "alternate director." Action taken, in
person or by consent, by any alternate director shall be conclusive of that
person's authority to act for and in place of the regular director, with no
distinction as to power or authority.
Section 3.2. Number. The present number of directors of the
Corporation is five (5). Directors need not be shareholders. Directors shall be
elected at each annual meeting of the shareholders or at a special meeting
called for that purpose. Directors shall be elected pursuant to the provisions
of the Agreement.
Section 3.3. Resignation. A director may resign at any time by
delivering written notice to the Board of Directors, its Chairman (if any), or
the Secretary of the Corporation, and the acceptance of the resignation, unless
required by the terms thereof, shall not be necessary to make it effective. It
shall be effective when the notice is delivered unless the notice specifies a
later effective date.
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<PAGE> 8
Section 3.4. Removal of Directors. Subject to the provisions of this
Agreement, directors designated by SC and SCOA may be removed only with the
consent of SC and SCOA.
Section 3.5. Vacancies. If any vacancy occurs on the Board of
Directors, either of a director or an alternate director, the vacancy shall be
filled pursuant to the terms and conditions of the Agreement. The term of a
director or alternate director elected to fill a vacancy expires at the end of
the term for which the director's or alternate director's predecessor was
elected.
Section 3.6. Regular Meetings. A regular meeting of the Board of
Directors shall be held at the place of (or reasonably near thereto) and
promptly following the annual meeting of the shareholders. Other regular
meetings may be held at the principal office of the Corporation or at any other
place reasonably convenient for directors to attend, at such times and places as
the Board of Directors may fix from time to time. No notice shall be required
for regular Board meetings.
Section 3.7. Special Meetings. Special meetings of the Board of
Directors shall be held at the principal office of the Corporation or at any
other place reasonably convenient for directors to attend whenever called by the
President of the Corporation or by any member of the Board. At least 48 hours'
notice of the meeting specifying the date, time, place, and purpose thereof
shall be given to each director. Notice may be given personally, by written
notice deposited in the United States mail, postage prepaid in an envelope
addressed to such director, or by telephone, telegraph, teletype, or other form
of wire or wireless communication. Notice of the date, time, place, and purpose
of the holding of any special meeting may be waived, before or after the date
and time stated in the notice, by written notice signed by any director and
filed with the minutes or corporate records. A director's attendance at or
participation in any meeting shall constitute a waiver of the notice of the
meeting, unless the director at the beginning of the meeting (or promptly upon
the director's arrival) objects
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<PAGE> 9
to holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 3.8. Conduct of Meetings. The President shall preside at all
meetings of the Board of Directors and the Secretary of the Corporation shall
act as secretary of the Board, but in their absence the directors may appoint
another person to serve.
The order of business at all meetings shall be as follows:
(a) Proof of due notice of the meeting, if notice is
required.
(b) Ascertainment of quorum.
(c) Reading and disposal of any unapproved minutes.
(d) Reports of officers.
(e) Reports of committees.
(f) Unfinished business.
(g) New business.
(h) Adjournment.
Section 3.9. Quorum and Voting. A majority of the actual number of
directors elected and qualified from time to time shall be necessary to
constitute a quorum for the transaction of any business. The act of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a greater number is expressly
required by the Indiana Business Corporation Law, the Articles of Incorporation,
or another provision of these bylaws.
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<PAGE> 10
Section 3.10. Assent by Director to Action Taken at a Meeting. A
director who is present at a meeting of the Board of Directors or a committee of
the Board at which action on any corporate matter is taken is deemed to have
assented to the action taken unless:
(1) the director objects at the beginning of the meeting (or
promptly upon the director's arrival) to holding it or transacting
business at the meeting;
(2) the director's dissent or abstention from the action
taken is entered in the minutes of the meeting; or
(3) the director delivers written notice of the director's
dissent or abstention to the presiding officer of the meeting before
its adjournment or to the Secretary of the Corporation immediately
after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 3.11. Directors' or Committee Action by Consent in Lieu of
Meeting. Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
the action is taken by all members of the Board or committee. The action shall
be evidenced by one (1) or more written consents describing the action taken,
signed by each director, and included in the minutes or filed with the
Corporation's records reflecting the action taken. A written consent is
effective when the last director signs the consent, unless the consent
specifies a different prior or subsequent effective date.
Section 3.12. Meetings by Telephone or Other Communications. The Board
of Directors may permit any or all directors to participate in a regular or
special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may
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<PAGE> 11
simultaneously hear each other during the meeting. A director participating in
a meeting by this means is deemed to be present in person at the meeting.
Section 3.13. Compensation. Each member of the Board of Directors shall
be reimbursed for travel, food and lodging expenses or other out-of-pocket costs
incident to attendance at a Board meeting or otherwise in connection with their
service as a member of the Board.
ARTICLE IV
OFFICERS
Section 4.1. Officers. The officers of the Corporation shall consist of
a President, a Vice President, a Secretary and, if desired by the Board of
Directors, one or more Vice Presidents, all of whom shall be elected annually by
the Board of Directors of the Corporation at the first meeting thereof
immediately following the annual meeting of the shareholders; and they shall
hold office, subject to removal, until their successors are elected and
qualified or the office is eliminated. One person may hold more than one office.
Section 4.2. Removal; Resignations. Any officer of the Corporation may
be removed by the Board of Directors at any time with or without cause. Removal
does not affect the officer's contract rights, if any, with the Corporation. An
officer's resignation does not affect the Corporation's contract rights, if any,
with the officer. The election or appointment of an officer does not itself
create contract rights.
Section 4.3. Compensation. The compensation of the officers of the
Corporation shall be fixed by, or as permitted by, the Board of Directors.
Section 4.4. Duties. The duties of the officers shall be determined
from time to time by the Board of Directors.
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ARTICLE V
CAPITAL STOCK
Section 5.1. Certificates for Shares. Unless the Articles of
Incorporation provide otherwise, all shares of stock of the Corporation shall be
represented by a certificate. The certificates shall be in such form not
inconsistent with the Articles of Incorporation and the Indiana Business
Corporation Law as shall be approved by the Board of Directors. At a minimum,
each certificate must state on its face:
(1) The name of the Corporation and that it is organized under
the law of the State of Indiana;
(2) The name of the person to whom issued; and
(3) The number and class of shares and the designation of the
series, if any, the certificate represents.
Each certificate must be signed by the President and Secretary. Share
certificates which have been signed (whether manually or in facsimile) by
officers may be used and shall continue to be valid even though any individual
whose signature appears on a certificate shall no longer be an officer of the
Corporation at the time of the issue of such certificate.
Section 5.2. Registration of Transfer. Registration of transfer of
shares and issuance of a new certificate or certificates therefor shall be made
only upon surrender to the Corporation and cancellation of a certificate or
certificates for a like number of shares, properly endorsed for transfer,
accompanied by (a) such assurance as the Corporation may require as to the
genuineness and effectiveness of each necessary endorsement, (b) satisfactory
evidence of compliance with all laws
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<PAGE> 13
relating to collection of taxes, and (c) satisfactory evidence of compliance
with or removal of any restriction on transfer of which the Corporation may
have notice.
Section 5.3. Registered Shareholders. As respects the Corporation, its
stock record books shall be conclusive as to the ownership of its shares for
all purposes and the Corporation shall not be bound to recognize adverse
claims.
ARTICLE VI
SEAL
The use of a corporate seal is not required.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board.
ARTICLE VIII
FUNDS
Section 8.1. Depository. The funds of the Corporation shall be
deposited at such Financial institutions or determined by the Board.
Section 8.2. Withdrawal of Funds. The funds of the Corporation may be
withdrawn and disbursed by such officers as may be designated by the Board of
Directors.
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<PAGE> 14
ARTICLE IX
RECORDS
Section 9.1. Records.
(a) The Corporation shall keep as permanent records minutes of all
meetings of the shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the Corporation.
(b) The Corporation shall maintain appropriate accounting records.
(c) The Corporation shall maintain a record of the shareholders, in a
form that permits preparation of a list of the names and addresses of all
shareholders, in alphabetical order by class of shares showing the number and
class of shares held by each.
(d) The Corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(e) The Corporation shall keep a copy of the following records at its
principal office:
(1) The Articles of Incorporation and all amendments to them
currently in effect.
(2) The bylaws and all amendments to them currently in
effect.
(3) The minutes of all shareholders' meetings, and records of
all action taken by shareholders without a meeting, for the past three
(3) years.
(4) All written communications to shareholders generally
within the past three (3) years, including any financial statements
furnished for the past three (3) years as required by the Indiana
Business Corporation Law.
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<PAGE> 15
(5) A list of the names and business addresses of its current
directors and officers.
(6) Its most recent annual report delivered to the Secretary
of State.
Section 9.2. Shareholder's Right to Inspect and Copy; Limitations on
Use. A shareholder may inspect and copy the Corporation's records only as
permitted by the Indiana Business Corporation Law. The shareholder, the
shareholder's agents and attorneys, and any other person who obtains the
information may use and distribute the records and the information only for the
purposes and to the extent permitted by the Indiana Business Corporation Law and
shall use reasonable care to ensure that the restrictions imposed by that Law
are observed.
ARTICLE X
REPORTS
Section 10.1. Annual Financial Reports to Shareholders.
(a) On written request of any shareholder, The Corporation
shall furnish the shareholders annual financial statements, which may
be consolidated or combined statements of the Corporation and one (1)
or more of its subsidiaries, as appropriate, that include a balance
sheet as of the end of the fiscal year, an income statement for that
year, and a statement of changes in shareholders' equity for the year
unless that information appears elsewhere in the financial statements.
If financial statements are prepared for the Corporation on the basis
of generally accepted accounting principles, the annual financial
statements must also be prepared on that basis.
(b) If the annual financial statements are reported upon by a
public accountant, the public accountant's report must accompany them.
If not, the statements must be
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<PAGE> 16
accompanied by a statement of the President or the person responsible
for the Corporation's accounting records:
(1) stating the person's reasonable belief whether
the statements were prepared on the basis of generally
accepted accounting principles and, if not, describing the
basis of preparation; and
(2) describing any respects in which the statements
were not prepared on a basis of accounting consistent with the
statements prepared for the preceding year.
Section 10.2. Reports to Shareholders of Indemnification.
(a) If a corporation indemnifies or advances expenses to a
director under these bylaws or otherwise, in connection with a
proceeding by or in the right of the Corporation, the Corporation shall
report the indemnification or advance in writing to the shareholders
with or before the notice of the next shareholders' meeting.
(b) If the Corporation authorizes the issuance of shares for
promissory notes or for promises to render services in the future, the
Corporation shall report in writing to the shareholders the number of
shares authorized to be so issued with or before the notice of the next
shareholders' meeting.
Section 10.3. Annual Reports to Secretary of State. The Secretary of
the Corporation shall cause each annual report to the Secretary of State of
Indiana to be filed as required by the Indiana Business Corporation Law.
16
<PAGE> 1
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of December 17, 1996, by and among STEEL DYNAMICS, INC., an Indiana corporation
(the "Borrower"), the lenders listed on the signature pages hereof and MELLON
BANK, N.A., a national banking association, as agent for the Lenders under the
Credit Agreement referred to below (the "Agent").
RECITALS:
WHEREAS the Borrower, certain lenders, the Agent, Mellon Bank, N.A., as
Issuing Bank, and certain Co-Agents entered into a Credit Agreement, dated as of
June 30, 1994, as amended as of January 6, 1995, May 22, 1995, June 15, 1995,
November 20, 1995, March 4, 1996, May 20, 1996 and September 18, 1996 (as so
amended, the "Original Agreement"), pursuant to which the Lenders have extended
credit to the Borrower;
WHEREAS, the Borrower and the Lenders (as defined in the Original
Agreement) desire to amend the Original Agreement to make certain changes
therein with respect to rates of interest and letter of credit fees;
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings assigned thereto in the Original Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby agree as follows:
Section 1. Amendments to Sections 2.06 (b) and 2.17 (d) of original
Agreement. (A) Section 2.06 (b) of the Original Agreement is hereby amended by
adding thereto, as a new paragraph (iv) thereof, the following:
(iv) Notwithstanding clause (ii) above, but subject to clause
(iii) above, the Applicable Margin for the Euro-Rate Option for all
Loans for the period from December 23, 1996 through March 31, 1997
shall be 1.25%.
(b) Section 2.17 (d) of the Original Agreement is hereby
amended by adding immediately before the "." at the end of the first sentence
thereof the following: "provided, however, that for the period from December 23,
1996 through March 31, 1997, such fee shall be equal to 0.75% for Trade Letters
of Credit and 1.25% for Standby Letters of Credit".
Section 2. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Lenders that the representations
and warranties set forth in the Original Agreement are true and correct on and
as of the date hereof as if made on and as of the date hereof (except for any
representation or warranty which was expressly limited to an earlier date, in
which case such representations and warranties shall be true and correct on and
as of such earlier date), and that no Event of Default or Potential Default has
occurred and is
<PAGE> 2
continuing or exists on and as of the date hereof.
Section 3. Miscellaneous. (a) This Eighth Amendment upon execution and
delivery hereof by all of the Lenders, the Borrower and the Agent.
(b) The original Agreement, as amended by this Amendment, is
in all respects ratified, approved and confirmed and shall, as so amended,
remain in full force and effect. From and after the date hereof, all references
to the "Agreement" in the Original Agreement and in the other Loan Documents
shall be deemed to be references to the Original Agreement as amended by this
Amendment.
(c) This Amendment shall be deemed to be a contract under the
laws of the State of New York and for all purposes shall be governed by and
construed and enforced in accordance with the laws of said State.
(d) This Amendment 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.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Amendment as of the date first
above written.
STEEL DYNAMICS, INC.
By /s/
----------------------------------------
Tracy Shellabarger
MELLON BANK, N.A., as Lender and as Agent
By /s/
----------------------------------------
Roger N. Stanier, Vice President
KREDITANSTALT FUR WIEDERAUFBAU as
Senior Co-Agent
By /s/ (undecipherable)
----------------------------------------
BANQUE NATIONALE DE PARIS
as Senior Co-Agent
By /s/ (undecipherable)
----------------------------------------
<PAGE> 3
COMERICA BANK
as Senior Co-Agent
By /s/ (undecipherable)
----------------------------------------
BANK ONE INDIANAPOLIS, NATIONAL
ASSOCIATION as Co-Agent
By /s/ (undecipherable)
----------------------------------------
NBD BANK, N.A.
as Co-Agent
By /s/ (undecipherable)
----------------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED
as Co-Agent
By /s/
----------------------------------------
Hiroaki Nakamura, Joint General Manager
BANK AUSTRIA AKTIENGESELLSCHAFT
as Co-Agent
By /s/ (undecipherable)
----------------------------------------
FORT WAYNE NATIONAL BANK
By /s/
----------------------------------------
Gerald P. Witte, Senior Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By /s/ (undecipherable)
----------------------------------------
NATIONAL CITY BANK, INDIANA
By /s/ (undecipherable)
----------------------------------------
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into on this
2nd day of January, 1997, by and between IRON DYNAMICS, INC., an Indiana
corporation (the "Company") and LARRY J. LEHTINEN, a resident of Westlake, Ohio
(the "Employee"), and is joined in by Company's parent, Steel Dynamics, Inc.
("SDI") solely in connection with the obligations described in Section 10(e).
RECITALS
A. The Company intends to develop, implement, and exploit, for its own
and its Affiliates' use, as well as for license to others, one or more processes
(collectively, the "Process"), for the manufacture of a direct reduced iron
("DRI") product (the "Product") intended for use as a scrap steel substitute raw
material for the electric arc furnace production of new steel;
B. The Company further intends to identify, purchase and install
machinery, equipment, and controls (the "Equipment") in a manufacturing
facility which it will design and construct (the "Facility"), in which the
Process will be employed to manufacture the Product;
C. The Company wishes to engage the services of Employee as General
Manager, as contemplated herein, to act as a vice president of the Company with
broad executive duties to directly manage all phases of the Company's design,
construction, start-up, and operation of its Butler, Indiana Facility; and
D. Employee is willing to accept such employment on the terms and
conditions set forth in this Agreement.
ACCORDINGLY, the parties agree as follows:
1. POSITION AND DUTIES. For the term of this Agreement, but subject to
the terms and conditions hereof:
(a) Employment. Employee is hereby employed as the Company's
General Manager, to devote his full business time, skill, attention and
best efforts to the full range of management services associated with
his function as the Company's vice president charged with the
responsibility of developing and implementing the design, construction,
equipment purchase and installation, start-up, and operation of the
Facility, the development and operation of the Process, the
development, perfection, and use of the Product for the efficient and
economical introduction thereof into the melt mix of an electric arc
furnace for the production of new steel and the development and
supervision of the Company's sales, licensing, and sub-licensing
activities (hereinafter, and as further set forth in Section 1(b), the
Employee's "Duties").
<PAGE> 2
(b) Duties. The Employee's Duties shall include, without
limitation (a) the supervision of the Company's Technical Manager and
other technical staff, as well as the Company's advisors and
consultants, in the evaluation and design of the Process itself, from
raw material selection and preparation through melting and reduction of
the DRI, the direction, monitoring, and evaluation of test work and
general Process development and improvement, the reduction to practice
of the Process and the securing of any intellectual property protection
under both United States and non-domestic patent and other intellectual
property laws and regimes, and, in conjunction with the Technical
Manager and other Company and technical staff, advisors, and
consultants, to evaluate and determine the specification and selection
of Equipment, to review and evaluate vendor proposals, and to assist
with Facility design and construction, Equipment installation,
technical commissioning, and subsequent Process development and
improvement, and (b) the development, supervision, and responsibility
for implementation of the Company's Product sales and its licensing
program with Sumitomo Corporation of America and Sumitomo Corporation
pursuant to the Company's License Agreement with those companies, as
well as the Company's development, sales, or other licensing activities
within the "Exempt Territory" as defined in the License Agreement.
For purposes of this Agreement, "full business time"
shall mean full time during regular and, as needed, such extraordinary
hours as may be required from time to time.
The Employee shall not at any time while employed by
the Company or any of its Affiliates, including the Company's parent,
SDI, without the prior consent of the Company's Board of Directors,
knowingly acquire any financial interest in, directly or indirectly,
nor perform any services, whether as an employee, independent
contractor, stockholder, officer, director, principal, agent, partner,
consultant, or otherwise, for the benefit of any person, enterprise or
business in substantial competition with the Company's business or with
its Process or Product.
(c) Company Directorship. As soon as practicable after
Employee commences the performance of his Duties hereunder, but without
requiring the removal of any Company director then holding office, the
Company will use its best efforts to cause Employee to be elected to
the Company's Board of Directors.
(d) Additional Management Titles. Upon the further
determination by the Company's Board of Directors that Employee has
diligently and with professional excellence performed his Duties during
the development, construction, start-up, and initial operation of the
Facility, and the successful commercialization of the Process and the
Product, Employee will be named to the position of a vice-president of
SDI, subject to SDI Board of Directors' approval.
2
<PAGE> 3
2. TERM OF EMPLOYMENT. The term of this Agreement shall be deemed to
have commenced on January _____, 1997 and shall end on December 31, 2001,
subject to the provisions of Sections 5 and 6, and unless sooner terminated
pursuant to Section 7 of this Agreement. By mutual agreement, the parties may
extend the term of employment hereunder, or may succeed this Agreement with
another, but any extension of employment after December 31, 2001, absent a
mutual written extension or new agreement, shall only be deemed employment at
will, on a month-to-month basis, on the same terms and conditions set forth
herein.
3. COMPENSATION. For all services rendered by the Employee hereunder,
the Company shall pay the Employee as follows:
(a) Base Salary. The Company shall pay Employee a base salary
("Base Salary") of One Hundred Twenty Thousand Dollars (US$120,000) per
year, payable in weekly or other periodic installments (not less than
monthly), which shall be paid in accordance with the Company's normal
payroll practices with respect to salaried employees, subject to all
applicable payroll taxes and deductions. The Employee's Base Salary
shall be subject to an annual review and possible increase in
accordance with the usual practices and policies of the Company.
(b) Annual Bonus. During the term hereof, the Company shall
annually or more often review Employee's job performance and will pay
to the Employee an annual bonus ("Bonus"), in an amount not less than
Seventy-eight Thousand Dollars ($78,000) per year for each the first
two (2) years hereof, in such amount as the Board shall determine;
provided, however, that after the second year hereof, notwithstanding
Employee's designation as an officer of SDI in the manner contemplated
by Section 1, the Employee will be entitled to be treated as a
participant under the 1996 Steel Dynamics, Inc. Officer and Manager
Cash and Stock Bonus Plan, at the level of a "Manager" as described in
Section 3.12 therein. In the event that the term of this Agreement is
extended, or that the Agreement is succeeded by another employment
agreement, a portion of the Annual Bonus may be based upon a formula,
as agreed to by the parties, if at all, that might include a return on
assets measure regarding Company profits.
(c) Expense Reimbursement. During the term hereof, the Company
shall pay or reimburse Employee in accordance with the Company's normal
practices for any travel, hotel, and other expenses or disbursements
reasonably incurred or paid by the Employee in conjunction with his
services performed hereunder, upon presentation by Employee of itemized
accounts of such expenditures or such other supporting information as
the Company may from time to time require.
(d) Additional Reimbursements. The Company will reimburse
Employee, promptly upon presentation of paid receipts and/or bills
therefor, for Employee's moving costs, temporary living expenses,
closing costs associated with the sale of his current home and up to
One Thousand Five Hundred Dollars ($1,500) of the actual closing costs
for the
3
<PAGE> 4
purchase of his new home, together with a non-accountable amount of
One Thousand Dollar ($1,000). The Company will also reimburse Employee
for any loss of equity value in his current home, based upon the
higher of two (2) current appraisals (by a certified residential real
estate appraiser with an "MAI" designation or equivalent), from the
gross sale price actually realized upon sale. All reimbursed items
under this Section 3(d), if constituting taxable income to Employee,
shall be reimbursed to him on a grossed-up, tax-effected basis.
(e) Other Benefits. The Company shall provide to Employee the
same benefit package as presently provided by SDI to its employees,
including medical/dental benefits, disability insurance, life
insurance, paid holidays, and profit-sharing or other retirement plans,
including SDI's '401(k) Plan, but, in all cases, subject to the terms
and requirements of each such program or plan, and an annual paid
vacation of three (3) weeks (to be scheduled by agreement with the
Company).
(f) Stock Options. The Employee shall be entitled to and shall
receive from SDI, notwithstanding Employee's appointment as an officer
of SDI as contemplated by Section 1, two (2) Thirty-Thousand Dollar
($30,000.00) Incentive Stock Option grants per year as contemplated by
SDI's 1996 Incentive Stock Option Plan, for "Managers" as set forth in
Section 6.2 thereof, subject to all of the terms and conditions of the
Plan and to the Stock Option Agreement to be entered into between SDI
and the Employee thereunder. The semi-annual Thirty Thousand Dollar
($30,000.00) Option grants shall be measured by the fair market value
on each Grant Date of SDI's Common Stock, as specified under the Plan.
(g) Additional Stock Option and Other Payments. In addition to
the foregoing, and in recognition of Employee's potential loss of
existing compensation and/or employee benefits from his existing
employment, SDI will grant to the Employee, as of the Effective Date of
this Agreement, a one-time stock option grant of 33,600 shares of SDI
common stock pursuant to SDI's 1994 Incentive Stock Option Plan, with
an exercise price equal to fair market value of a share of common stock
determined under the Plan as of the Effective Date, subject in all
respects to the terms and conditions of the 1994 Incentive Stock Option
Plan, except that options for one-third (or 11,200 shares) will become
exercisable within six (6) months after the date of grant, with the
remainder becoming exercisable no later than the fifth anniversary of
the date of grant (unless otherwise further modified as provided
therein). The Employee will also receive, thirty (30) days after the
Effective Date of this Agreement (a) a one-time cash payment of Thirty
Thousand Dollars ($30,000), and (b) an additional cash payment of up to
Fifty Thousand Dollars ($50,000), the latter amount not to exceed the
difference between the anticipated 1996 bonus due to the Employee from
Employee's current employer and the amount of such bonus, if any, that
Employee actually receives on or before February 28, 1997; provided,
however, that the Employee shall make a diligent effort to collect the
full amount of his 1996 bonus. In the event that subsequent to February
28, 1997, the Employee is successful in obtaining his full 1996 bonus,
Employee agrees to repay the Company, if any, of any such duplicate
recovery, less any out-of-pocket
4
<PAGE> 5
expenses which the Employee may have incurred in connection with his
collection of such amount.
4. Effect of Termination of Employment.
(a) If for any reason, other than Employee's voluntary
resignation or termination as a result of Employee's death or
disability pursuant to Section 7 hereof, Employee is terminated prior
to the expiration of the term hereof, the Employee shall continue to
receive his Base Salary, plus his guaranteed or other annual Bonus, as
set forth herein, for the full term of this Agreement, payable in the
same manner as provided hereunder, subject only to Employee's duty to
mitigate under the law.
(b) If the Employee resigns voluntarily or ceases to be
employed by the Company or an Affiliate of the Company for "cause" as
described in Section 7(c) of this Agreement, all payments and benefits
described in Section 3 hereof shall terminate (except to the extent
previously already earned or vested).
(c) If the Employee dies or becomes disabled, as contemplated
by Section 7, 7(a) or 7(b), all further compensation or benefits
described in Section 3 shall immediately cease, except for any death
benefits and/or disability benefits provided under Company's life
insurance and/or disability plans under which Employee is enrolled, and
this Agreement shall be deemed terminated without further liability on
the part of the Company or the Employee; provided, however, that all
Stock Options theretofore granted which have not vested shall be
accelerated and shall thereupon vest immediately, and all Stock Option
rights provided under the 1994 Incentive Stock Option Plan or the 1996
Incentive Stock Option Plan shall transfer to the Employee's personal
representative.
5. CONFIDENTIAL INFORMATION: NON-DISCLOSURE. Except as specifically
permitted hereunder or as otherwise required for the benefit of the Company or
an Affiliate during the course of his employment hereunder, and while in the
employ of the Company or an Affiliate, or thereafter (regardless of how
termination of employment occurs hereunder), the Employee will not communicate
or divulge to or use for the benefit of himself or any other person, firm,
association, business, or enterprise, without the prior written consent of the
Company or the Affiliate, as the case may be, any Confidential Information (as
defined herein), whether in Employee's memory or in written, electronic, or any
other form, developed, owned or otherwise used by the Company or any of its
Affiliates and communicated to or developed, acquired or learned of by the
Employee during the course of or incident to his employment hereunder,
regardless of whether developed by the Employee in whole or in part. All
Confidential Information relating to the business of the Company or any of its
Affiliates, or to any Process or Product, which Employee shall use, encounter,
develop, or come into contact with shall become and remain the sole property of
the Company or its Affiliates.
5
<PAGE> 6
For purposes of this Agreement, and unless and to the extent
that such Confidential Information is required to be publicly disclosed or
becomes generally known to and available for use by the public other than as a
consequence of Employee's fault or the fault of any other person bound by a duty
of confidentiality to the Company or any of its Affiliates, "Confidential
Information" shall include but shall not be limited to information, in any form,
that would constitute a "trade secret" under the Indiana Uniform Trade Secrets
Act (IC [sec.]24-2-3-2) and shall extend to engineering, construction, set-up,
operating, actual and projected cost and other financial data, and production
information, not generally known about the Company and its Affiliates, regarding
its or their services and products, including the Process or the Product,
including information relating to research, development, purchasing, marketing
plans, computer software or programs, any copyrightable material, trade secrets
and proprietary information, Process or Product information, including (but not
limited to) information relating to the Company's DRI Process, its DRI Product,
or any aspect of the manufacture and use thereof, or its direct use or
conversion into a scrap iron substitute material for introduction into the melt
mix of an electric arc furnace in the steel manufacturing process and financial
information of every kind and character. The Employee may disclose Confidential
Information only to the extent that it becomes part of the public domain
otherwise than as a result of Employee's breach hereof, or is required to be
disclosed by operation of legal process or by the law, or consists of
information regarding the iron ore and steel manufacturing industries,
previously known to Employee, including knowledge about iron ore mining,
beneficiating, balling, induration and iron oxide reduction. If the Employee is
required by applicable law or regulation, or by legal process, to disclose any
Confidential Information, he will provide the Company with prompt notice thereof
so as to enable the Company to seek an appropriate protective order to prevent
or limit the effect of such disclosure. Upon termination of his employment
hereunder, the Employee agrees that he will not retain and will deliver to the
Company at such or any other times as the Company may request, all memoranda,
notes, plans, records, reports and other documents, including computer disks or
other electronic media (and all copies thereof) containing Confidential
Information that Employee may then possess or have under his control.
6. EMPLOYEE'S INVENTIONS. In consideration of the compensation and
other benefits payable by the Company and to be received by the Employee
hereunder, and as a condition to and as part of the consideration for Employee's
employment or continued employment hereunder, Employee hereby assigns and
transfers to the Company and agrees that the Company shall be the sole owner of
all inventions, discoveries, computer software programs and systems, processes
(including the Process), production methods and techniques (the "Inventions")
for the manufacture of the Product or for its use in steelmaking, and all
related equipment or devices heretofore or hereafter conceived, developed, or
made by the Employee, either alone or with others, in whole or in part, during
Employee's employment by the Company hereunder, which are useful in or directly
or indirectly related to the Company's business or to its Process or Products,
and which are conceived, developed, or made in the course of Employee's
employment hereunder, or which are developed or made from or by reason of
knowledge gained from or during such employment. The Company's business shall be
understood to encompass the development and implementation of the Process of
manufacturing DRI and using that Product as a scrap steel substitute material in
an electric arc furnace to manufacture new steel. The Company or its affiliates
shall have the right to use all such
6
<PAGE> 7
inventions or to license others to use or sublicense such Inventions, and all
such Inventions hereunder shall be considered as "work made for hire,"
belonging to the Company. This assignment shall include the assignment of all
patent, trademark, or copyright rights as may be obtained thereon, both
domestic and non-domestic, and the Employee agrees, upon request by the Company
and at the Company's expense, at any time during his employment hereunder or
thereafter, regardless of the reason for termination, that he will execute all
necessary or appropriate documents, assignments, applications, and the like,
whether during the term of this Agreement or thereafter, for use in the
preparation, application, prosecution, procurement, and maintenance of any such
domestic and non-domestic patents, trademarks, copyrights and/or patent
applications, trademark applications, and copyright applications as the Company
may desire, including any improvements thereon.
It is understood that all expenses in connection with any such
patents, trademarks, or copyrights, or applications in connection therewith or
improvements thereon, shall be borne by the Company. The Company shall be under
no obligation, however, to protect by patent, trademark, copyright, or
otherwise, any such Invention, except in the exercise of its own discretion, and
only then to such extent as it shall deem desirable. The Employee shall not be
entitled to any additional compensation for such Inventions. The Employee hereby
agrees promptly to disclose in writing to any officers or representatives
designated by the Company all such inventions, and further agrees not to
disclose any such Inventions, except as required by his employment or otherwise
as contemplated hereunder, without the express prior written consent of the
Company. Notwithstanding the foregoing, the provisions hereof shall not apply to
any invention not related to the Company's business and not resulting from any
work performed by the Employee for the Company, and developed by the Employee
entirely on his own time.
7. TERMINATION.
(a) This Agreement shall terminate upon the Employee's death,
except as specifically provided herein.
(b) The Company may terminate the Employee's employment
hereunder, upon thirty (30) days= written notice, if in the opinion of
the Board of Directors, Employee has suffered a physical or mental
disability that has continued or is expected to continue for a period
of one hundred eighty (180) consecutive days, and, as a result thereof,
the Employee will be unable to continue the proper performance of his
duties hereunder. For the purpose of determining disability hereunder,
the Employee agrees to submit to such reasonable physical and mental
examinations, if any, as the Board of Directors may request and for its
information and use.
(c) The Company may terminate the Employee's employment
hereunder Afor cause" (as hereinafter defined). If employment hereunder
is terminated for cause, the Employee's compensation and all other
rights not then vested under this Agreement shall terminate, upon
written notice of termination being given to the Employee. As used
herein,
7
<PAGE> 8
the term "for cause" means the occurrence of any of the following, in
addition to Employee's material non-performance:
(i) Employee's disregard of a direct, material order
of the Board of Directors of the Company, the substance of
which order involves a proper duty of the Employee hereunder;
(ii) Employee's breach of his obligations under
Sections 5 or 6 hereunder; or
(iii) Employee's fraud, dishonesty, or other
misconduct involving dishonesty or moral turpitude
Notwithstanding any termination of employment hereunder, whether for
reasons of non-renewal or otherwise, Employee shall continue to be
bound by the provisions of Sections 5, 6, and 9 hereof, which shall be
deemed to survive any such termination.
8. NOTICE. Any notice to be given by one party to another hereunder
shall be given as follows:
(a) If to the Employee:
Mr. Larry J. Lehtinen
31081 Riviera Lane
Westlake, OH 44145
Telephone: (216) 808-9731
Fax: (216) 808-9732
(b) If to the Company:
Iron Dynamics, Inc.
c/o Keith E. Busse, President
Steel Dynamics, Inc.
4500 County Road 59
Butler, IN 46721
Telephone: (219) 868-8000
Fax: (219) 868-8951
or to such other person, or such other address, or by such other means
as either party shall provide by prior notice to the other hereunder.
Notice shall be deemed effective when personally served, when sent and
confirmed by facsimile (with "hard" copy follow-up by overnight
courier), or one (1) day after dispatch by overnight courier.
8
<PAGE> 9
9. NON-COMPETITION. Employee agrees that during the term of his
employment hereunder and, if this Agreement is neither extended nor renewed,
or, prior to expiration of the term described in Section 2, if Employee
voluntarily resigns, is terminated for cause as described in Section 7(c), or
otherwise continues to receive the compensation to which he is entitled
hereunder, for a period of two (2) years thereafter, he will neither directly
or indirectly, individually or on behalf of any other person, or as a partner,
stockholder, joint venturer, principal, agent, director, officer, employee,
consultant or in any other capacity or relationship, engage in any business or
employment, or aid or endeavor to assist any business or enterprise, which is
competitive with the Company's Process or Products or which operates or plans
to operate a Facility for the manufacture, sale, and/or use of a scrap iron
substitute material for use in steelmaking, within or located less than 200
miles beyond the geographic borders of the continental United States. The
Employee and the Company acknowledge that the foregoing time and geographic
limitations are reasonable, in that Employee has not been previously engaged in
the business of manufacturing the Product or any other scrap steel substitute
material, or of using the Process, that the Company will be doing pioneering
work in the development of its Process and its Product, and that nothing herein
shall be construed to preclude Employee from re-employment in his prior
industry or from engaging in any other endeavor not specifically proscribed
herein. It is agreed, however, that the geographic scope of the limitation is
divisible, and if declared invalid, should be redrawn so as to achieve the
maximum protection permissible for the Company and SDI, regarding the
manufacture, sale, or use of the Product or of any other scrap steel substitute
material.
10. MISCELLANEOUS.
(a) Waiver of Breach. The waiver by either the Company or the
Employee of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach of that or
any other provision hereof by either the Company or the Employee.
(b) Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by the Employee and the
Company and their respective legal representatives, successors and
assigns. Neither this Agreement nor any of the Employee's Duties or
obligations hereunder shall be assignable by the Employee.
(c) Governing Law; Exclusive Venue. This Agreement shall be
interpreted and construed in accordance with the laws of the state of
Indiana, and both the Company and the Employee specifically agree that
any disputes relating hereto shall be adjudicated solely in any state
or federal court in or for DeKalb County, Indiana. It is agreed that
this Agreement shall be construed as an Indiana contract, entered into
in the State of Indiana.
(d) As an inducement to the Company to enter into this
Agreement with Employee, Employee represents and warrants to the
Company that he is legally
9
<PAGE> 10
entitled to enter into this Agreement without violating any
employment, consulting, invention, non-competition or non-disclosure
agreement to which he is a party or by which he is bound, that he has
provided the Company with true, correct, and complete copies of any
agreements that impose any restrictions upon Employee's business or
employment activities, and that he will defend, indemnify and hold the
Company harmless to the extent of any loss, cost, or expense that may
be occasioned by reason of his breach of this representation and
warranty.
(e) In the event that the Company ceases business or that it
otherwise fails to achieve commercialization of the Process and the
Product; or in the event that the Company is not otherwise able to
perform its obligation of employment to Employee hereunder, then, in
lieu of any further liability by the Company hereunder, Employee shall
be entitled to be employed by SDI, in a comparable executive position,
with substantially equivalent compensation and benefits, as those
described in Section 3(a)-(g) hereof, for the balance of the term set
forth in Section 2 hereunder. If SDI tenders such employment offer to
Employee, and Employee does not accept such offer, including a written
contract of employment to supersede this Agreement except for the
provisions of Sections 5, 6, and 9, within thirty (30) days of its
tender to Employee, SDI shall have no further liability to Employee
hereunder.
(f) Complete Agreement. This instrument embodies the complete
agreement and understanding among the parties, written and oral, which
may have related to the subject matter hereof in any way and shall not
be amended orally, but only by the mutual agreement of the parties
hereto, in writing, specifically referencing this Agreement.
(g) Severability. If any provision, paragraph or subparagraph
of this Agreement is adjudged by any court to be void or unenforceable,
in whole or in part, this adjudication shall not affect the validity of
the remainder of this Agreement, and the Agreement shall be given
effect to the maximum extent permitted to accomplish the objectives of
the parties otherwise evident herein.
(h) Counterparts. This Agreement may be executed in one or
more separate counterparts, all of which taken together shall
constitute one and the same agreement.
(i) Effective Date. The Effective Date of this Agreement
shall be the date set forth at the outset hereof.
10
<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
the Employee effective as of the date set forth at the outset of the Agreement.
/s/ Mark D. Millett
IRON DYNAMICS, INC.
"COMPANY"
By: /s/ Mark D. Millett
Title: Vice President
Date: January 2, 1997
/s/ Mark D. Millett
STEEL DYNAMICS, INC.
By: /s/ Mark D. Millett
Title: Vice President
Date: January 2, 1997
(For purposes solely of Section 10(e))
/s/ Larry J. Lehtinen
"EMPLOYEE" Larry J. Lehtinen
Date: January 2, 1997
11
<PAGE> 1
Statement re: Computation of Per Share Earnings Exhibit 11.1
STEEL DYNAMICS, INC.
COMPUTATION OF NET LOSS PER SHARE FOR
YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding............................... 20,787 28,083 34,571
Adjustment for Staff Accounting Bulletin No. 83................... 3,892 3,892 -
Dilutive effect for options and warrants N/A (a) N/A (a) N/A (a)
--------- --------- --------
Adjusted weighted average shares outstanding...................... 24,679 31,975 34,571
========= ========= =========
Loss before extraordinary loss.................................... (8,880) (19,888) (2,559)
Extraordinary loss................................................ - - (7,271)
--------- --------- --------
Net loss.......................................................... $(8,880) $(19,888) $(9,830)
========= ========= ========
Loss per share before extraordinary loss.......................... (.36) (.62) (.07)
Per share effect of extraordinary loss............................ - - (.21)
--------- --------- --------
Net loss per share................................................ $(0.36)(b) $(0.62)(b) (0.28)(b)
========== ========== ==========
</TABLE>
(a) Net loss per share for the years ended December 31, 1994 and 1995 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 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.
38
<PAGE> 1
List of Registrant's Subsidiaries Exhibit 21.1
Iron Dynamics, Inc.
39
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-19541 of Steel Dynamics, Inc. and subsidiary on Form S-8 of our report
dated January 17, 1997, appearing in this Annual Report on Form 10-K of Steel
Dynamics, Inc. and subsidiary for the year ended December 31, 1996.
/S/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 28, 1997
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Steel Dynamics, Inc. at December 31,1996 and the
Consolidated Statement of Operations for the year ended December 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 57,460
<SECURITIES> 0
<RECEIVABLES> 32,460
<ALLOWANCES> 0
<INVENTORY> 65,911
<CURRENT-ASSETS> 157,430
<PP&E> 356,086
<DEPRECIATION> 16,823
<TOTAL-ASSETS> 522,291
<CURRENT-LIABILITIES> 61,557
<BONDS> 196,168
0
0
<COMMON> 478
<OTHER-SE> 264,088
<TOTAL-LIABILITY-AND-EQUITY> 522,291
<SALES> 252,617
<TOTAL-REVENUES> 252,617
<CGS> 220,563
<TOTAL-COSTS> 234,401
<OTHER-EXPENSES> (1,909)
<LOSS-PROVISION> 628
<INTEREST-EXPENSE> 22,684
<INCOME-PRETAX> (2,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,559)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,271)
<CHANGES> 0
<NET-INCOME> (9,830)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
