<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
----
Exchange Act of 1934
For the period ended March 31, 1998
OR
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 (I.R.S. employer
of 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:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
NONE NONE
</TABLE>
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
--- ---
As of May 14, 1998, Registrant had outstanding 49,008,120 shares of Common
Stock.
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STEEL DYNAMICS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 .............. 1
Consolidated Statements of Operations for the three month periods ended
March 31, 1998 and 1997 (unaudited)............................................................ 2
Consolidated Statements of Cash Flows for the three month periods ended
March 31, 1998 and 1997 (unaudited)............................................................ 3
Notes to Consolidated Financial Statements....................................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................... 5
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................. 7
SIGNATURE........................................................................................ 7
</TABLE>
<PAGE> 3
STEEL DYNAMICS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 5,106 $ 8,618
Accounts receivable, net .................................................. 35,897 33,465
Accounts receivable-related parties ....................................... 9,861 11,210
Inventories ............................................................... 65,796 60,163
Deferred taxes ............................................................ 18,379 19,688
Other current assets ...................................................... 4,826 2,158
--------- ---------
Total current assets ............................................. 139,865 135,302
PROPERTY, PLANT, AND EQUIPMENT, NET ............................................ 531,939 491,859
OTHER ASSETS ................................................................... 29,940 13,721
--------- ---------
TOTAL ASSETS ..................................................... $ 701,744 $ 640,882
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................... $ 36,740 $ 39,347
Accounts payable-related parties .......................................... 16,325 15,352
Accrued interest .......................................................... 2,420 2,319
Other accrued expenses .................................................... 9,343 13,366
Current maturities of long-term debt ...................................... 6,332 6,144
--------- ---------
Total current liabilities ........................................ 71,160 76,528
LONG-TERM DEBT, less current maturities ........................................ 253,344 213,397
DEFERRED REVENUE ............................................................... 16,840
DEFERRED TAXES ................................................................. 16,159 13,362
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock voting, $.01 par value; 100,000,000 shares authorized;
49,136,704 and 49,131,273 shares issued and outstanding as of
March 31, 1998 and December 31, 1997, respectively .................. 491 491
Treasury stock, at cost; 135,000 and 75,000 shares as of March 31, 1998 and
December 31, 1997, respectively ..................................... (2,215) (1,236)
Additional paid-in capital ................................................ 334,193 334,164
Retained earnings ......................................................... 11,772 4,176
--------- ---------
Total stockholders' equity ....................................... 344,241 337,595
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 701,744 $ 640,882
========= =========
</TABLE>
See notes to consolidated financial statements.
1
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STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES:
Unrelated parties ..................... $ 87,615 $ 52,165
Related parties ....................... 30,847 45,894
--------- ---------
Total net sales ................... 118,462 98,059
Cost of goods sold ......................... 103,483 73,834
--------- ---------
GROSS PROFIT ............................... 14,979 24,225
Selling, general and administrative expenses 3,897 5,323
--------- ---------
OPERATING INCOME ........................... 11,082 18,902
Interest expense ........................... (3,343) (2,401)
Other income ............................... 4,723 752
--------- ---------
INCOME BEFORE INCOME TAXES ................. 12,462 17,253
Income taxes ............................... 4,866 2,668
--------- ---------
NET INCOME ................................. $ 7,596 $ 14,585
========= =========
BASIC EARNINGS PER SHARE:
Net income per share ....................... $ .16 $ .30
========= =========
DILUTED EARNINGS PER SHARE:
Net income per share ....................... $ .15 $ .30
========= =========
</TABLE>
See notes to consolidated financial statements.
2
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STEEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ...................................................................... $ 7,596 $ 14,585
Adjustments to reconcile net income to net cash provided in operating activities:
Depreciation and amortization ............................................... 6,963 5,691
Foreign currency gain ....................................................... (92)
Deferred taxes .............................................................. 4,106 2,475
Changes in certain assets and liabilities:
Accounts receivable .................................................... (1,083) (8,791)
Inventories ............................................................ (5,633) 19,396
Other assets ........................................................... (2,668) 512
Accounts payable ....................................................... (1,634) 3,140
Accrued expenses ....................................................... (3,924) 1,126
Deferred revenue ....................................................... 1,372
-------- --------
NET CASH PROVIDED IN OPERATING ACTIVITIES .......................... 5,095 38,042
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment ..................................... (46,868) (46,330)
Other ........................................................................... (190) (1)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .............................. (47,058) (46,331)
-------- --------
FINANCING ACTIVITIES:
Issuance of long-term debt ...................................................... 41,252
Repayments of long-term debt .................................................... (1,333) (1,131)
Purchase of treasury stock ...................................................... (979)
Issuance of common stock, net of expenses ....................................... 29 150
Debt issuance costs ............................................................. (518) (11)
-------- --------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES ................... 38,451 (992)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ................................................ (3,512) (9,281)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................................... 8,618 57,460
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................... $ 5,106 $ 48,179
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................................... $ 4,336 $ 3,696
======== ========
Cash paid for taxes .................................................................. $ 838 $
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Investment in Nakornthai Strip Mill received in exchange for the right to use
SDI technology .................................................................. $ 15,468 $
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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STEEL DYNAMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make certain 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. The reported amounts of revenues and expenses during the reporting
period may also be affected by the estimates and assumptions management is
required to make. Actual results may differ from those estimates.
In the opinion of management these estimates reflect all adjustments, consisting
of only normal recurring accruals, including elimination of all significant
intercompany balances and transactions, which are necessary to a fair statement
of the results for the interim periods covered by such statements. Certain
amounts from prior year financial statements have been reclassified to conform
to the current year presentation. These financial statements and notes should be
read in conjunction with the audited financial statements included in the
Company's 1997 Annual Report on Form 10-K.
2. INVENTORIES (in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------- -------
<S> <C> <C>
Raw Materials ...................... $29,106 $22,851
Supplies ........................... 23,721 17,861
Work-in-progress ................... 3,296 6,656
Finished Goods ..................... 9,673 12,795
------- -------
$65,796 $60,163
======= =======
</TABLE>
3. EARNINGS PER SHARE (in thousands)
The following is a reconciliation of the weighted average common shares for the
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
March 31,
----------------------
1998 1997
------ ------
<S> <C> <C>
Basic weighted average common shares ........... 49,002 47,838
Dilutive effect of stock options ............... 449 495
------ ------
Diluted weighted average common shares ......... 49,451 48,333
====== ======
</TABLE>
4. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998 the Company adopted Statement of Financial Accounting
Standard No. 130, "Comprehensive Income", which requires that separate
disclosure of certain items, including foreign currency translation adjustments
and gains and losses on certain securities be shown in the financial statements.
SFAS No. 130 does not require a specific format for the financial statement in
which comprehensive income is reported, but does require that an amount
representing total comprehensive income be reported in that statement. It has
been determined that the Company currently has no amounts which require
classification under comprehensive income.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales increased to $118.5 million in the first quarter of 1998 from $98.1
million in the first quarter of 1997, a 21% increase. The Company shipped 15%
more tons in the first quarter of 1998 as compared to the first quarter of 1997.
During 1997, the Company began producing and shipping value-added Cold Mill
products including pickled and oiled coils, cold-rolled coils, hot-rolled
galvanized coils and cold-rolled galvanized coils. During the first quarter of
1998, the Company shipped 168,330 tons of hot band and 153,379 tons of Cold Mill
product. Shipments of Cold Mill product did not begin until the third quarter of
1997 (44,817 tons).
Cost of Goods Sold
For the first quarter of 1998 and 1997, total cost of goods sold were $103.5
million and $73.8 million, respectively. Gross margin for the first quarter of
1998 and 1997 was $15.0 million and $24.2 million, respectively. As a percentage
of net sales, cost of goods sold was 87% and 75%, respectively. The $40 per ton
decrease in gross margin is primarily attributable to a $25 per ton decrease in
total per ton pricing in conjunction with a $11 per ton increase in scrap costs.
Selling, General and Administrative
Selling, general and administrative expense was $3.9 million and $5.3 million
for the first quarter of 1998 and 1997, respectively. The decrease in selling,
general and administrative expense is primarily due to the reduction in start-up
costs related to expansion projects and the reduction of amortization expense as
a result of the amended credit agreement that was finalized in the second
quarter of 1997.
During the first quarter of 1998, the Company entered into a ten year Reciprocal
License and Technology Sharing Agreement (the "License Agreement") with
Nakornthai Strip Mill Public Co. Limited (NSM) providing NSM with the right to
use the Company's technology in exchange for shares and warrants of NSM stock
valued at $15.5 million. The Company's ownership in NSM is recorded in Other
Assets at its estimated fair value. Income relating to the License Agreement was
deferred and is being recognized in income ratably over the ten year term of the
agreement. Concurrently, the Company entered into a ten year Management Advisory
and Technical Advisory Agreement to provide training and advice to a management
company under contract with NSM to manage NSM's mill in return for $2.0 million
annually. Such amount is payable in advance and is being recognized in income
ratably throughout each year of service.
Interest Expense
Interest expense totaled $3.3 million and $2.4 million for the first quarter of
1998 and 1997, respectively. The additional interest expense is a result of
additional borrowings to finance the expansion projects along with decreased
capitalized interest.
Other Income
Other income was $4.7 million and $1.0 million for the first quarter of 1998 and
1997, respectively. The increase in Other Income is primarily attributable to
nonrecurring services provided by the Company in connection with the NSM
transaction.
Taxes
The provision for income taxes for the first quarter of 1998 and 1997, was $4.9
million and $2.7 million, respectively. The tax provision for 1998 reflects the
Company at the statutory income tax rates. For 1997, the Company's effective tax
rate differed from the statutory rate as a result of the reduction in a deferred
tax valuation allowance.
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.
5
<PAGE> 8
Net cash provided by operating activities totaled $5.1 million for the first
quarter of 1998. The cash provided from operating activities for the first
quarter of 1998 primarily related to net income and deferred taxes. During the
first quarter of 1997, the Company provided net cash of $38.0 million from
operating activities primarily from net income and decreased raw material
inventory due to increasing scrap costs. Management decided to build the raw
material inventory in the first quarter of 1998 due to decreasing scrap costs
and draw down the raw material inventory in the first quarter of 1997 due to
increasing scrap costs. Net cash used in investing activities totaled $47.1
million for the first quarter of 1998 and $46.3 million for the first quarter of
1997. Investing activities primarily consisted of capital expenditures of $46.9
million and $46.3 million for the first quarter of 1998 and 1997, respectively,
for the construction of the Company's existing facilities, the Cold Mill
Project, the Caster Project and the Iron Dynamics Project. Cash provided by
financing activities totaled $38.5 million for the first quarter of 1998 and
cash used in financing activities totaled $992,000 for the first quarter of
1997. The 1998 increase in cash provided by financing activities primarily
relates to the $41.2 million of proceeds from senior term debt. The $48.0
million in cash on hand at the end the first quarter of 1997 was carried over
from the initial public offering proceeds received in the fourth quarter of
1996.
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.
6
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits -
Exhibit 10.40 Management Advisory and Technical Assistance Agreement
between Steel Dynamics, Inc. and NSM Management Co. LLC dated as of
March 12, 1998
Exhibit 10.41 Reciprocal License and Technical Sharing Agreement
Between SDI and Nakornthai Strip Mill Public Company Limited, dated
as of March 12, 1998
(B) Reports on Form 8-K for the quarter ended March 31, 1998 -
None
Item 1 - 5 of Part II are not applicable for this reporting period and have
been omitted.
SIGNATURE
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.
May 15, 1998
STEEL DYNAMICS, INC.
By: /s/ TRACY L. SHELLABARGER
----------------------------------------------
TRACY L. SHELLABARGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
7
<PAGE> 1
MANAGEMENT ADVISORY AND
TECHNICAL ASSISTANCE AGREEMENT
BETWEEN
STEEL DYNAMICS, INC.
AND
NSM MANAGEMENT COMPANY
<PAGE> 2
MANAGEMENT ADVISORY AND
TECHNICAL ASSISTANCE AGREEMENT
THIS MANAGEMENT ADVISORY AND TECHNICAL ASSISTANCE AGREEMENT is made
and entered into as of the _____ day of March, 1998, by and between STEEL
DYNAMICS, INC., a corporation duly organized and existing under the laws of
Indiana, USA, with its principal office at Butler, Indiana,
and
NSM MANAGEMENT CO., a Delaware limited liability company with its principal
office in Singapore, Republic of Singapore.
WITNESSETH THAT,
WHEREAS, NSM is the owner and developer of a new mill, which
combines a mini-mill steel manufacturing plant with contiguous DRI and finishing
facilities for the production of the Products;
WHEREAS, NSM and Management Co. have entered into a Management
Agreement, pursuant to which Management Co. is to have control over the
operation and management of NSM, as more fully set forth therein;
WHEREAS, SDI has designed, built, started-up, and is currently
operating a thin-slab flat-rolled mini-mill in Butler, Indiana, as well as a
cold mill facility and a DRI facility on or contiguous to the same site, and has
accumulated know-how and experience particular to its U.S. Midwestern operations
in connection therewith;
WHEREAS, Management Co. believes that it can better discharge its
duties and obligations to NSM under the Management Agreement if it can obtain
the benefit of SDI's experience and operational and management techniques, so
that it could adapt such experience and techniques to NSM's particular needs, as
Management Co. deems appropriate, and, accordingly, has asked SDI to provide it
with technical and operational consulting services, under the terms and
conditions described herein;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained and to be faithfully performed, SDI and Management Co.
hereby agree as follows:
<PAGE> 3
ARTICLE I
DEFINITIONS
Defined terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Definitions and Rules of Usage
(March 12, 1998), which is incorporated herein by reference as though fully set
forth herein, and the related Rules of Usage shall be applicable hereto.
ARTICLE II
AGREEMENT REGARDING MANAGEMENT ADVICE
AND CONSULTATION BY SDI
2.1 Subject to the provisions of Section 2.2, SDI hereby agrees to:
(a) provide Management Co. with advice and counsel regarding SDI's
management techniques, methodologies, and culture, including employee
relations and incentivization;
(b) advise Management Co., to the best of its knowledge, experience,
and ability, in relation to all problems, studies, evaluations, questions,
issues, inquiries, investigations and matters relating to the actual
operation of the Mill, and to the manufacture of the Products, which
Management Co. may from time to time refer to SDI for its opinion and
advice during the term of this Agreement;
(c) provide Management Co. with reasonable assistance in relation to
the business and practical applications of SDI Technology; and
(d) Upon Management Co.'s request from time to time, provide
Management Co. with such additional assistance as it is entitled to make
available hereunder, as may be reasonably necessary or desirable for the
effective performance of its duties and obligations hereunder;
2.2 It is understood that, in performing its services hereunder, SDI
will:
(a) in general, periodically draw upon its own personnel who are
from time to time available for short-term projects or assignments, and
who are professionally qualified to render advice in relation to the
subject matter of the consultation; and
2
<PAGE> 4
(b) primarily provide training-type advice and consultation to
Management Co., and, subject to Management Co.'s control, supervision, and
direction, to NSM's supervisory and managerial personnel, as well as,
during start-up of the Mill and from time to time thereafter on an
incidental basis regarding the Mill, to a reasonable number of NSM
operating personnel in connection with the foregoing matters, such that
the persons so trained will be able to then train their own people.
2.3 The parties agree that SDI has undertaken no independent study
or analysis of NSM's proposed operations, or of its Mill, its proposed Products,
its technology and equipment, its management structure, the nature of its work
force, its labor relations, the sources and nature of its raw materials, its
markets, its transportation system, or the impact of its Thai culture, legal
system, or tax laws upon its proposed business or upon Mill operations. SDI does
not know whether, and has made no representations to NSM, express or implied, to
the effect that SDI Technology or SDI's techniques and culture are appropriate
for or best suited to NSM's needs. SDI's undertaking herein, is solely to make
available to Management Co., and, through Management Co. to NSM, its own
understandings, experience, and know-how, based upon its own operations, for
Management Co.'s and/or NSM's use, rejection, modification, or adaptation as
Management Co. and/or NSM deems appropriate. The parties likewise agree that SDI
shall have no ongoing monitoring or oversight functions over NSM's Mill
operations.
2.4 The parties further acknowledge and agree that, with regard to
the discharge of SDI's duties and obligations hereunder, SDI has been granted no
power or authority, does not intend to exercise any such power or authority, and
is undertaking no obligations to directly or indirectly manage, control, or
supervise any of NSM's management or operating personnel or any of NSM's
policies, practices, or procedures, to be responsible for achieving
profitability of NSM's Mill or to profitably operate at any particular level, or
to be able to solve any and all problems that may arise or that may be referred
to SDI by Management Co. from time to time for consultation and advice.
Management Co. shall in all instances have total discretion on whether and, if
so, how to implement any SDI advice that it may receive, and shall derive all of
its authority and take all of its directives from, and shall be solely
answerable to, NSM.
3
<PAGE> 5
ARTICLE III
Additional Services
3.1 Reciprocal Right of Access to Technical Information
3.1.1 Upon the written request of the Requesting Party, made from
time to time during the term of this Agreement, and subject to the
execution by the Requesting Party of commercially reasonable
confidentiality and non-disclosure agreements, as contemplated by Article
V, with reasonable safeguards to insure that the Providing Party's
Technology is neither disclosed to nor used for the benefit of persons who
are not themselves authorized to receive such disclosure or to use such
Technology, nor used for purposes other than as specifically contemplated
hereunder, the Providing Party, on a non-exclusive basis, during
reasonable business hours, and when such Technical Assistance will not
unreasonably disrupt the Providing Party's business or production
activities, shall provide the Requesting Party, for use either by NSM at
its Mill, or at any of its other mill sites in Thailand, Malaysia, or the
Philippines, or by SDI at its plants in the U.S., Canada, or Mexico, as
the case may be, access to such Technical Information, including the
right, subject to the Providing Party's judgment regarding the
identification of and the number of persons necessary to provide the
Technical Information (i) to interview certain operating, engineering, or
administrative personnel, (ii) subject to reasonable safeguards and
limitations, to observe processes, procedures or applications, (iii) to
videotape, photograph, draw, diagram, or record such processes, procedures
or applications, (iv) to make photocopies of any pertinent non-copyrighted
materials with respect to such Technical Information, and (v) to copy
digitally stored data, if not copyrighted, relating to the specific
request.
Nothing herein however, or in Sections 2.1 or 3.2, shall be
construed to require SDI to provide NSM with management advice, Technical
Information or Technical Assistance with respect to any person who is not
an employee of the Mill, or at any facility other than the Mill, or to
require NSM to provide SDI with Technical Assistance with respect to any
person who is not an employee of SDI's Butler, Indiana mill, or at any
facility other than its Butler, Indiana facility.
3.1.2 The Providing Party shall be under no continuing obligation to
the Requesting Party, but shall make a good faith effort to update or
revise any Technical Information that has previously been made available
to the Requesting Party.
3.1.3 A Providing Party makes no representation or warranty for any
purpose with respect to Technical Information furnished hereunder, except
that the Providing Party shall use its best efforts to verify that such
Technical Information is the same information and data as is used by it at
the time of access.
4
<PAGE> 6
3.1.4 The Requesting Party shall reimburse the Providing Party for
all reasonable out-of-pocket expenses, including economy class air
transportation, and reasonable lodging and food costs, incurred by the
Providing Party in complying with a request for Technical Information
under this Agreement. The Requesting Party shall not be responsible for
paying any salaries, benefits or per diem charges for employees of the
Providing Party involved in providing the Technical Information.
3.2 Reciprocal Right to Technical Assistance
3.2.1 In order to assist the Requesting Party in understanding
Technical Information furnished under Section 3.1 and to assist the
Requesting Party in the manufacture of the Products to which such
Technical Information relates, and subject to the execution by the
Requesting Party of commercially reasonable confidentiality and
non-disclosure agreements, as contemplated by Article V, with reasonable
safeguards to insure that the Providing Party's Technology is neither
disclosed to nor used for the benefit of persons who are not themselves
authorized to receive such disclosure or to use such Technology, nor used
for purposes other than as specifically contemplated hereunder, the
Providing Party shall, upon receipt of a request of the Requesting Party
made from time to time during the term of this Agreement, provide
reasonable Technical Assistance to personnel employed and specifically
designated by the Requesting Party, subject to the availability of
qualified personnel within the employ of the Providing Party.
3.2.2 In the event the Requesting Party asks the Providing Party to
make its personnel available to provide Technical Assistance at the
Requesting Party's facilities either at the Mill or at SDI's Butler,
Indiana facility, as the case may be, the following terms and conditions
shall apply:
(a) The Parties shall agree upon a mutually acceptable time
schedule for the provision of such services. In the case of an
urgent or emergency situation, the Requesting Party shall so
indicate and shall submit its request for Technical Assistance to
the Providing Party as soon as possible. While the Providing Party
is expected to attempt in good faith to accommodate the Requesting
Party's schedule, the Providing Party shall not be required to
disrupt its operations or incur additional expense in order to do
so.
(b) It is understood that, with respect to the level of the
Providing Party's involvement at the Requesting Party's facility
(including the number of staff, the nature of the expertise
required, and the frequency of perceived need), the main purpose is
for the Providing Party to provide the Requesting Party with a
reasonable amount of initial on-site or other training, primarily
directed to the Requesting Party's supervisory and managerial
personnel
5
<PAGE> 7
(with a focus on "training the trainer"), but that ultimately the
Requesting Party is expected to be able to provide its own ongoing
training and support for its own staff and not to depend upon the
Providing Party on a continuous basis.
(c) The Requesting Party shall receive and make necessary
arrangements for the Providing Party's personnel being sent to the
Requesting Party's facilities and shall reimburse the Providing
Party for all reasonable business class air travel and other living
expenses incurred by such personnel. The Requesting Party shall not
be responsible for salaries, benefits or per diem expenses of the
Providing Party's personnel providing Technical Assistance. The
Requesting Party shall bear all of its own expenses related to such
Technical Assistance.
(d) The personnel of the Providing Party sent to the
Requesting Party's facility to provide Technical Assistance
hereunder, to provide Technical Information pursuant to Section 3.1,
or to provide management advice pursuant to Section 2.1, shall not
be considered for any purpose to be employees, agents or
representatives of the Requesting Party, nor shall they assume any
responsibility for the Requesting Party's manufacture of products.
Such personnel shall not be placed on the Requesting Party's payroll
and the Providing Party shall be required to insure that such
personnel are covered under applicable Workmen's Compensation or
comparable laws, including health and accident insurance policies,
for any injury that may occur to such personnel.
3.2.3 In the event the Requesting Party asks that the Providing
Party accept the Requesting Party's personnel at the facilities of the
Providing Party for the purpose of receiving Technical Assistance, such
assistance shall be made available under the following conditions:
(a) The Parties shall agree upon a mutually acceptable time
schedule for the provision of such services. In the case of an
urgent or emergency situation, the Requesting Party shall so
indicate and shall submit its request for Technical Assistance to
the Providing Party as soon as possible. While the Providing Party
is expected to attempt in good faith to accommodate the Requesting
Party's schedule, the Providing Party shall not be required to
disrupt its operations or incur additional expense in order to do
so.
(b) The Requesting Party shall bear all expenses (including
travel and living expenses as previously described) incurred by the
Requesting Party's personnel assigned to receive Technical
Assistance under this Article,
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<PAGE> 8
plus all other reasonable out-of-pocket training costs incurred by
the Providing Party. The Requesting Party shall not be responsible
for salaries, benefits or per diem expenses of the Providing Party's
personnel providing Technical Assistance.
(c) Technical Assistance shall be provided in such manner as
the Providing Party may allow (a) in accordance with safety
requirements, (b) with due consideration to prevention of
unreasonable disturbance of its manufacturing operations or
production scheduling, and (c) under the guidance of the Providing
Party's personnel.
(d) The personnel of the Requesting Party sent to the
Providing Party's facility to receive Technical Assistance shall not
be considered for any purpose to be employees, agents or
representatives of the Providing Party, nor shall they assume any
responsibility for the Providing Party's manufacture of products.
Such personnel shall not be placed on the Providing Party's payroll,
and the Requesting Party shall be required to insure that such
personnel are covered under its own applicable Workmen's
Compensation or comparable laws, including health and accident
insurance policies, for any injury that may occur to such personnel.
3.2.4 The Providing Party represents and warrants that its personnel
assigned to provide Technical Assistance to the Requesting Party shall be
reasonably qualified to provide such assistance, in accordance with good
professional practice, and shall use their best efforts for said purpose,
but no other warranty with respect to Technical Assistance is or shall be
deemed to be given to the Requesting Party by the Providing Party.
3.3 Upon the request of Management Co., SDI will permit a reasonable
number of representatives of Management Co. and/or of NSM, who have executed
confidentiality agreements (in form and substance mutually agreeable to the
parties), with safeguards to insure that SDI Technology, or, if applicable, IDI
Technology, is neither disclosed to nor used for the benefit of persons who are
not themselves authorized to receive such disclosures or to use such technology,
nor used for purposes other than as specifically contemplated hereunder, to
visit such of SDI's plants or operations, in the United States or elsewhere, as
SDI deems appropriate, at such times and for such reasonable periods during the
term of this Agreement as may be mutually agreed upon, in order for such
representatives to attend training sessions, to learn how to train their own
people, and to study SDI's and/or, if applicable, IDI's manufacturing processes
and management techniques and other technical information relating to the
Products and to the operation of such plants.
3.4 SDI will furnish a mutually agreed upon number of its, or, if
applicable, IDI's experienced and qualified staff, on short-term assignments to
the Mill, at such times and for such periods as may be mutually agreed upon in
order to render management advice, provide Technical
7
<PAGE> 9
Information, or to render Technical Assistance within the scope of this
Agreement. SDI shall have the right to assign, reassign, recall, rotate or
change any of its staff, at reasonable intervals, it being understood that the
parties' primary objective hereunder is to train Management Co.'s and/or NSM's
people to be trainers, so that they will be able to train NSM's actual operating
personnel on an ongoing basis. Nothing herein shall be interpreted to mean that
SDI is required to maintain, nor does SDI intend to maintain, any regular staff
presence or any other permanent or semi-permanent presence or establishment at
NSM's plant in Thailand, or elsewhere, nor any presence for Thai tax purposes.
Management Co. shall, at no cost to SDI or its Subsidiaries,
cause NSM to provide said trainers and technical experts with (i) all necessary
office space and equipment, communication facilities such as telex, telephone or
facsimile between Thailand and the United States, and any similar support, and
(ii) necessary facilities for the conduct of such technical experts.
ARTICLE IV
PAYMENTS BY Management Co. OR NSM
4.1 In consideration of the services to be performed by SDI and/or,
if applicable, by IDI hereunder, Management Co. shall pay or shall cause NSM to
make the following payments to SDI:
(a) An annual fee of Two Million Dollars (US $2,000,000) per year,
payable in advance, the first $2,000,000 of which shall be paid
concurrently with the Closing Date, and succeeding annual payments of
$2,000,000 each payable on each anniversary of the Closing Date, so long
as this Agreement remains in effect; provided that in no event shall
aggregate fees be payable pursuant to this Section 4.l(a) in excess of
Twenty Million Dollars (US $20,000,000) over the ten year term of this
Agreement. In the event that this Agreement is terminated pursuant to the
provisions of Article VIII and such termination occurs subsequent to the
payment of the annual fee hereunder on the anniversary date, any unearned
portion of such fee shall be refunded to NSM (pro rated by the number of
days remaining in the year of termination).
(b) Management Co. shall cause NSM to pay for all costs and expenses
for its representatives, including, but not limited to, economy air
travel, lodging and meal expenses, incurred in connection with each
visitation to an SDI or, if applicable, an IDI plant, as well as in
connection with any of the other training contemplated
8
<PAGE> 10
herein. SDI shall not be responsible for any property damage or bodily
injury which any representatives of Management Co. and/or NSM may sustain
during their stay in the United States, or at such other locations
designated by SDI, unless such damage or injury will have been caused by
gross negligence or willful misconduct of SDI or its personnel. SDI shall
assist Management Co. in acquiring accommodations for the said
representatives, but with no obligation to bear expense for such
accommodation.
(c) In connection with the services to be rendered to Management Co.
and/or to NSM in Thailand, Management Co. shall cause NSM to pay to or
reimburse SDI, with respect to each of said trainers and technical
experts, the expenses of air travel from the United States to Bangkok
and/or to NSM's plant in Thailand, and return, at economy class rates,
together with all out of pocket expenses for food, transportation, and
lodging during each such staff person's stay in Thailand.
(d) All amounts payable under Sections 4.1(c) or (d), shall be due
and payable by NSM to SDI within thirty (30) days after the transmittal by
SDI to Management Co. of invoices with respect thereto. Fees payable
pursuant to Section 4.1(a) or (b) shall be payable in full in advance on
or before the date indicated, and shall be in default if not fully paid
within fifteen (15) days of the due date. Any payment not made when due
shall accrue interest at an annual interest rate of ten percent (10%) from
the date such payment is due until the date such payment is made.
4.2 Except as otherwise agreed upon, all financial obligations
hereunder are Dollar obligations, and Management Co. shall cause all payments
under this Agreement to be made by NSM in that currency via electronic transfer
to SDI's account as specified by SDI, any bank charges inside Thailand to be
borne by NSM.
4.3 Subject only to the following paragraph, SDI shall be
responsible for all U.S. taxes and charges on any payments due and payable under
this Agreement.
If NSM shall be required under the laws of Thailand to deduct
from any payment made to SDI hereunder any income tax which may be levied
against SDI, then Management Co. shall cause NSM to deduct such amounts from the
payments due to SDI hereunder, and Management Co. shall cause NSM to remit to
the relevant tax authorities such income tax; provided, however, that NSM and
Management Co. shall promptly furnish to SDI appropriate tax receipts or other
documentary evidence issued by the competent tax authorities relating to such
payment made by NSM, and showing payment in the name of SDI, so that SDI may
obtain a tax credit in the United States. Recovery of such tax credit shall be
the sole risk and responsibility of SDI. Management Co. agrees that any value
added tax in Thailand on any payments hereunder shall be borne by NSM.
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<PAGE> 11
ARTICLE V
CONFIDENTIALITY
5.1 All Technical Information, technical trade secrets, know-how,
proprietary information, and data furnished or made available by either Party
hereunder (hereinafter "Confidential Information"), will be deemed to be and
will be received by the Requesting Party as confidential and proprietary, so
long as it is identified as such when furnished, and such Confidential
Information is for the Requesting Party's own use as limited herein and is to be
kept confidential, in accordance with the standards set forth in the next
paragraph, by the Requesting Party during and following the expiration or
termination of this Agreement. This Article shall survive expiration or
termination of this Agreement.
Confidential Information shall not be made available, given,
sold or disclosed by the Requesting Party to any other person without the prior
written consent of the Providing Party. Each Party agrees to use its best
efforts to maintain the confidentiality of the Confidential Information
disclosed to it and each shall use no less than the same safeguards as it uses
to protect its own Confidential Information of a similar nature. A Requesting
Party shall disclose Confidential Information received from the Providing Party
only to the Requesting Party's officers, agents, employees, consultants and
advisors whose duties reasonably require familiarity with such information,
provided that the Requesting Party shall first obtain from such persons legally
enforceable undertakings, in form and substance satisfactory to the Providing
Party, not to personally use Confidential Information, or knowledge derived
therefrom, not to disclose it to or for the benefit of any third party and
containing such other protections as the Providing Party shall reasonably
request. Copies of all such undertakings shall be delivered to the Providing
Party, with evidence of its proper adoption and legality. Except as otherwise
agreed by the Parties, the Requesting Party shall be required at its own expense
to take such legal actions as may be reasonably necessary to enforce such
undertakings.
5.2 The confidentiality obligation of the Requesting Party under
Section 3.1 above shall not apply to Confidential Information which:
5.2.1 is or becomes publicly known through no wrongful act of the
Requesting Party or its employees;
5.2.2 is received by the Requesting Party without restriction from a
third party without breach of any obligation of nondisclosure;
5.2.3 is or has been independently developed by the Requesting
Party;
5.2.4 is contained in any published patent or published patent
application or which becomes otherwise published or generally known to
Requesting Party
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<PAGE> 12
through no wrongful act of Requesting Party, from and after the date it
becomes published or generally known; or
5.2.5 is disclosed pursuant to Applicable Law.
ARTICLE VI
OPERATING METHODOLOGIES AND PRODUCT QUALITY
6.1 To the extent that Management Co. determines that such
application or adaptation is appropriate, Management Co. will cause NSM to model
its manufacturing operations after SDI's techniques and methodologies, with such
adaptations thereof and modifications therein as Management Co. shall deem
appropriate, and will endeavor to manufacture NSM's Products to a quality
comparable with similar products manufactured by SDI in accordance with SDI
Technology. Such determinations shall be made by Management Co., based solely
upon its own assessment of whether and to what extent SDI's techniques and
methodologies, and SDI Technology (or, if applicable, IDI Technology), with or
without adaptation or modification, is properly applicable to meet NSM's
particular needs and circumstances.
6.2 Management Co. shall permit SDI, at SDI's request from time to
time, to have access to NSM's plant for inspection, testing, and/or review of
NSM's operations and of its quality control. It is acknowledged and agreed,
however, that SDI shall have no continuing or ongoing obligation to approve,
evaluate, monitor, verify, warrant, or vouch for NSM's operating technique and
methodologies, or of its Product quality, nor to monitor or report on NSM's
manufacturing operations, or its compliance with SDI operating procedures or SDI
Technology.
6.3 It is further acknowledged and agreed that neither Management
Co. nor NSM, nor anyone active on its behalf, whether in the spoken or written
word and whether in securities offerings or filings or in the sale and marketing
of its Products, shall misrepresent nor make any untrue statement of a material
fact, or omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made, not
misleading, regarding the relationship between SDI and NSM, or state, suggest or
imply that SDI manages NSM, exerts management influence or control over NSM,
supervises the operations of NSM or approves or certifies NSM's quality
standards or its compliance with SDI operating procedures or SDI Technology.
6.4 Neither Management Co. nor NSM shall have any right, power, or
authority, by reason of any right granted hereunder or otherwise, to use or
employ SDI's name, any SDI trademark (whether statutory or common law), or any
other trade dress or reference to SDI, in any testimonial, advertisement,
publication, electronic medium, or any other format, without SDI's prior written
approval.
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<PAGE> 13
ARTICLE VII
EFFECTIVE DATE
Although this Agreement has been executed by the Parties on the date
first above written, it shall become effective on and as of the Closing Date.
ARTICLE VIII
DURATION AND TERMINATION; DEFAULT
8.1 Unless sooner terminated as otherwise provided in this
Agreement, this Agreement shall remain in effect and continue for a period of
ten (10) years from the Closing Date.
8.2 Notwithstanding the provisions of Paragraph 8.1 and without
prejudice to any other right and remedy that one Party may have against the
other Party for material breach or non-performance of this Agreement, this
Agreement may be terminated:
(a) by either Party upon sixty (60) days' written notice if the
other Party shall violate any of the provisions or conditions of this
Agreement and shall fail to discontinue or remedy such violation within
said period of sixty (60) days of the date of such notice;
(b) by either Party immediately if the other Party shall become
bankrupt pursuant to the judgment of a court of competent jurisdiction.
8.3 In the event that either Party fails to perform any material
obligation or undertaking to be performed by it under this Agreement, and such
failure shall not be cured within sixty (60) days after written notice thereof
from the other Party, then a default shall have occurred hereunder and, in
addition to the right to terminate described in Section 8.2, and subject to the
provisions of Section 4.1(a) regarding the abatement of management fees for the
year of default, the non-defaulting Party shall have no right to assert any
claim for monetary damages, either in contract or in tort for ordinary
negligence. NSM, however, shall be entitled to assert a claim for monetary
damages in the event of SDI's gross negligence or willful misconduct,
notwithstanding NSM's termination of this Agreement pursuant to Section 8.2,
limited, however, to a claim for actual damages not exceeding the amount of the
annual fee payable pursuant to Section 4.1(a) during the year of default.
8.4 Expiration or termination of this Agreement for any reason shall
not in any case operate to relieve either Party from its responsibility to
fulfill any obligations under the provisions of this Agreement which shall have
accrued to such party prior to the time of such expiration or termination.
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<PAGE> 14
ARTICLE IX
ASSIGNMENT
Neither this Agreement nor any rights or benefits hereunder shall be
assignable or transferable to any third party, in whole or in part, by either
Party, without the prior written consent of the other Party. In the event of
assignment by operation of law, absent consent by the other Party, this
Agreement shall thereupon automatically terminate without notice.
ARTICLE X
WAIVER OF COMPLIANCE
Any failure by either Party to enforce, at any time or for any period of
time, any of the provisions of this Agreement shall not constitute or be
construed as a waiver of that party's right thereafter to enforce each and every
provision of this Agreement.
ARTICLE XI
GOVERNMENTAL REGULATIONS AND FORCE MAJEURE
11.1 Any obligation of either Party hereunder shall be subject to
Applicable Law, respecting the export, import or disclosure of materials,
products, SDI Technology, or NSM Technology.
11.2 Upon the occurrence of an event of Force Majeure, the following
provisions shall apply:
(a) The Party who believes that his performance is excused by such
event of Force Majeure shall give written notice to the other as soon as
possible and with sufficient detail to permit the other to minimize
inconvenience and expense.
(b) Both Parties will cooperate to minimize the financial
consequences of such event of Force Majeure.
(c) Either Party hereto shall have the right to request the
termination of this Agreement if such event of Force Majeure continues for
a period greater than 180 days.
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<PAGE> 15
ARTICLE XII
ARBITRATION
12.1 In the event of any disputes, controversies or differences
which may arise among the parties, out of or in relation to or in connection
with this Agreement, or for the breach thereof, the parties hereto shall exert
their utmost to settle the same by means of good faith negotiations.
12.2 The disputes, controversies or differences arising out of this
Agreement shall be finally settled under the Rules of Conciliation and
Arbitration of the ICC by three arbitrators appointed in accordance with said
Rules, but no such award shall produce a result inconsistent with the provisions
of Section 8.3 hereof. The place of arbitration shall be London, England and the
proceedings shall be conducted in the English language.
12.3 Judgement upon the award rendered may be entered into any court
having competent jurisdiction thereof, or application may be made to such court
for a judicial acceptance of the award and an order of enforcement, as the case
may be.
ARTICLE XIII
NEGATION OF AGENCY AND OTHER RELATIONSHIPS
Nothing contained in this Agreement, nor anything done by either
Party in the discharge of its obligations hereunder, shall be deemed to
constitute either Party the agent, employee, joint venturer, or partner of the
other Party.
ARTICLE IV
NOTICE
Any notice required or contemplated hereunder shall be in English
and shall be deemed to be given when received by mail or facsimile (with
follow-on hard copy by mail), properly addressed as follows:
If to SDI: Keith E. Busse, President
Steel Dynamics, Inc.
4500 County Road 59
Butler, IN 46721
Fax: 1-219-868-8951
Phone: 1-219-868-8108
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<PAGE> 16
with a copy to: Robert S. Walters, Esq.
Barrett & McNagny
215 East Berry Street
Fort Wayne, IN 46802
Fax: 1-219-423-8924
Phone: 1-219-423-8905
If to Management Co.:
Mr. David Stickler
McDonald & Company Securities, Inc.
800 Superior Avenue
Cleveland, OH 44114
Fax: 1-216-443-3980
Phone: 1-216-443-2790
If to NSM: Mr. John Schultes
Nakornthai Strip Mill Public Company Limited
Chonburi Industrial Estate
(Bowin) 358 Moo 6
Highway 331, Bowin
Sri Racha, Chonburi 20230
Thailand
Fax: (66-38) 345-693, 345375
Phone: (66-38) 345-950-84, Ext. 255
with a copy to: Mr. Chamni Janchai
Nakornthai Strip Mill Public Company Limited
16th Floor UM Tower
9 Ramkhamhaeng Road
Suanluang
Bangkok 10250, Thailand
Fax: (662) 719-9828-9
or to such other addresses either Party shall from time to time furnish in
writing to the other Party for such purpose. Such notice shall be deemed given
when actually received, or ten (10) days after the date mailed if sent by
certified or registered mail.
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ARTICLE XV
GOVERNING LANGUAGE AND LAW
This Agreement is executed in English as the controlling text, and
it shall be governed by and interpreted in accordance with the laws of the State
of New York. The Parties agree that their rights and obligations under this
Agreement shall not be governed by either the provisions of the 1980 U.N.
Convention for the International Sale of Goods nor by the laws of any
jurisdiction other than as specified herein.
ARTICLE XVI
ENTIRE AGREEMENT AND VARIATIONS
This Agreement, together with the Exhibits attached hereto, or other
documents referenced herein, including the License Agreement, constitutes the
entire and only agreements between the Parties relative to the subject matter
hereof and supersedes and cancels all previous agreements, negotiations,
commitments and writings relative to the subject matter hereof, and may not be
changed or modified in any manner unless in writing signed by the authorized
officer or representative on behalf of each of the Parties on or after the date
of execution of this Agreement.
ARTICLE XVII
SEVERABILITY OF PROVISIONS
If any of the provisions of this Agreement shall be declared to be
invalid or unenforceable by judicial or administrative decision, any such
provisions shall be deemed deleted and shall not in any way affect the validity
of any other provision of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
NSM MANAGEMENT CO.
Date: _____________________ By_______________________________________
Title______________________________________
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<PAGE> 18
NAKORNTHAI STRIP MILL PUBLIC
COMPANY LIMITED
Date: _____________________ By_______________________________________
Title______________________________________
STEEL DYNAMICS, INC.
Date: _____________________ By_______________________________________
Keith E. Busse
Title: President and CEO
17
<PAGE> 1
RECIPROCAL LICENSE AND
TECHNOLOGY SHARING AGREEMENT
BETWEEN
STEEL DYNAMICS, INC.
AND
NAKORNTHAI STRIP MILL
PUBLIC COMPANY LIMITED
<PAGE> 2
RECIPROCAL LICENSE AND TECHNOLOGY SHARING AGREEMENT
THIS RECIPROCAL LICENSE AND TECHNOLOGY SHARING AGREEMENT(the "SDI License
Agreement") is entered into as of the _____ day of March, 1998, by and between
Steel Dynamics, Inc. ("SDI"), an Indiana corporation with its principal office
and place of business in Butler, Indiana USA, and Nakornthai Strip Mill Public
Company Limited ("NSM"), a public limited company organized under the laws of
Thailand, and is intended to describe the Parties' reciprocal rights of access
to and to the use of the SDI Technology and NSM Technology, all related to their
respectively owned and operated thin-slab/flat-rolled steel mini-mills and
certain additional ancillary facilities as described herein.
WHEREAS, SDI has accumulated certain know-how and technical expertise in
connection with the planning, construction, and operation of the SDI Facilities;
WHEREAS, NSM is developing certain technical expertise and know-how in
connection with the construction and impending operation of the NSM Facilities;
WHEREAS, NSM desires to obtain, and SDI is willing to grant to NSM, access
to and the right and license to use its know-how and technical expertise,
relating to SDI Technology, to the extent that SDI possesses the rights to
provide such access and licenses, all in accordance with the terms and
conditions hereinafter set forth; and
WHEREAS, SDI desires to obtain, and NSM is willing to grant to SDI access
to and the right and license to use its know-how and technical expertise,
relating to NSM Technology, to the extent that NSM possesses the rights to
provide such access and licenses, all in accordance with the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
of the Parties set forth herein, the Parties agree as follows:
ARTICLE I
Definitions
Defined terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Definitions and Rules of Usage (March ___,
1998), which is incorporated herein by reference as though fully set forth
herein, and the related Rules of Usage shall be applicable hereto.
<PAGE> 3
ARTICLE II
License
2.1 Grant by SDI. Subject to the terms and conditions of this Agreement,
SDI hereby grants to NSM, subject to Management Co.'s control, supervision, and
direction, a non-exclusive, non-transferable, non-divisible and non-assignable
license and right, without the right to grant sub-licenses hereunder, during the
term of this Agreement, to have access to and to use SDI Technology, in
connection with NSM's Mill or with NSM's other mill facilities, if any, in
Thailand, Malaysia, and the Philippines, to manufacture the Products.
SDI does not know whether, and has made no representations to NSM,
express or implied, to the effect that SDI Technology is appropriate for or is
best suited to NSM's needs. SDI's undertaking herein is solely to make SDI
Technology available to NSM, for Management Co.'s and/or NSM's use, rejection,
modification, or adaptation as Management Co. and/or NSM deems appropriate. The
Parties likewise agree that SDI shall have no prospective ongoing monitoring or
oversight functions over NSM's Mill operations.
2.2 Grant by NSM. Subject to the terms and conditions of this Agreement,
NSM hereby grants to SDI and/or to IDI, a non-exclusive, non-transferable,
non-divisible, and non-assignable license and right, without the right to grant
sub-licenses hereunder, during the term of this Agreement, to have access to and
to use NSM Technology in connection with its mill facilities in the United
States, Mexico, and Canada, to manufacture the Products.
2.3 Each party hereby grants to the other Party a license to use any
Technical Information provided by the Providing Party to the Requesting Party
for any purpose, including manufacturing, using, selling or otherwise disposing
of its Products. Unless otherwise agreed between the Parties, the additional
license rights granted hereunder to SDI shall be for SDI's plants in the United
States, Mexico, and Canada, and the license rights granted hereunder to NSM
shall be for NSM's Mill or for NSM's other mill facilities, if any, in Thailand,
Malaysia, and the Philippines. The licenses granted hereby are nonexclusive,
nontransferable and paid-up, and do not include the right to sublicense to any
third party.
ARTICLE III
Confidentiality
3.1 All Technical Information, technical trade secrets, know-how,
proprietary information, and data furnished or made available by either Party
hereunder (hereinafter "Confidential Information"), will be deemed to be and
will be received by the Requesting Party as confidential and proprietary, so
long as it is identified as such when furnished, and such Confidential
Information is for the Requesting Party's own use as limited herein and is to be
kept confidential, in accordance with the standards set forth in the next
paragraph, by the Requesting Party during and
2
<PAGE> 4
following the expiration or termination of this Agreement. This Article shall
survive expiration or termination of this Agreement.
Confidential Information shall not be made available, given, sold or
disclosed by the Requesting Party to any other person without the prior written
consent of the Providing Party. Each Party agrees to use its best efforts to
maintain the confidentiality of the Confidential Information disclosed to it and
each shall use no less than the same safeguards as it uses to protect its own
Confidential Information of a similar nature. A Requesting Party shall disclose
Confidential Information received from the Providing Party only to the
Requesting Party's officers, agents, employees, consultants and advisors whose
duties reasonably require familiarity with such information, provided that the
Requesting Party shall first obtain from such Persons legally enforceable
undertakings, in form and substance satisfactory to the Providing Party, not to
personally use Confidential Information, or knowledge derived therefrom, not to
disclose it to or for the benefit of any third party and containing such other
protections as the Providing Party shall reasonably request. Copies of all such
undertakings shall be delivered to the Providing Party, with evidence of its
proper adoption and legality. Except as otherwise agreed by the Parties, the
Requesting Party shall be required at its own expense to take such legal actions
as may be reasonably necessary to enforce such undertakings.
3.2 The confidentiality obligation of the Requesting Party under Section
3.1 above shall not apply to Confidential Information which:
3.2.1 is or becomes publicly known through no wrongful act of the
Requesting Party or its employees;
3.2.2 is received by the Requesting Party without restriction from a
third party without breach of any obligation of nondisclosure;
3.2.3 is or has been independently developed by the Requesting
Party;
3.2.4 is contained in any published patent or published patent
application or which becomes otherwise published or generally known to
Requesting Party through no wrongful act of Requesting Party, from and
after the date it becomes published or generally known; or
3.2.5 is disclosed pursuant to Applicable Law.
ARTICLE IV
License to Improvements Made by Requesting Party
A Requesting Party shall make available to a Providing Party on a
fully-paid, nonexclusive, non-assignable, non-sublicensable, and as is basis, a
license to use any information,
3
<PAGE> 5
invention (whether or not patentable), improvements and innovations developed
and owned by the Requesting Party substantially through the use of Technical
Information provided by the Providing Party pursuant to this Agreement. Such
right is to manufacture, assemble, use, sell, or otherwise dispose of products
during the term of this Agreement using the information, inventions,
improvements, innovations developed and owned by the Requesting Party.
ARTICLE V
Obtaining Rights to Patents and Technical Information From Third Parties
5.1 Neither Party represents that by virtue of its use of certain
machinery, equipment, processes or technology, it necessarily possesses the
legal right to disclose the trade secrets, know-how, or proprietary information
involved in such activity, or that such Party has the legal right to authorize
and license others to use or employ such machinery, equipment, processes or
technology.
5.2 Notwithstanding Section 5.1, and subject to Section 5.3, each Party,
upon receipt of a written request from the other Party for disclosure of and/or
the right to use any trade secrets, know-how and proprietary information which,
if solely owned and licensable by the Providing Party, would constitute
Technical Information, shall use its best efforts to ascertain whether it has
the legal right to make the disclosure and/or whether the Requesting Party may
need to obtain third party approvals, consents, licenses (with or without
royalties), or other rights in advance of disclosure or in connection with the
matter of use. In the event that the Providing Party does not have such rights,
the Providing Party shall so advise the Requesting Party, together with the
name(s) of the person(s) to contact regarding such rights, if known, and the
Providing Party shall use its best efforts to cooperate with the Requesting
Party in obtaining any such necessary permission, but subject to such terms,
conditions, and restrictions as the third party may impose. These provisions
shall also apply to any patents which relate to SDI Technology or to NSM
Technology. In the event that the Providing Party, after using its best efforts,
is unable to obtain the necessary legal rights or licenses, the Providing Party
shall be under no further obligation hereunder nor to violate the terms of any
license or other agreements it may have with such third party.
5.3 To the extent that any obligation for compensation, for indemnity, for
performance, or otherwise to a third party is required to be undertaken in
connection with the disclosures or rights to use described in Section 5.2, any
such obligations shall be direct obligations between the Requesting Party and
the third party; and the Providing Party shall not be required to incur any
primary or secondary obligations, as guarantor or otherwise, to any such third
party, nor to place its own rights with such party in jeopardy by reason of such
disclosures and/or use.
5.4 In the event that either Party shall, during the term of this
Agreement, obtain Acquired Technology from a third party (including from its
employees), such Acquired Technology shall come within the scope of this
Agreement; provided, however, that, except as to Acquired Technology acquired
from the Party possessing such Acquired Technology, a Party may, as a condition
to including such Acquired Technology within the license granted to the other
Party under Section 2.3,
4
<PAGE> 6
require the Requesting Party to contribute a fair proportion of the cost
incurred in acquiring the Acquired Technology. In such event, the Parties shall
determine by mutual agreement the amount of such compensation by the Requesting
Party to the Providing Party. If the Parties do not so agree, the Acquired
Technology shall not be included within the scope of this Agreement, and the
Requesting Party shall incur no financial obligation or liability regarding such
Acquired Technology.
5.5 In the event that either Party has or acquires one or more patents, or
files for one or more patent applications, relating to a process or a product
that would otherwise be includable as Technical Information within a request for
Technical Assistance, or within the broad definition of SDI or, if applicable,
IDI Technology, or of NSM Technology, as the case may be, such patent rights
shall not be deemed automatically includable within the scope of the license
rights contemplated by this SDI License Agreement but may be included, at the
option of the holder of such rights and unless otherwise prohibited, upon the
negotiation and agreement of a specific license for each such process or
product, with a royalty rate and other terms that are fair and reasonable for
the type of process or product involved.
ARTICLE VI
Compensation
6.1 Solely in consideration of SDI's grant of the license rights described
in Article IV, NSM shall issue to SDI, contemporaneously with the execution of
this License Agreement, (i) 74,468,090 Shares of NSM and (ii) Warrants to
purchase 11,421,480 Shares of NSM. Pursuant to the SDI Warrant Agreement, the
Warrants shall become exercisable at the time, and in the proportion, that the
Warrants issued to the Senior Subordinated Notes are exercised. To the extent
that the Warrants shall not become exercisable on or prior to the 10th
anniversary or the Closing Date, or to the extent such Warrants shall have
become exercisable but shall not have been exercised on or before such date,
such Warrants shall expire. Concurrently with each exercise of Warrants by SDI,
NSM shall pay to SDI an amount which, after taking into account the net amount,
after application of all foreign tax credits to which SDI shall be entitled as a
result thereof, of all Thai and U.S. withholding and income taxes payable in
respect of the receipt thereof, shall be equal to Baht 10 for each Warrant which
shall have been exercised at such time. After giving effect to the exercise of
all Warrants which shall become exercisable in accordance herewith and with the
Warrant Agreement, SDI shall hold Shares equal to 10% of the total number of
Shares issued on the Closing Date and in connection with all such Warrants.
Such shares shall be deemed fully earned and paid for upon issuance, the
consideration from SDI therefor being SDI's grant of license rights to NSM
hereunder, without regard to any actual use thereof by NSM. No portion of the
value of such shares is attributable to any future services to be rendered by
SDI hereunder or under any other agreement. The value of this license grant has
been determined by NSM's Board of Directors, by Management Company, and by the
New Equity Investors (excluding SDI) and other shareholder signatories to the
Shareholder Agreement to be fair and adequate for the NSM common shares to be
issued to SDI.
5
<PAGE> 7
6.2 The foregoing compensation shall be payable to SDI in addition to any
expense reimbursements required to be paid hereunder.
6.3 Subject to the provisions of Section 6.1, SDI shall be responsible for
all U.S. taxes on any shares issuable or amounts payable to SDI hereunder.
6.4 Except for the amount of any Thai withholding tax payable in respect
of the receipt by SDI of the NSM common shares described in Section 6.1(i), and
of the NSM common shares issuable upon exercise of the Warrants described in
Section 6.1(ii), which NSM agrees to bear and to pay, in SDI's name (the same as
if paid directly by SDI), if NSM shall be required under the laws of Thailand to
deduct from any payment made to SDI any other income tax which may be levied
against SDI for or in respect of this Agreement, then NSM shall pay or deduct
such amounts from the payments due to SDI, and NSM shall promptly remit to the
relevant tax authorities such income tax. NSM shall promptly furnish to SDI such
necessary tax receipts or other documentary evidence issued by the competent
Thai tax authorities, relating to any such payments made by NSM and showing the
payment made in the name of SDI, so that SDI may obtain a tax credit in the
United States. The burden of obtaining any such tax credits, and the risk of
disallowance, shall be borne by SDI.
ARTICLE VII
Term of Agreement
7.1 Unless sooner terminated hereunder, this Agreement shall continue in
effect for a term of ten (10) years.
7.2 In the event that either Party fails to perform any material
obligation or undertaking to be performed by it under this Agreement, and such
failure shall not be cured within sixty (60) days after written notice thereof
from the other Party, then a default shall have occurred. In such event, the
non-defaulting Party's sole and exclusive remedy shall be the right to terminate
this Agreement forthwith, by giving written notice of termination to the
defaulting Party; provided, however, that a majority of the interest in
Management Co. or a majority of the Board of Directors of NSM, including a
majority of the Directors nominated by the New Equity Investors, shall have
approved the delivery of the foregoing notice. No claim for monetary damages
shall exist against the defaulting Party, nor, in the case of a default by SDI,
shall any recovery, cancellation, or recoupment of any of the NSM Common Stock
or Warrants conveyed or required to be conveyed to SDI pursuant to Section 6.1,
or in respect of any of the payments required to be paid to SDI hereunder shall
exist or be asserted; provided, however, that no termination, regardless of
cause, shall be deemed to diminish the defaulting party's rights to continue to
use any Technical Information theretofore learned, communicated, or conveyed to
that Party.
7.3 Upon expiration or termination of this Agreement, as provided for in
this Article VII, by operation of law or otherwise, all rights granted to, and
obligations undertaken by, the Parties
6
<PAGE> 8
hereunder shall terminate, except the following, all of which shall survive
expiration or termination of this Agreement:
7.3.1 Each Party's rights to continue to use any Technical
Information theretofore learned, communicated or conveyed to that Party;
7.3.2 Each Party's obligation to pay all amounts accrued hereunder
upon or prior to expiration or termination of this Agreement; and
7.3.3 Each Party's confidentiality obligations under Article III
hereof;
ARTICLE VIII
Force Majeure
8.1 In the event that performance of obligations hereunder by either Party
hereto is legally excusable because of an event of Force Majeure, the following
provisions shall apply:
8.1.1 Either Party who believes that his performance is excused by
such event of Force Majeure shall give written notice to the other as soon
as possible and with sufficient detail to permit the other to minimize
inconvenience and expense.
8.1.2 Both Parties will cooperate to minimize the financial
consequences of such event of Force Majeure.
8.1.3 Either Party hereto shall have the right to request the
termination of this Agreement if such event of Force Majeure continues for
a period greater than 180 days.
ARTICLE IX
Notice
Any notice required or contemplated hereunder shall be in English and
shall be deemed to be given when received by mail or facsimile (with follow-on
hard copy by mail), properly addressed as follows:
7
<PAGE> 9
If to SDI: Keith E. Busse, President
Steel Dynamics, Inc.
4500 County Road 59
Butler, IN 46721
Fax: 1-219-868-8951
Phone: 1-219-868-8108
with a copy to: Robert S. Walters, Esq.
Barrett & McNagny
215 East Berry Street
Fort Wayne, IN 46802
Fax: 1-219-423-8924
Phone: 1-219-423-8905
If to NSM: Mr. John Schultes
Nakornthai Strip Mill Public Company Limited
Chonburi Industrial Estate
(Bowin) 358 Moo 6
Highway 331, Bowin
Sri Racha, Chonburi 20230
Thailand
Fax: (66-38) 345-693, 345375
Phone: (66-38) 345-950-84, Ext. 255
with a copy to: Mr. Chamni Janchai
Nakornthai Strip Mill Public Company Limited
16th Floor UM Tower
9 Ramkhamhaeng Road
Suanluang
Bangkok 10250, Thailand
Fax: (662) 719-9828-9
or to such other addresses either party shall from time to time furnish in
writing to the other for such purpose. Such notice shall be deemed given when
actually received, or ten (10) days after the date mailed if sent by certified
or registered mail.
ARTICLE X
Governing Law
This Agreement is executed in English as the controlling text, and
the rights and obligations of the Parties hereunder shall be governed by and
construed in accordance with the laws
8
<PAGE> 10
of the State of New York. The Parties agree that their rights and obligations
under this Agreement shall not be governed by either the provisions of the 1980
U.N. Convention for the International Sale of Goods nor by the laws of any
jurisdiction other than as specified herein.
ARTICLE XI
Arbitration
11.1 In the event of any disputes, controversies or differences which may
arise among the Parties, out of or in relation to or in connection with this
Agreement, or for the breach thereof, the Parties hereto shall exert their
utmost to settle the same by means of good faith negotiations.
11.2 The disputes, controversies or differences arising in connection with
this Agreement shall be finally settled under the Rules of Conciliation and
Arbitration of the ICC by three arbitrators appointed in accordance with said
Rules, but no such award shall produce a result inconsistent with the provisions
of Sections 7.2 and 7.3 regarding termination and damages. The place of
arbitration shall be London, England and the proceedings shall be conducted in
the English language.
11.3 Judgement upon the award rendered may be entered in any court having
competent jurisdiction thereof, or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.
ARTICLE XII
Negation of Agency and Other Relationships
Nothing contained in this Agreement, nor anything done by either party in
the discharge of its obligations hereunder, shall be deemed to constitute either
party the agent, employee, joint venturer, or partner of the other.
ARTICLE XIII
Miscellaneous
13.1 The relationship between SDI and NSM and/or Management Co. shall be
that of independent contractors, and nothing contained in this Agreement shall
be construed to (i) give either Party the power to direct and control the
day-to-day activities of the other, (ii) constitute the Parties as partners,
joint venturers, co-owners or otherwise as participants in a joint or common
undertaking, or (iii) constitute either Party, its agents or employees, as the
agents or employees of the other Party, or to grant to them any power or
authority to act for, bind or otherwise create or assume any obligation on
behalf of the other Party for any purpose whatsoever.
9
<PAGE> 11
13.2 Neither Party shall attempt to patent or otherwise register any right
to exclude other Persons from using the Technical Information that it receives
from the other Party pursuant to this Agreement. Neither Party shall attempt to
patent in another country the subject matter of any Patent for which it has
received a license from the other Party under this Agreement.
13.3 This Agreement constitutes the entire agreement of the Parties with
respect to the matters addressed herein and supersedes any prior understandings.
Except as noted herein, no changes to this Agreement shall be binding unless in
writing and signed by each Party.
13.4 The headings and captions used in this Agreement are for reference
purposes only and shall not limit or otherwise affect the meaning,
interpretation or application of this Agreement.
13.5 Neither Party may assign its rights or obligations under this
Agreement and this agreement shall not inure to the benefit of any trustee in
bankruptcy, receiver, or other successor of either Party, without the express
written approval of the other Party.
13.6 In the event that any one or more of the provisions of this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect in any jurisdiction such part shall be deemed severed from this
Agreement, and the remainder of this Agreement shall continue in full force and
effect. The Parties shall consult as to the manner in which their original
intention can be fulfilled as closely as possible, and if appropriate, shall
amend this Agreement accordingly.
13.7 No delay or failure of any Party in exercising any right hereunder
and no partial or single waiver shall be deemed to constitute a waiver of any
subsequent delay or failure. No waiver of any one duty, agreement, condition or
breach of this Agreement shall constitute a waiver of any other duty, agreement,
condition or breach.
13.8 NSM and Management Co. agree to deliver to SDI, as promptly as
possible following the NSM Closing, two (2) complete sets of all equity and debt
closing documents, as executed, with all schedules and exhibits attached, and
NSM further agrees that SDI shall be deemed entitled to the same rights
thereunder as any other shareholder purchasing common stock for value in
connection therewith.
13.9 This Agreement may be executed in one or more counterparts, each of
which shall constitute an original version of the Agreement.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement
to be executed as of the date first above written by its duly authorized officer
or representative.
10
<PAGE> 12
NAKORNTHAI STRIP MILL PUBLIC
COMPANY LIMITED
By_______________________________________
Title_____________________________________
STEEL DYNAMICS, INC.
By:______________________________________
Keith E. Busse, President
11
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