<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File #1-10459
GENEVA STEEL COMPANY
(Exact name of registrant as specified in its charter)
UTAH 93-0942346
(State of Incorporation) (I.R.S. Employer Identification No.)
10 South Geneva Road
Vineyard, Utah
(Address of principal executive offices)
84058
(Zip Code)
Registrant's telephone number, including area code: (801) 227-9000
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 the number of shares outstanding of each class of the issuer's common
stock, as of the latest practicable date.
13,050,823 and 20,989,688 shares of Class A and Class B common stock,
respectively, outstanding as of July 22, 1994.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENEVA STEEL COMPANY
CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
- - ------
June 30, September 30,
1994 1993
----------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,652 $ 64,267
Accounts receivable, net 37,343 46,257
Inventories 79,245 63,230
Prepaid expenses and other 8,625 1,426
Deferred income taxes 7,219 --
-------- --------
Total current assets 146,084 175,180
-------- --------
Property, plant and equipment:
Land 1,931 1,931
Buildings 3,725 3,725
Machinery and equipment 507,550 369,490
Mineral property and development
costs 8,425 8,425
-------- --------
521,631 383,571
Less accumulated depreciation (86,890) (68,981)
-------- --------
Net property, plant and equipment 434,741 314,590
-------- --------
Other assets 10,950 8,614
-------- --------
$591,775 $498,384
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 2 of 17
<PAGE> 3
GENEVA STEEL COMPANY
CONDENSED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1994 1993
-------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 57,475 $ 52,982
Accrued payroll and related taxes 11,046 8,578
Accrued liabilities 14,086 11,810
Production prepayments 7,684 10,000
Accrued interest payable 11,956 1,533
Accrued pension and profit
sharing costs 1,230 1,110
-------- --------
Total current liabilities 103,477 86,013
-------- --------
Long-term debt 325,000 224,991
-------- --------
Deferred income taxes 10,040 15,619
-------- --------
Redeemable preferred stock 41,187 35,986
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock:
Class A 86,961 86,094
Class B 11,081 11,929
Warrants to purchase Class A
common stock 5,360 5,360
Retained earnings 28,040 52,542
Class A common stock held in
treasury, at cost (19,371) (20,150)
-------- --------
Total stockholders' equity 112,071 135,775
-------- --------
$591,775 $498,384
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 3 of 17
<PAGE> 4
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1994 and 1993
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales $113,195 $124,954
Cost of sales 114,050 117,359
-------- --------
Gross margin (855) 7,595
Selling, general and administrative
expenses 5,475 5,109
-------- --------
Income (loss) from operations (6,330) 2,486
-------- --------
Other income (expense):
Interest and other income 331 744
Interest expense (5,409) (4,917)
-------- --------
(5,078) (4,173)
-------- --------
Loss before benefit for income taxes (11,408) (1,687)
Benefit for income taxes (4,334) (658)
-------- --------
Net loss (7,074) (1,029)
Less redeemable preferred stock
dividends and accretion for
original issue discount 1,788 1,578
-------- --------
Net loss applicable to common shares $ (8,862) $ (2,607)
======== ========
Net loss per common share $ (.59) $ (.17)
======== ========
Weighted average shares outstanding 15,144 15,065
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 4 of 17
<PAGE> 5
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF INCOME
NINE MONTHS ENDED JUNE 30, 1994 and 1993
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales $361,409 $341,645
Cost of sales 348,892 330,667
-------- --------
Gross margin 12,517 10,978
Selling, general and administrative
expenses 16,801 14,658
-------- --------
Loss from operations (4,284) (3,680)
-------- --------
Other income (expense):
Interest and other income 1,471 1,012
Interest expense (13,396) (12,962)
-------- --------
(11,925) (11,950)
-------- --------
Loss before benefit for income taxes and
extraordinary item (16,209) (15,630)
Benefit for income taxes (6,165) (6,096)
-------- --------
Loss before extraordinary item (10,044) (9,534)
Loss on early extinguishment of debt (net
of benefit for income taxes of $5,675) 9,258 --
-------- --------
Net loss (19,302) (9,534)
Less redeemable preferred stock dividends
and accretion for original issue discount 5,200 1,839
-------- --------
Net loss applicable to common shares $(24,502) $(11,373)
======== ========
Loss per common share before
extraordinary item $ (1.01) $ (.76)
Extraordinary item per common share (.61) --
-------- --------
Net loss per common share $ (1.62) $ (.76)
======== ========
Weighted average shares outstanding 15,120 15,052
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 5 of 17
<PAGE> 6
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Dollars in thousands)
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (19,302) $ (9,534)
Adjustments to reconcile net
loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 21,308 17,530
Deferred income taxes (12,798) 5,738
(Increase) decrease in current
assets--
Accounts receivable, net 8,914 268
Inventories (16,015) (2,099)
Income taxes receivable -- 12,356
Prepaid expenses and other (7,199) 2,470
Increase (decrease) in current liabilities--
Accounts payable 4,493 11,300
Accrued payroll and related taxes 2,468 3,061
Accrued liabilities 2,276 1,320
Production prepayments (2,316) 4,001
Accrued interest payable 10,423 6,270
Accrued pension and profit sharing costs 120 (8)
--------- --------
Net cash provided by (used for)
operating activities (7,628) 52,673
--------- --------
Cash flows from investing activities:
Purchases of property, plant
and equipment (138,281) (42,148)
--------- --------
Net cash used for investing activities $(138,281) $(42,148)
========= ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 6 of 17
<PAGE> 7
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $190,000 $ 325,313
Payments on long-term debt (89,991) (278,504)
Proceeds from issuance of redeemable
preferred stock, net of offering costs -- 32,521
Proceeds from issuance of warrants to purchase
common stock, net of offering costs -- 5,360
Payments for deferred loan costs (5,514) (6,011)
Proceeds from exercise of options to purchase
Class A common stock 274 --
Issuance of Class A common stock to
employee savings plan 525 464
-------- ---------
Net cash provided by financing activities 95,294 79,143
-------- ---------
Net increase (decrease) in cash and cash
equivalents (50,615) 89,668
Cash and cash equivalents at beginning
of period 64,267 3,122
-------- ---------
Cash and cash equivalents at end
of period $ 13,652 $ 92,790
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 12,643 $ 3,933
Income taxes 1,600 --
Supplemental schedule of noncash financing activities:
</TABLE>
For the nine months ended June 30, 1994 and 1993, the Company increased the
redeemable preferred stock liquidation preference by $4,686 and $1,641,
respectively, in lieu of paying a cash dividend. In addition, for the same
periods, redeemable preferred stock was increased by $514 and $198,
respectively, for the accretion required over time to amortize the original
issue discount on the redeemable preferred stock incurred at the time of
issuance.
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 7 of 17
<PAGE> 8
GENEVA STEEL COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(1) INTERIM FINANCIAL STATEMENTS
The accompanying condensed financial statements of Geneva Steel Company (the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The unaudited condensed financial statements as of June
30, 1994 and 1993 and for the three and nine-month periods ended June 30, 1994
and 1993, reflect all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the financial position and results of operations as of such dates and
for such periods.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
(2) INVENTORIES
Inventories are comprised of the following components:
<TABLE>
<CAPTION>
June 30, September 30,
1994 1993
-------- -------------
<S> <C> <C>
Raw materials $33,277 $20,138
Semi-finished and finished goods 37,869 34,462
Operating materials 8,099 8,630
------- -------
$79,245 $63,230
======= =======
</TABLE>
(3) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated based upon the weighted
average number of common and common equivalent shares outstanding during the
periods. Common equivalent shares consist of warrants and options to purchase
Class A common stock which have a dilutive effect when applying the treasury
stock method. Class B common stock is included in the weighted average number
of common shares outstanding at one share for every ten shares outstanding as
the Class B common stock is convertible to Class A common stock at this same
rate.
The net loss for the three and nine-month periods ended June 30, 1994 and
1993 was adjusted for redeemable preferred stock dividends and the accretion
required over time to amortize the original issue discount on the redeemable
preferred stock incurred at the time of issuance.
Page 8 of 17
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain cost and
expense items to net sales for the periods indicated with respect to the
Company:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 100.8 93.9 96.5 96.8
----- ----- ----- -----
Gross margin (0.8) 6.1 3.5 3.2
Selling, general and administrative
expenses 4.8 4.1 4.7 4.3
----- ----- ----- -----
Income (loss) from operations (5.6) 2.0 (1.2) (1.1)
----- ----- ----- -----
Other income (expense):
Interest and other income 0.3 0.6 0.4 0.3
Interest expense (4.8) (3.9) (3.7) (3.8)
----- ----- ----- -----
(4.5) (3.3) (3.3) (3.5)
----- ----- ----- -----
Loss before benefit for income taxes (10.1) (1.3) (4.5) (4.6)
Benefit for income taxes (3.8) (0.5) (1.7) (1.8)
----- ----- ----- -----
Net loss before extraordinary item (6.3)% (0.8)% (2.8)% (2.8)%
===== ===== ===== =====
</TABLE>
The following table sets forth the sales product mix as a percentage of net
sales for the periods indicated with respect to the Company:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sheet 64.5% 57.5% 67.3% 54.7%
Plate 25.3 30.3 22.5 31.9
Pipe 6.8 9.1 6.7 10.2
Non-Steel 3.4 3.1 3.5 3.2
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Page 9 of 17
<PAGE> 10
THREE MONTHS ENDED JUNE 30, 1994 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1993
The steel industry is cyclical in nature and generally characterized
by overcapacity. Beginning late in fiscal year 1989 and continuing through
December 1992, the industry experienced declining prices due to, among other
things, reduced demand for steel products and significant price competition.
Since early calendar year 1993, the industry has experienced increasing steel
prices resulting from increased demand. Beginning in the first quarter of
calendar year 1993, the Company has announced several price increases for
various steel products. In addition, various producers have recently announced
future price increases which the Company intends to follow as justified by
market conditions. The Company sells substantially all of its products in the
spot market at prevailing market prices. The Company believes its percentage
of such sales is significantly higher than that of most of the other domestic
integrated producers. Consequently, the Company may be affected by price
decreases and increases more quickly than many of its competitors. The
Company's current backlog of orders booked at lower prices will, however, delay
the realization of price increases. Industry experience has shown, however,
that announced price increases may not be immediately realized, if at all, due
to the competitive environment within the industry. The Company has phased in
price increases as new orders have been accepted, subject to adjustments as
necessary in response to market conditions.
Net sales decreased 9.4% as shipments declined by approximately 63,500
tons, or 15.7%, for the three months ended June 30, 1994 as compared to the
same quarter of the previous fiscal year. The decreased shipments were a
result of lower production due to production inefficiencies and other
transition costs associated with completion and implementation of various
capital projects. The decreased sales from lower shipments were offset
somewhat by increased average selling prices. The weighted average sales price
(net of transportation costs) per ton of sheet and plate products increased in
the three months ended June 30, 1994 compared to the same quarter of the
previous fiscal year by 10.6% and 6.6%, respectively. The weighted average
sales price per ton of pipe remained constant. The overall average selling
price realization per ton also increased between the periods; however, this
increase was offset, in part, by a shift in product mix to lower priced sheet
products from higher priced plate and pipe products, which resulted in a net
increase of approximately $23 per ton. Shipped tonnage of sheet, plate and
pipe decreased approximately 21,700 tons or 8.3%, 32,400 tons or 29.0% and
9,400 tons or 31.7%, respectively, between the two periods.
During the three months ended June 30, 1994, the Company increased its
percentage of sheet products sold. This shift resulted from the continued
suspension of production of certain plate products while upgrades to various
processing equipment were undertaken. The Company expects that plate
production will increase during the current quarter as modernization and
other capital projects are completed and implemented.
Cost of sales includes raw materials, labor costs, energy costs
(consisting primarily of oxygen, electricity and natural gas), depreciation,
and other operating and support costs associated with the production process.
The Company's cost of sales, as a percentage of net sales, increased to 100.8%
for the three months ended June 30, 1994 from 93.9% for the same quarter of the
previous fiscal year as a result of increased operating costs. The average
cost of sales per ton shipped increased approximately $44 per ton between the
two periods. Costs increased primarily as a result of lower production volumes
due to production inefficiencies and other transition costs associated with
completion and
Page 10 of 17
<PAGE> 11
implementation of various modernization and other capital projects. Other cost
increases resulted from the purchase of coke to supplement internal coke
production in anticipation of increased production levels, increased
depreciation expense resulting from additional capital expenditures, increased
wages and benefits as required by the union labor agreement, increased costs of
purchased scrap and certain other increased operating costs. These increased
costs were offset, in part, by a shift in product mix to lower cost sheet
products. The Company expects throughput to increase during the next few
months as various capital projects are implemented. Increased throughput is
expected to reduce operating costs per ton. The results of the fourth fiscal
quarter will, however, be negatively impacted as the start-up process continues
and transition costs are incurred, but to lesser degree than the third fiscal
quarter.
On April 24, 1994, the Company began phasing in its new continuous
casting facility. To date, the start-up of the continuous casting facility has
been very successful with numerous milestones being achieved ahead of schedule,
including production of wide cast slabs (125") and the "twin casting" of slabs.
Continuously cast slabs have shown improved product quality and yield. By the
end of the quarter, the Company was producing approximately 50 percent of its
slabs through the caster and on occasion has produced as high as 70 percent.
The Company believes these percentages would be higher were it not for
unexpected delays in the construction and start-up of other capital projects
downstream from the caster. These projects include an upgraded broadside mill
used to reduce the thickness of slabs before final finishing and other projects
related to the heating and direct rolling of cast slabs.
By late July, the broadside mill reached operational status. Use of
the broadside mill is required to efficiently roll wide slabs and to fully
implement the process of heating and direct rolling cast slabs. With the
broadside mill operational, the Company is focusing on increasing throughput
and implementing the process of heating and direct rolling cast slabs.
The Company initially expected the caster to be fully utilized
within a six-month start-up schedule. In light of the delays
attributable to the broadside mill and other capital projects, the start-up
curve for the caster and these related projects may extend approximately two
months, at which time the Company expects to achieve a 1.9 million ton
production rate. Although the Company has implemented measures designed to
minimize transition costs and other start-up difficulties with respect to all
its capital projects, there can be no assurance that such conditions will not
be greater than currently expected or not extend beyond the anticipated
start-up periods.
Depreciation costs included in cost of sales increased approximately
$1.5 million in the three months ended June 30, 1994 compared with the same
quarter of the previous fiscal year. This increase was due to increases in the
asset base resulting from capital expenditures. Depreciation expense will
increase substantially as the various capital improvements contemplated by the
Company's capital maintenance and modernization program become operational.
Selling, general and administrative expenses for the three months
ended June 30, 1994 increased approximately $0.4 million as compared to the
same quarter of the previous fiscal year. The higher expenses resulted
primarily from increased wages and salaries and increased outside services.
Page 11 of 17
<PAGE> 12
Interest and other income decreased by approximately $0.4 million
during the three months ended June 30, 1994 as compared to the same period in
the previous fiscal year as a result of a decrease in the amount of invested
cash and cash equivalents.
Interest expense increased by approximately $0.5 million during the
three months ended June 30, 1994 as compared to the same quarter of the
previous fiscal year. Increased interest expense due to higher levels of
borrowing during the third quarter of fiscal year 1994 was offset partially by
an increase in capitalized interest. Interest expense will increase
substantially as the various capital projects are completed and the amount of
capitalized interest decreases.
NINE MONTHS ENDED JUNE 30, 1994 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1993
Net sales increased 5.8% while shipments decreased by approximately
26,600 tons, or 2.4%, for the nine months ended June 30, 1994 as compared to
the same period in the previous fiscal year. The increased sales resulted from
increased average selling prices on all products. The weighted average sales
price per ton of sheet, plate and pipe products increased by 15.1%, 5.2% and
1.5%, respectively, in the nine months ended June 30, 1994 compared to the same
period in the previous fiscal year. The overall average selling price
realization per ton also increased between the periods; however, this increase
was offset, in part, by a shift in product mix to lower priced sheet products
from higher priced plate and pipe products. The shift in product mix reflected
an emphasis on sheet products during the first two fiscal quarters, which
contributed to higher operating margins. This shift also resulted from the
suspension of production of certain plate products while upgrades to various
processing equipment are implemented. Shipped tonnage of sheet increased
approximately 91,100 tons or 12.9%, while shipped tonnage of plate and pipe
decreased approximately 94,700 tons or 28.9% and 29,200 tons or 31.5%,
respectively, between the two periods.
The Company's costs of sales as a percentage of net sales decreased to
96.5% for the nine months ended June 30, 1994 from 96.8% for the same period in
the previous fiscal year as a result of higher average selling prices, offset,
in part, by higher operating costs. The average cost of sales per ton shipped
increased approximately $24 per ton between the two periods. Costs increased
primarily as a result of production inefficiencies and transition costs
associated with construction and implementation of various modernization and
other capital projects, an equipment failure that temporarily interrupted
operation of one of the Company's blast furnaces, increased ironmaking costs
due to reconditioning work at the blast furnace operation and increased coke
costs as a result of purchasing coke to supplement internal coke production in
anticipation of increased production levels. In addition, costs increased as a
result of increased depreciation expense resulting from additional capital
expenditures, increased wages and benefits as required by the union labor
agreement, increased costs of purchased scrap and increases in certain other
operating costs. These increased costs were offset, in part, by a shift in
product mix to lower cost sheet products.
Depreciation costs included in cost of sales increased approximately
$2.6 million in the nine month period ended June 30, 1994 compared with the
same period in the previous fiscal year. This increase was due to increases in
the asset base resulting from capital expenditures.
Selling, general and administrative expenses for the nine months ended
June 30, 1994 increased approximately $2.1 million as compared to the same
period
Page 12 of 17
<PAGE> 13
in fiscal year 1993. The higher expenses resulted primarily from
increased wages and salaries and increased outside services in fiscal year
1994.
Interest and other income increased approximately $0.5 million during
the first nine months of fiscal year 1994 as compared to the same period in the
previous fiscal year as a result of an increase in the amount of invested cash
and cash equivalents.
Interest expense increased approximately $0.4 million during the
first nine months of fiscal year 1994 as compared to the same period of fiscal
year 1993. Increased interest expense due to higher levels of borrowing in
fiscal year 1994 was partially offset by an increase in capitalized interest.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from capital expenditures
and working capital requirements, including interest payments. The Company has
met these requirements over the last three years principally from the
incurrence of additional long-term indebtedness and cash provided by
operations.
In April 1992, the Company obtained its existing revolving credit
facility in the amount of $50 million from a syndicate of banks led by Citicorp
USA, Inc. (Citicorp), as agent (the "Revolving Credit Facility"), for the
working capital and capital expenditure needs of the Company. The Revolving
Credit Facility is secured by the Company's inventories, accounts receivable,
certain general intangibles and proceeds thereof, and expires on February 28,
1995. At such time, management believes it will be necessary to obtain new or
replacement credit arrangements. The Company's access to borrowings under its
Revolving Credit Facility has previously been limited to $25 million. The
Company has, however, received a commitment from Citicorp to increase its
access to the full $50 million in borrowings under such facility. The
Company's access to borrowings under the Revolving Credit Facility is subject
to compliance with various financial covenants and tests contained therein.
The indentures governing the Company's 11 1/8% senior notes (the "11 1/8%
Senior Notes") and its 9 1/2% senior notes (the "9 1/2% Senior Notes" and,
together with the 11 1/8% Senior Notes, the "Senior Notes") also contain
certain restrictions on the Company's ability to borrow additional funds.
Principal amounts outstanding under the Senior Notes at June 30, 1994 were
$325 million.
The debt instruments governing the Revolving Credit Facility and the
Senior Notes contain cross default or acceleration and other customary
provisions. Financial covenants contained in the Revolving Credit Facility
and/or the Senior Notes also include, among other things, change of control
provisions, a limitation on dividends and distributions on capital stock of the
Company, a tangible net worth maintenance requirement, a leverage ratio
maintenance requirement, an interest coverage requirement, a cumulative cash
flow requirement, a cumulative capital expenditure limitation, a limitation on
the incurrence of additional indebtedness unless certain financial tests are
satisfied, a limitation on mergers, consolidations and dispositions of assets
and a limitation on liens. The Company has from time to time entered into
amendments relaxing certain of the covenants and tests contained in the
Revolving Credit Facility and may be required to seek additional amendments in
the future.
Besides these and other financing activities, the Company's major
source of liquidity has been cash provided by operations. Net cash used for
operating
Page 13 of 17
<PAGE> 14
activities was $7.6 million for the nine months ended June 30, 1994
compared with net cash provided by operating activities of $52.7 million for
the same period of the previous fiscal year. The $7.6 million used for
operating activities during the nine months ended June 30, 1994 included
approximately $32.1 million resulting from a net loss of $19.3 million and a
change in deferred income taxes of $12.8 million, offset, in part, by
depreciation and amortization of approximately $21.3 million. In addition,
uses of cash included significant increases in raw materials and
work-in-process inventories resulting from production inefficiencies associated
with capital projects.
The Company expects its modernization program and capital maintenance
and other expenditures to require significant cash resources over the next
several years. Modernization program expenditures were approximately $323
million from the inception of the program through June 30, 1994. The
modernization program currently provides for capital expenditures totaling
approximately $132 million during fiscal years 1994 and 1995, which includes
approximately $87 million spent during the first three quarters of fiscal year
1994. In addition, the Company has budgeted approximately $60 million for
capital maintenance and other projects during these years. Budgeted
modernization expenditures reflect a recent increase of $10 million resulting
from increased modernization project costs. The Company may from time to time
lease a portion of the capital projects.
The Company is pursuing the rolling mill finishing stand improvements,
the final remaining project included in the modernization program. These
improvements are expected to be completed in June 1995. As other modernization
projects become fully operational, the Company may defer completion of the
finishing stand improvements to maximize production in a strong steel market.
The Company will continue to incur substantial capital expenditures after
completion of the modernization program. Moreover, the Company may pursue
other capital projects in addition to those presently included in the Company's
capital budget. There can be no assurance that the costs of modernization or
capital maintenance and other projects will not exceed those currently
anticipated by the Company.
The Company is required to make substantial interest and dividend
payments on the Senior Notes, the redeemable preferred stock (or the debentures
exchangeable therefor), and any outstanding balances under the Revolving Credit
Facility, together with interest on any additional funding necessary for the
expected and future capital expenditures and other working capital needs. The
Company's annual debt interest expense on currently outstanding amounts is
approximately $33 million and its annual redeemable preferred stock dividends
is approximately $6.5 million. Dividends not paid in cash before April 1996
are added to the liquidation preference of the redeemable preferred stock. As
of June 30, 1994, the Company had approximately $13.7 million in cash and cash
equivalents. The Company expects to enhance its liquidity through improved
operating cash flow. The Company anticipates that the cash and cash
equivalents on hand, together with anticipated cash flow from future operations
and borrowings under the Revolving Credit Facility, will provide sufficient
liquidity for the Company to meet its debt service requirements and to fund
ongoing operations, including required capital expenditures. The Company
continues to focus on cost control, revenue enhancement and cash flow
management.
Page 14 of 17
<PAGE> 15
The short-term and long-term liquidity of the Company is dependent
upon several factors, including the Company's ongoing operations, availability
of financing, foreign currency fluctuations, competitive and market forces,
modernization and environmental expenditures and general economic conditions.
Similarly, the United States steel market is subject to cyclical fluctuations
that may affect the amount of cash internally generated by the Company and the
ability of the Company to obtain external financing. Consequently, there can
be no assurance that the Company will have sufficient resources to fund all of
its planned and future modernization requirements and capital maintenance and
other projects or to satisfy other working capital and cash needs. In such
event, the Company may defer certain capital projects and/or pursue alternative
financing strategies, which may include additional borrowings or the sale of
equity securities. Should the Company determine to proceed with any such
financing strategies in the future, there can be no assurance that the Company
can obtain any consents or approvals that may be required from existing lenders
or stockholders or that such financing could be consummated on terms favorable
to the Company or at all.
Inflation can be expected to have an effect on many of the Company's
operating costs and expenses. Due to worldwide competition in the steel
industry, the Company may not be able to pass through such increased costs to
its customers.
Page 15 of 17
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
Number Exhibit Herewith
------ ------- --------
<S> <C> <C>
10 Agreement for Sale and Purchase of Coke X
between the Company and Pacific Basin
Resources, a division of Oxbow Carbon and
Minerals, Inc., dated April 29, 1994
</TABLE>
(b) Reports on Form 8-K.
The Company has not filed any reports on Form 8-K during the three
months ended June 30, 1994.
Page 16 of 17
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENEVA STEEL COMPANY
By: /s/ Dennis L. Wanlass
-----------------------------
Vice President, Treasurer and
Chief Financial Officer
Dated: August 2, 1994
Page 17 of 17
<PAGE> 1
EXHIBIT 10
AGREEMENT FOR THE SALE AND PURCHASE OF COKE
This Agreement for the Sale and Purchase of Coke (this "Agreement") is
entered into this 29th day of April, 1994, effective as of January 1, 1994
(the "Effective Date") between GENEVA STEEL COMPANY, a Utah corporation
("Buyer") and PACIFIC BASIN RESOURCES, a division of OXBOW CARBON & MINERALS,
INC., a Delaware corporation ("Seller").
RECITALS:
A. Buyer owns and operates the Geneva Steel Mill at Vineyard, Utah (the
"Geneva Steel Mill"). As part of its integrated steelmaking process, Buyer
utilizes metallurgical coke in its blast furnaces (the "Blast Furnaces")
operated by Buyer for the production of hot metal. Buyer produces quantities
of such coke at its coke batteries located at the Geneva Steel Mill.
B. Increased customer demand, has created a need for metallurgical coke in
quantities above the level of metallurgical coke currently produced at the
Geneva Steel Mill.
C. Seller has the right to market metallurgical coke meeting the
specifications required in Geneva's steel making operation that is produced by
Antai Coking Company ("Antai") in coke batteries located in Shanxi Province,
Peoples Republic of China.
D. To ensure required metallurgical coke supplies to Buyer, Seller has agreed
to sell, and Buyer has agreed to buy, metallurgical coke pursuant to the terms
and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller agree as
follows:
1. Sale and Purchase of Coke. Seller agrees to sell to Buyer, and Buyer
agrees to buy from Seller, the quantity of metallurgical coke with the
specifications set forth herein (the "Coke") to be purchased pursuant to
Section 6.1 hereof, on the terms and conditions set forth herein.
2. Term of Agreement; Definitions.
2.1. Term. This Agreement shall commence on the Effective Date and expire
on December 31, 2003 (the "Term"), unless earlier terminated as provided
herein.
2.2. Definitions. For the purposes of this Agreement, the following terms
shall have the indicated meanings:
2.2.1. "Contract Year" shall mean each of the twelve (12) month
periods beginning on January 1 and ending December 31.
<PAGE> 2
2.2.2. "ton" or "NT" shall mean a net ton of 2000 pounds
avoirdupois.
3. Price. Subject to Section 15 hereof, during the Term or any extension
thereof, the price, ex ship at the Levin Richmond Terminal Corporation
terminals in Richmond, California, U.S.A. (or the terminal of such other
services company in the San Francisco, California area or such other port as
may be mutually agreed upon by Buyer and Seller) (the "Destination Port") for
each ton of Coke sold pursuant to this Agreement (the "Purchase Price") shall
be determined in accordance with the following provisions of this Section 3.
3.1. First Contract Year. For the first Contract Year, the Purchase Price
shall be per ton of Coke.
3.2. Second Contract Year. For the second Contract Year, effective as of
the first day of such second Contract Year, the Purchase Price shall be
per ton of Coke.
3.3. Third Contract Year. For the third Contract Year, effective as of
the first day of such third Contract Year, the Purchase Price shall be
per ton of Coke.
3.4. Subsequent Contract Year. For each Contract Year subsequent to the
third Contract Year, effective as of the first day of such Contract Year, the
Purchase Price shall be an amount per ton of Coke to be mutually agreed upon by
the parties hereto.
3.5. Purchase Price All Inclusive. The Purchase Price for each Contract
Year includes all costs and expenses required for Seller to deliver the Coke,
ex ship at the Destination Port except Buyer shall pay any port off-loading
charges and any applicable sales and use taxes relating to each shipment of
Coke hereunder. Subject to the foregoing, the Purchase Price includes all
other costs, insurance, freight, fees, taxes, assessments, tariffs, excises,
special and general duties, custom brokerage charges, costs incurred to comply
with any applicable international, federal, state and local laws and
regulations applicable to the sale of Coke, ex ship at the Destination Port,
and all other items that are the responsibility of Seller pursuant to this
Agreement.
3.6. Pricing in Subsequent Contract Years. On or before January 1, of
each Contract Year, commencing on January 1, 1996, Buyer shall advise Seller
of the quantity of Coke it anticipates purchasing during the next succeeding
Contract Year hereunder to enable Seller to establish a purchase price for
such quantity of Coke. Within twenty (20) days of the receipt of such
quantities, Seller shall propose to Buyer the Purchase Price on a per ton basis
for such quantity of Coke. If Buyer and Seller do not agree on a Purchase
Price and quantity within ninety (90) days after receipt of such pricing
information, Buyer or Seller, at its option, may terminate this Agreement
effective as of the end of the then current Contract Year.
4. Billing and Payment. Seller shall invoice Buyer for each shipment of Coke
sold and shipped hereunder at the Purchase Price applicable on the date of
shipment, less any penalties applicable thereto pursuant to Section 8.3. Each
such invoice shall specify the date of shipment, the identity of the Vessel, as
hereinafter defined, and the quantity of Coke shipped.
2
<PAGE> 3
Invoices shall be accompanied by supporting documentation, including, but not
limited to, bills of lading, the draft survey reports contemplated by Section 7
hereof and the analyses of the Coke pursuant to Section 9 hereof. Buyer shall
pay such invoices to Seller by telegraphic transfer remittance within
forty-five (45) days after the date of the bill of lading. Seller shall
provide to Buyer by facsimile a legible copy of each bill of lading as soon as
practicable after a shipment is loaded on a Vessel for delivery to the
Destination Port.
5. Shipment and Freight Charges.
5.1. Shipment. All shipments shall be from a safe berth in the safe port
of Tianjin, People's Republic of China (the "Loading Port"). Seller shall
nominate and schedule the availability of each Vessel in order that the Coke to
be delivered hereunder may be moved at the scheduled rate of delivery. Each
vessel to be provided by the Seller shall be a Panamex ocean vessel with a
loaded capacity of approximately 44,000 net tons for the first Contract Year
and 45,800 net tons for all other Contract Years, and shall be a single
commodity, standard bulk carrier with no center-line bracing, tween decks, log
racks, superstructures or other unusual obstacles that limit discharge (each a
"Vessel"). Each Vessel shall be in good operating condition and will be
compatible with the facilities at the Loading Port and Destination Port.
Seller shall, at its own expense, load at the Loading Port each Vessel to its
approximate full capacity (plus or minus ten percent (10%), consistent with
good operating practice in the industry). Seller shall load Coke only into
Vessels that are clean and free of debris, coke remaining from earlier
deliveries, and/or any other material that might inhibit unloading or cause
contamination of the Coke. Seller shall reject any Vessel delivered by any
carrier that is not in the condition required hereunder and shall promptly
advise Buyer of such rejection. Seller shall utilize the best available
shiploaders at the Loading Port to minimize degradation of the Coke and
generation of dust.
5.2. Shipping Charges. Seller shall pay all shipping and other charges
imposed by its shipping contract applicable to the destination of the shipment
after each shipment has been loaded on any such Vessel. Seller shall be
responsible to pay all charges related to dockage, pilotage, tugs, and handling
of lines at the Loading Port and the Destination Port.
5.3. Delivery and Discharge.
5.3.1. Port. The Coke shall be shipped in a Vessel suitable for
grab discharge at the Destination Port. Seller shall for all events and
purposes be the importer of record with respect to each such shipment and as
such shall be responsible for complying with all applicable U.S. customs
regulations governing entry, clearance and release of the Coke.
5.3.2. Notification. Seller shall give notice to Buyer and the
Destination Port at least fifteen (15) days prior to shipment of each
nomination of a Vessel and of the ETA. Seller shall also notify Buyer by
telephone or facsimile at the time the Vessel transporting the Coke sails from
the Loading Port of the quantity of the Coke loaded, the estimated arrival
draft and updated ETA. Seller shall use reasonable commercial efforts to
periodically update Buyer and the Destination Port of the progress of the
Vessel and any delays encountered. Seller shall again notify Buyer, by
telephone or facsimile, of
3
<PAGE> 4
the ETA at each of the following times: ten (10) days, seven (7) days, three
(3) days, two (2) days and one (1) day prior to the actual time of arrival at
the Destination Port. The estimated sailing time from the Loading Port to
the Destination Port is nineteen (19) days.
5.3.3. Notice of Readiness. Seller shall cause the master of the Vessel
transporting the Coke to forward a written notice of readiness to Buyer, or
its designated agent, and the Destination Port, at any time after such Vessel
is in free pratique, has entered at the appropriate customs house, has filed
all required manifests and is in all respects ready for unloading. With each
shipment and prior to arrival at the Destination Port, Seller shall provide
Buyer and the Destination Port with all required documentation under U.S. and
California law for the delivery and transport of such Coke, including, but
not limited to, material safety data sheets.
5.3.4. Lay Time. Lay time at the Destination Port shall commence at the
earlier of twelve (12) hours after a Vessel is ready for discharge and Buyer
or its designated agent receives a proper notice of readiness described in
Section 5.3.3 of this Agreement, or when discharge actually commences. Lay
time shall be determined at the rate of discharge provided in Section 5.3.9
of this Agreement. Shifting time from anchorage to discharging berth shall
not count as lay time unless the Vessel is already under demurrage.
5.3.5. Demurrage. If discharge of the Coke is not completed within the
allowable lay time, as calculated in accordance with Section 5.3.9 of this
Agreement, demurrage shall be paid by Buyer to Seller at the actual rate of
demurrage incurred by Seller, not to exceed in any event Nine Thousand
Dollars ($9,000) per day and pro-rata for any part thereof.
5.3.6. Despatch. If discharge of the Coke is completed prior to the
expiration of the allowable lay time as calculated in accordance with Section
5.3.9 of this Agreement, Seller shall pay Buyer a despatch bonus at one-half
of the agreed upon demurrage rate per lay day and pro-rata for any part
thereof.
5.3.7. Overtime. Overtime for stevedores, if any, shall be for the
account of the party ordering such overtime.
5.3.8. Vessel Damage. All costs of every nature and kind whatsoever
that arise from damage to the Vessel that transports Coke that occur during
discharge and is caused by the negligence of stevedores shall be settled
directly between the owner of such Vessel and the Destination Port or
stevedores. In the event that the Vessel owner and the stevedores are unable
to amicably resolve any such dispute within a reasonable period of time,
Buyer and Seller agree to use reasonable efforts to encourage such parties to
appropriately resolve such dispute.
5.3.9. Discharge Rates. The Coke shall be discharged at the rate of
3527 tons per weather working day, Sundays and holidays included, until
completely discharged.
4
<PAGE> 5
6. Quantity and Nomination.
6.1. Quantity.
6.1.1. Quantity of Coke. The parties intend that this Agreement
shall be a contract whereby Seller is obligated to supply and Buyer is
obligated to purchase for use at its Blast Furnaces the quantity of Coke for
each Contract Year as set forth below:
<TABLE>
<CAPTION>
CONTRACT YEAR VESSELS
<S> <C>
first Contract Year 4
second Contract Year 6
third Contract Year 6
subsequent Contract Years to be agreed upon
</TABLE>
In addition, and notwithstanding the provisions of Section 6.1.2 hereof,
during the fourth Contract Year hereunder and during the fifth Contract Year
hereunder, Buyer shall have the right, but not the obligation, to purchase up
to eight (8) Vessels of Coke pursuant to the terms and provisions of this
Agreement, at a Purchase Price to be agreed upon by the parties hereto,
pursuant to Section 3.6 hereto. Buyer may exercise such right as provided
herein for either or both of such Contract Years.
6.1.2. Right of First Opportunity. Buyer shall have the right of first
opportunity, upon the terms and conditions set forth in this Section 6.1.2,
to purchase quantities of coke in excess of those quantities provided for in
Section 6.1.1 hereof (the "Excess Coke"). The terms and conditions upon
which the right of first opportunity herein granted to Buyer shall be offered
and exercised shall be as follows:
6.1.2.1. During the Term, if Seller proposes to sell any Excess Coke to
a third party and such sale is not the subject of a then existing
contractual commitment to be sold, Seller shall first give written notice to
Buyer of the availability of such Excess Coke (the "Notice"). The Notice
shall identify the quantity and quality of Excess Coke available for sale
and the price at which Seller is willing to sell such Excess Coke.
6.1.2.2. If Buyer desires to exercise the right of first opportunity
granted herein, it shall notify Seller of such exercise within ten (10) days
after the date on which the Notice was received by Buyer and thereafter
Seller and Buyer shall be deemed to have agreed to sell and purchase such
Excess Coke at the price set forth in the Notice upon the terms and
conditions of this Agreement. Such exercise may be as to all or part of the
Excess Coke offered for sale by Seller, provided that such exercise shall be
in lots sufficient to completely fill a Vessel or Vessels.
5
<PAGE> 6
6.1.2.3. If Buyer fails to timely notify Seller of its exercise of the
foregoing right of first opportunity, Buyer shall be deemed to have waived
its right of first opportunity as to the Excess Coke, identified in the
Notice, and Seller shall be free to offer such Excess Coke for sale to
others upon the terms and conditions set forth in the Notice.
6.2. Forecasts; Nomination. For Seller's planning purposes and as an
expression of Buyer's then-current best estimate only, Buyer shall provide
Seller with an annual forecast of the number of Vessels it then anticipates
purchasing during any Contract Year during the Term hereof. The annual
forecast for a Contract Year shall be submitted to Seller at least ninety (90)
days prior to the designated shipping date of the first Vessel in any such
Contract Year; provided, however, that the forecast for the first Contract Year
hereunder shall be submitted to Seller within ten (10) days after the execution
of this Agreement. Buyer shall have the right to update and adjust such
forecast from time to time during any such Contract Year to reflect Buyer's
then-current estimate of Coke to be purchased during such Contract Year. Buyer
may request at any time and from time to time during any Contract Year a Vessel
of Coke which Seller shall make reasonably commercial efforts to timely deliver
to Buyer. Seller shall commence loading of such Vessel in sufficient time to
meet the designated shipping date.
7. Weighing. At the time of loading and unloading, Seller, at its sole
expense, shall cause a draft survey to be performed by a marine surveyor
mutually acceptable to Seller and Buyer (the "Surveyor") at the Loading Port
and at the Destination Port respectively. Buyer shall have the right to
observe and review such survey and to have independent surveys performed to
verify such weight. In case of disputes, Seller and Buyer shall mutually agree
on the use of substitute methods for determining the weight of any shipment of
Coke hereunder. The arithmetic average of such draft surveys shall be used to
determine the weight of the Coke for invoicing.
8. Coke Specifications.
8.1. Typical Specifications. It is anticipated that Coke delivered by
Seller pursuant to this Agreement will have, on a Vessel average basis, the
following specifications (determined on a "dry basis" except for moisture which
shall be on an "as received" basis):
<TABLE>
<CAPTION>
SUBJECT TYPICAL SPECIFICATIONS
<S> <C>
Moisture 3.00 to 5.00%
Ash 8.50 to 12.00%
Sulfur 0.45 to 0.55%
Volatile Matter 0.50 to 1.00%
Stability 59.50 to 63.50%
Hardness 72.25 to 77.25%
CSR 77.50 to 82.50%
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C>
Fixed Carbon 87.50 to 90.50%
CRI 12.50 to 15.50%
Size Distribution: Under 25MM-10%
25 to 80MM-80%
Over 80MM-10%
Typical Analysis of Ash
SiO2 50.75 to 52.50%
Al203 33.95 to 36.70%
Fe203 6.80 to 7.80%
CaO 1.60 to 1.80%
MgO 0.55 to 0.65%
MnO 0.07 to 0.10%
Ti02 1.30 to 1.35%
Na20 0.35 to 0.45%
K20 0.50 to 0.60%
P205 0.18 to 0.25%
Sulfur Trioxide 0.25 to 0.40%
Undetermined 0.03 to 0.05%
</TABLE>
8.2. Guaranteed Specifications. All Coke delivered by Seller pursuant to
this Agreement shall have, on a Vessel average basis, the following guaranteed
specifications (determined on a "dry basis" except for moisture which shall be
on an "as received" basis):
<TABLE>
<CAPTION>
SUBJECT GUARANTEED SPECIFICATION
<S> <C>
Moisture 5.00% Maximum
Ash 12.00% Maximum
Sulfur 0.80% Maximum
Volatile Matter 1.45% Maximum
Stability 58.00% Minimum
Hardness 68.00% Minimum
Size Under 25MM - 10% Maximum
</TABLE>
7
<PAGE> 8
8.3. Penalties. In addition to any other remedy available to Buyer at law
or in equity, penalties for moisture, ash, sulfur, volatile matter, stability,
hardness and size shall be calculated and paid to Buyer on a shipment average
basis as follows:
8.3.1. Moisture. If the total moisture content exceeds 5.0%, a penalty
of $1.03 per ton for each one percent (1.0%) of moisture in excess of five
percent (5.0%) shall be applied pro rata.
8.3.2. Ash. If the ash content exceeds 12.0%, a penalty of $1.03 per
net ton for each one percent (1.0%) of ash in excess of 12.00% shall be
applied pro rata.
8.3.3. Sulfur. If the sulfur content exceeds 0.80%, a penalty of $1.03
per net ton for each one tenth of one percent (0.10%) of sulfur in excess of
0.80% shall be applied pro rata.
8.3.4. Volatile Matter. If the volatile matter content exceeds 1.45%, a
penalty of $1.03 per net ton for each one tenth of one percent (0.10%) of
volatile matter in excess of 1.45% shall be applied pro rata.
8.3.5. Stability. If the stability of the Coke is less than 58.00%, a
penalty of $1.03 per net ton for each one percent (1.0%) of stability less
than 58.00% shall be applied pro rata.
8.3.6. Hardness. If the hardness of the Coke is less than 68.00%, a
penalty of $1.03 per net ton for each one percent (1.0%) of hardness less
than 68.00% shall be applied pro rata.
8.3.7. Size. If more than ten percent (10%) of the coke is minus 25 mm,
a penalty of $1.03 per net ton for each one percent (1.00%) in excess of ten
percent (10%) shall be applied pro rata.
8.4. Rejection of Coke.
8.4.1. Specifications. Buyer shall have the right to reject any
shipment of Coke having a moisture, ash, sulfur or volatile matter content
greater than, or stability and hardness percentages, less than, the following
limits (determined, where applicable, on an "as received" basis for moisture
content and on a "dry basis" for ash, sulfur and volatile matter content):
<TABLE>
<CAPTION>
SUBJECT REJECTION LIMIT
<S> <C>
Moisture 7.00%
Ash 13.50%
Sulfur 1.00%
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
Volatile Matter 1.60%
Stability 55.00%
Hardness 66.00%
</TABLE>
8.4.2. Exercise of Rejection Right. Exercise of Buyer's rejection right
shall be made by Buyer's prompt notice to Seller by telecopier or by
telephone within six (6) working days after receipt of Seller's analytical
results. Upon rejection, the parties shall negotiate a commercially
reasonable price reduction for Buyer's purchase of the rejected Coke if Buyer
can use the Coke. If the parties fail to agree on a price reduction or if
Buyer cannot use such Coke, Seller shall, at its sole expense, remove the
rejected Coke from Buyer's premises. Seller shall reimburse Buyer for any
freight, handling or other costs Buyer incurs in dealing with rejected Coke,
whether incurred before or after the date of such rejection.
8.4.3. Replacement Obligation. Notwithstanding anything to the contrary
herein, Seller shall be obligated to supply to Buyer, if Buyer so elects,
Coke in an amount sufficient to replace any Coke rejected by Buyer hereunder,
such replacement Coke to be delivered as soon as reasonably possible, but the
minimum amounts of Coke that Buyer shall be obligated to purchase under this
Agreement shall be reduced by the amount of any such rejected Coke.
9. Coke Sampling and Analyses. At Seller's cost, Seller shall cause mutually
acceptable testing companies to sample and analyze, at the Loading Port and at
the Destination Port (except for size distribution which shall be sampled and
analyzed only at the Loading Port), each shipment of Coke made hereunder;
provided, however, that both parties agree that A.J. Edmond Company is an
acceptable testing company at the Destination Port. Seller shall use sampling
and analytical procedures adopted by the American Society for Testing and
Materials ("ASTM") or such other procedures and protocol mutually developed and
agreed upon by the parties hereto. Seller shall report to Buyer, by telecopy
or by telephone, the results of such analyses for each shipment of Coke
hereunder, within ten (10) days after such Vessel is loaded, and again within
ten (10) days after such Vessel is unloaded. Except for size distribution, the
arithmetic average of the results of such sampling at the Loading Port and the
Destination Port shall be used to determine Seller's compliance with Sections
8.2 and 8.3 hereof. The results of sampling for size distribution at the
Loading Port shall be used to determine Seller's compliance with the size
distribution requirements of Sections 8.2 and 8.3 hereof. Sampling and
analytical procedures used at the Destination Port shall be the same as those
used at the Loading Port. At Buyer's expense, Buyer may also have such
sampling and analysis performed on any shipment of Coke hereunder. If Buyer
finds that material discrepancies persist between the two (2) results of the
sampling and analyses performed by Seller in accordance with the provisions of
this Section 9, or between the Seller's results and those performed by Buyer,
the sampling and analytical procedures of Seller and Buyer shall be reviewed by
both parties and necessary steps will be taken to reduce such discrepancies to
a reasonable amount.
9
<PAGE> 10
10. Default.
10.1. Events of Default. Each of the following shall constitute an "Event
of Default" hereunder:
10.1.1. Buyer fails to pay Seller any monies due hereunder and such
failure shall continue for a period of five (5) working days after delivery
by Seller to Buyer of written notice specifying such failure.
10.1.2. Buyer or Seller defaults in the performance of any material term,
covenant, condition or agreement contained herein and fails to cure such
default within thirty (30) days after dispatch of written notice of such
default to Buyer or Seller as the case may be.
10.1.3. Either party shall (a) apply for or consent to appointment of a
receiver, trustee or liquidation for such party or for all or substantially
all of such party's assets; (b) make a general assignment for the benefit of
creditors or the filing of a voluntary petition in bankruptcy or admit in
writing to its inability to pay its debts as they become due; (c) be
adjudicated bankrupt or insolvent; (d) file a petition for bankruptcy,
reorganization, insolvency, dissolution or liquidation under any bankruptcy
or insolvency law; or (e) file an answer admitting material allegations or
consenting to or default in answering a petition filed against such party in
any bankruptcy, reorganization or insolvency proceeding.
10.1.4. Either party shall permanently discontinue its operations,
liquidate, dissolve, sell (regardless of how designated) substantially all of
its stock or assets, or merge or consolidate with another asset, or merge or
consolidate with another corporation.
10.1.5. Seller fails to deliver Coke meeting the specifications set forth
in Section 8.2 hereof on at least two (2) consecutive shipments of Coke
hereunder.
10.2. Seller's Remedies. Upon any Default by Buyer under Section 10.1
hereof, Seller may, at any time and at its sole discretion without any further
obligation to Buyer, (a) suspend shipment of Coke to Buyer so long as such
Event of Default continues, (b) decline to make any further shipments
hereunder, except on receipt of adequate assurance of Buyer's performance of
its obligations hereunder, and/or (c) terminate this Agreement. Such remedies
referred to in this Section 10.2 shall be in addition to any rights or remedies
available to Seller hereunder or in law or at equity, and Seller's rights and
remedies shall be cumulative.
10.3. Buyer's Remedies. Upon any Default by Seller under Section 10.1
hereof, Buyer may, at any time and at its sole discretion without any further
obligation to Seller, (a) suspend purchases of Coke from Seller so long as such
Event of Default continues, (b) decline to accept further shipments hereunder,
except on receipt of adequate assurance of Seller's performance of its
obligations hereunder, and/or (c) terminate this Agreement. Such remedies
referred to in this Section 10.3 shall be in addition to the rights and
remedies available to Buyer hereunder or in law or at equity, and Buyer's
rights and remedies shall be cumulative.
10
<PAGE> 11
10.4. Limitation on Damages. NEITHER PARTY HERETO SHALL BE LIABLE TO THE
OTHER PARTY FOR ANY INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES,
INCLUDING BUT NOT LIMITED TO ANY DAMAGES RESULTING FROM THE LOSS OF USE OR LOSS
OF PROFITS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT WHETHER IN AN
ACTION BASED ON CONTRACT, TORT OR ANY OTHER THEORY. THE WARRANTIES AND
GUARANTEES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ANY OTHERS AVAILABLE AT
LAW OR OTHERWISE. EACH PARTY SPECIFICALLY DISCLAIMS ANY OTHER EXPRESS OR
IMPLIED WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
10.5. Failure to Give Notice. Failure to give notice of a default pursuant
to this Section 10 shall not constitute waiver of the right to give such notice
for such default or for a continuing default or any other default.
11. Force Majeure. Performance by either Seller or Buyer shall be excused
to the extent such party's performance is rendered impossible or impracticable
by one or more events of Force Majeure, as hereinafter defined. For the
purposes hereof, the term "Force Majeure" means any of the following causes to
the extent such cause is beyond the reasonable control of the party affected
thereby: acts of government or government authority (except to the extent
covered by Section 15 hereof), acts of God, strikes or other collective action
of labor, fires, floods, storms, tornados, earthquakes, explosions, public
disturbances, wars (whether declared or not), insurrections or sabotage, or any
other cause whether similar or dissimilar to those specifically enumerated
herein which is beyond the reasonable control of the party affected thereby;
provided, however, that nothing herein shall require the settlement of any
labor dispute against the will of the party affected thereby. Destruction,
obsolescence or wear, whether normal or abnormal, of the Blast Furnaces that
results in a reduction in Buyer's ability to utilize coke shall, in addition to
all other events that could be characterized as a force majeure event for an
integrated steel mill, be deemed to be such an event regardless of whether such
occurrence was foreseeable, controllable or preventable by Buyer. Performance
by Seller means purchasing and preparing Coke and delivering Coke, ex ship at
the Destination Port. Performance by Buyer means the operation of its Blast
Furnaces, the transportation and delivery of Coke purchased hereunder from the
Destination Port to its Blast Furnaces, and utilization at its Blast Furnaces
of Coke to be supplied by Seller hereunder. Any obligation of a party hereto
to make payment of money to the other party hereto under the terms of this
Agreement shall not be excused by reason of any claim of Force Majeure
hereunder.
The parties acknowledge that Antai, the source of the Coke to be purchased
hereunder, is a foreign entity unrelated to Seller. Interruption or
termination of supply by Antai shall constitute an event of Force Majeure
hereunder provided that such interruption or termination is not due, in whole
or in part, to the acts or omissions of Seller and Seller has exercised its
best efforts to avoid and minimize such interruption or termination and the
effects thereof. In the event Seller becomes aware of the existence or
potential of an interruption or termination of supply, it shall give Purchaser
prompt written notice thereof setting forth with particularity the nature of
the interruption or termination, the cause(s) therefor, and the anticipated
length of such interruption or termination and the actions Seller is taking to
minimize the effects of such interruption or termination. If such interruption
or termination of supply is not due to an event
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of Force Majeure occurring at Antai's facilities, Seller shall diligently
pursue legal redress for such interruption or termination, including, but not
limited to, the commencement and diligent pursuit of legal proceedings for
specific performance of Antai's obligation to supply such Coke, or at Seller's
option, unconditionally assign to Buyer, to the extent of Buyer's unfulfilled
Coke requirements hereunder, Seller's claim or claims against Antai for such
supply. Upon written request by Buyer, Seller shall use its best efforts to
obtain modifications of Seller's contract with Antai to make more certain the
continued supply of Coke hereunder and the enforceability of such contract with
adequate remedies for any breach by Antai of its obligations thereunder.
In the event of an event of Force Majeure hereunder, Seller shall use its
best efforts to locate and tender to Buyer a commercially reasonable substitute
Coke, based on the mutual agreement of the parties. Such substitute Coke shall
be offered to Buyer on terms and conditions no less favorable than those
offered to other customers of Seller.
12. Changed Technology. Notwithstanding anything herein to the contrary,
the change of any technology utilized by Buyer and applicable to the use of
Coke in the Blast Furnaces that materially reduces the Buyer's requirements for
Coke in the Blast Furnaces shall be considered as if it were an event of Force
Majeure hereunder and Buyer's obligations to purchase Coke hereunder shall be
decreased by the quantity that such requirements are reduced as a result
thereof.
13. No Pro Rata Delivery. Seller shall have the right to sell Coke from
Antai to others only if doing so will not jeopardize Seller's ability to
deliver Coke to Buyer in accordance with this Agreement. In the event of
reduced or terminated production at Antai's facilities as a result of an event
of Force Majeure, Seller shall for the period of reduced or terminated
production (a) deliver to Buyer the portion of Antai's unaffected production,
up to the whole thereof, required to satisfy to the fullest extent commercially
practicable Seller's obligations under this Agreement, and (b) tender a
commercially reasonable substitute coke, based on mutual agreement of the
parties, if such coke is available at a price (including transportation)
comparable to the delivered cost to Buyer of the Coke hereunder. In no event
shall Buyer's deliveries of Coke be reduced pro rata with other customers of
Seller as a result of an occurrence of an event of Force Majeure.
14. No Requirement of Substitute Performance. If Section 11 or Section
12 hereof excuses Buyer from taking Coke for its Blast Furnaces, Buyer shall
not be required to purchase Coke hereunder for use in another plant or any
other part of the Geneva Steel Mill.
15. Countervailing and Anti-Dumping Duties. Seller shall, in each instance,
immediately notify Buyer of (a) the filing of any petition against coke from
People's Republic of China seeking relief under any anti-dumping or
countervailing duty laws of the United States, (b) any preliminary
determination by the United States Department of Commerce ("Department") that
there is a reasonable basis to believe or suspect that a subsidy is being
provided with respect to coke from People's Republic of China or that coke from
People's Republic of China is being sold or likely to be sold, at less than
fair value, and (c) the amount per ton of any final countervailing duty or
anti-dumping margin (collectively, the "Duty") imposed by any countervailing or
anti-dumping order with respect to shipments of Coke hereunder (the "Final
Order"). On and after the date of publication of such Final Order, Seller
shall have the right
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to request by written notice (the "Duty Notice") to Buyer an increase in the
Purchase Price applicable to shipments of Coke occurring after the date of the
Seller's notice pursuant to the immediately foregoing subpart (b) (the
"Preliminary Notice Date"), such increase not to exceed in any event the net
amount of any such Duty actually paid or payable by Seller with respect to
shipments hereunder. Within sixty (60) days after the delivery of the Duty
Notice, Buyer shall either terminate this Agreement upon written notice to
Seller, or agree to such increase in the Purchase Price. If Buyer fails to
notify Seller of its election pursuant to the foregoing sentence within such
sixty (60) day period, Buyer shall be deemed to have terminated this Agreement
effective as of the end of such sixty (60) day period as to shipments occurring
thereafter. If this Agreement is not terminated pursuant to this Section 15,
the Purchase Price for all shipments occurring after the Preliminary Notice
Date shall be increased by an amount not to exceed the net amount of such Duty
actually paid or payable by Seller with respect to shipments hereunder and,
with respect to any such shipments after the Preliminary Notice Date that have
been accepted by Buyer, Buyer shall pay Seller the net amount of such increase
in the manner provided in Section 4 hereof. If such Duty is at any time
subsequently reduced in amount for any reason, including, but not limited to,
any administrative review, judicial appeal, remand determination or revocation
proceeding, the Purchase Price for all Coke sold to Buyer after the effective
date of such reduction shall be automatically reduced by multiplying the amount
of such reduction by the percentage of the Duty previously used to increase the
Purchase Price pursuant to this Section 15, and Seller shall immediately refund
to Buyer the amount of any overpayment of the Purchase Price, as so adjusted,
relating to prior shipments.
16. Independent Contractor. This is an agreement for the purchase and sale
of Coke in which the parties recognize and agree that neither Seller nor Buyer
is an agent or employee of the other but each is an independent contractor,
independent of any managerial or other control or direction by the other party
hereto in the performance of their respective obligations hereunder. Seller
and Buyer are free to perform, by such means and in such manner as Seller or
Buyer, as the case may be, may choose, all work in pursuance of commitments
hereunder.
17. Indemnification.
17.1. Indemnification by Seller. Seller agrees to indemnify, defend, and
hold harmless Buyer and any of its officers, directors, employees and
representatives from and against all claims, liabilities, claims of indemnity
and/or contribution from Seller's employees or other persons or third parties,
any and all damages, losses, expenses, royalties, rents, penalties, fines, and
cost of defense (including, without limitation, reasonable attorneys' fees),
from whatever source, related to or deriving from Seller's Coke sale,
transportation, shipment and delivery of Coke, ex ship at the Destination Port
pursuant to this Agreement.
17.2. Indemnification by Buyer. Buyer agrees to indemnify, defend, and
hold harmless Seller and any of its officers, directors, employees and
representatives from and against all claims, liabilities, claims of indemnity
and/or contribution from Buyer's employees or other persons or third parties,
any and all damages, losses, expenses, royalties, rents, penalties, fines, and
cost of defense (including, without limitation, reasonable attorneys' fees),
from whatever source, related to or deriving from Buyer's use of Seller's Coke
or its purchase of Coke from Seller hereunder after delivery of such Coke, ex
ship at the Destination Port pursuant to this Agreement.
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18. Title. Seller warrants title to the Coke and quiet possession to Buyer
of Coke delivered to Buyer, ex ship at the Destination Port pursuant to this
Agreement. Title to the Coke, as well as the risk of loss, shall transfer from
Seller when such Coke is delivered, ex ship at the Destination Port.
19. Binding Effect and Assignments.
19.1. Binding Effect. This Agreement shall bind and inure to the benefit
of the parties and their respective successors and assigns.
19.2. Assignments. Neither party may assign or delegate this Agreement or
any rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld, and any
assignment without such prior written consent shall be null and void; provided,
however, that consent shall not be required for Seller or Buyer to assign,
pledge or hypothecate this Agreement for financing purposes whereby such
assigning party retains all performance obligations of any kind whatsoever
hereunder.
20. Waiver. The failure of either party to insist in any one or more
instances upon strict performance of any provision of this Agreement, or to
take advantage of any right hereunder, shall not be construed as a waiver of
such provision or relinquishment of such right. To be effective, any waiver
must be in writing, unambiguously setting forth the right to be waived thereby,
and executed by a duly authorized representative of the party to be charged
therewith.
21. Remedies Cumulative. Remedies provided under this Agreement shall be
cumulative and in addition to other remedies provided by applicable law.
22. Notices. Except as otherwise provided in this Agreement, any notice,
request, protest, consent, demand, report, payment or statement (collectively,
a "notice") given by one party to the other shall be in writing and shall be
given by personal delivery, telex, facsimile transmission, receipted delivery
services or by registered or certified mail, return receipt requested,
first-class postage prepaid, and shall be addressed as follows:
If the notice is to Buyer, to:
Geneva Steel Company
10 South Geneva Road
Vineyard, Utah 84058
Attention: Director, Purchasing and Traffic
Facsimile No: (801) 227-9244
with a required copy to:
Kimball, Parr, Waddoups, Brown & Gee
185 South State, Suite 1300
Salt Lake City, Utah 84111
Attention: Roger D. Henriksen
Facsimile No.: (801) 532-7750
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(or to such other person or address as Buyer shall have designated by due
notice to Seller).
If the notice is to Seller, to:
Pacific Basin Resources
Hookston Square
3480 Buskirk Avenue, Suite 205
Pleasant Hill, California 94523
Attn: Vice President of Sales and Marketing
Facsimile No. (510) 932-8920
(or to such other person or address as Seller shall have designated by due
notice to Buyer).
Notice, for all purposes under this Agreement, regardless of the form given,
shall be deemed given when received by the addressee thereof.
23. Captions. The captions to Sections hereof are for convenience only and
shall not be considered a part of or used in construing or interpreting this
Agreement.
24. No Third-Party Beneficiaries. The provisions of this Agreement are for
the benefit of the parties hereto and not for any other person.
25. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, including the Uniform Commercial
Code as enacted therein, without regard to choice of law rules thereof.
26. Entire Agreement. This Agreement contains the entire agreement between
the parties as to Coke produced and sold hereunder, and supersedes all prior
agreements, whether oral or written, between the parties hereto that relate to
the purchase and sale of Coke. There are no representations, understandings or
agreements, oral or written, which are not included herein. This Agreement
cannot be changed except by duly authorized representatives of both parties in
writing.
27. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
28. Severability. In the event that any provision or any part of any
provision of this Agreement shall be held to be invalid, illegal and/or
unenforceable, such invalidity, illegality or unenforceability shall not affect
any other provision or any part of the same provision which can be given effect
without the invalid, illegal or unenforceable provision or part thereof.
29. No Consequential Damages. In no event shall either party hereby be
liable for consequential, incidental or punitive damages arising out of or
related in any way to this Agreement, or the breach hereof.
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30. Survival. The provisions of Sections 4, 10 and 17 shall survive the
termination or expiration of this Agreement.
31. Amendment. No amendment or modification of any of the terms or
conditions of this Agreement shall be deemed valid, effective and binding on
either party hereto unless in writing and signed by the duly authorized
representatives of both parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their authorized officers, as of the date and year first above written.
"Seller"
PACIFIC BASIN RESOURCES
a division of OXBOW CARBON & MINERALS, INC.
a Delaware corporation
By: Brian Acton
________________________________________________________
Its: President
________________________________________________________
Date: April 29, 1994
________________________________________________________
"Buyer"
GENEVA STEEL COMPANY,
a Utah corporation doing business as Geneva Steel
By: Max E. Sorenson
________________________________________________________
Its: Senior Vice President of Engineering and Technology
________________________________________________________
Date: May 24, 1994
________________________________________________________
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