<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, 1999
[ ] 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.
15,008,767 and 18,451,348 shares of Class A and Class B common stock,
respectively, outstanding as of August 10, 1999.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENEVA STEEL COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash $ -- $ --
Accounts receivable, net 15,380 63,430
Inventories 60,531 113,724
Deferred income taxes 16,005 8,118
Prepaid expenses and other 11,577 2,964
Related party receivable -- 270
--------- ---------
Total current assets 103,493 188,506
--------- ---------
Property, plant and equipment:
Land 1,990 1,990
Buildings 16,119 16,119
Machinery and equipment 647,580 640,363
Mineral property and development costs 1,000 1,000
--------- ---------
666,689 659,472
Less accumulated depreciation (281,438) (248,298)
--------- ---------
Net property, plant and equipment 385,251 411,174
--------- ---------
Other assets 5,070 5,485
--------- ---------
$ 493,814 $ 605,165
========= =========
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed balance sheets.
Page 2 of 27
<PAGE> 3
GENEVA STEEL COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED BALANCE SHEETS (Continued)
(Dollars in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
--------- ---------
<S> <C> <C>
Liabilities not subject to compromise:
Senior notes $ -- $ 325,000
Revolving credit facility 57,530 60,769
Accounts payable 10,266 34,117
Accrued liabilities 14,515 25,005
Accrued payroll and related taxes 6,850 9,454
Accrued dividends payable -- 25,315
Accrued interest payable -- 5,080
Accrued pension and profit sharing costs 1,872 2,182
--------- ---------
Total current liabilities 91,033 486,922
--------- ---------
Liabilities subject to compromise:
Senior notes 325,000 --
Accounts payable 27,771 --
Accrued dividends payable 28,492 --
Accrued interest payable 15,409 --
Accrued liabilities 4,562 --
--------- ---------
401,234 --
--------- ---------
Deferred income tax liabilities 16,005 8,118
--------- ---------
Redeemable preferred stock
(subject to compromise) 55,814 56,917
--------- ---------
Stockholders' equity (deficit):
Preferred stock -- --
Common stock:
Class A 92,022 87,979
Class B 9,741 10,110
Warrants to purchase Class A
common stock 4,255 5,360
Accumulated deficit (176,290) (47,749)
Class A common stock held in
treasury, at cost -- (2,492)
--------- ---------
Total stockholders' equity
(deficit) (70,272) 53,208
--------- ---------
$ 493,814 $ 605,165
========= =========
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed balance sheets.
Page 3 of 27
<PAGE> 4
GENEVA STEEL COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 87,000 $ 188,735
Cost of sales 108,535 168,589
--------- ---------
Gross margin (21,535) 20,146
Selling, general and administrative
expenses 3,785 6,179
--------- ---------
Income (loss) from operations (25,320) 13,967
--------- ---------
Other income (expense):
Interest and other income 574 89
Interest expense (1,975) (10,777)
(total contractual interest of
$10,242 in the 1999 quarter)
--------- ---------
(1,401) (10,688)
--------- ---------
Income (loss) before reorganization item
and provision for income taxes (26,721) 3,279
Reorganization item:
Professional fees 2,770 --
--------- ---------
Income (loss) before provision for
income taxes (29,491) 3,279
Provision for income taxes -- 1,266
--------- ---------
Net income (loss) (29,491) 2,013
Less redeemable preferred stock dividends
and accretion for original issue discount 186 2,989
--------- ---------
Net loss applicable to common shares $ (29,677) $ (976)
========= =========
Basic and diluted net loss per common share $ (1.76) $ (.06)
========= =========
Weighted average basic and diluted common
shares outstanding 16,854 16,227
========= =========
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of these condensed statements.
Page 4 of 27
<PAGE> 5
GENEVA STEEL COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 225,044 $ 562,653
Cost of sales 307,677 508,712
--------- ---------
Gross margin (82,633) 53,941
Selling, general and administrative
expenses 18,455 17,718
--------- ---------
Income (loss) from operations (101,088) 36,223
--------- ---------
Other income (expense):
Interest and other income 931 240
Interest expense (17,510) (31,859)
(total contractual interest of
$31,327 in 1999)
--------- ---------
(16,579) (31,619)
--------- ---------
Income (loss) before reorganization item
and provision for income taxes (117,667) 4,604
Reorganization item:
Professional fees 3,920 --
--------- ---------
Income (loss) before provision for
income taxes (121,587) 4,604
Provision for income taxes -- 1,914
--------- ---------
Net income (loss) (121,587) 2,690
Less redeemable preferred stock dividends
and accretion for original issue discount 4,643 8,684
--------- ---------
Net loss applicable to common shares $(126,230) $ (5,994)
========= =========
Basic and diluted net loss per common share $ (7.55) $ (.37)
========= =========
Weighted average basic and diluted common
shares outstanding 16,727 16,088
========= =========
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of these condensed statements.
Page 5 of 27
<PAGE> 6
GENEVA STEEL COMPANY
(DEBTOR-IN POSSESSION)
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(121,587) $ 2,690
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 33,602 34,898
Amortization 1,995 1,433
Deferred income taxes -- 1,656
Gain on asset disposal (166) --
(Increase) decrease in current assets-
Accounts receivable, net 48,050 (16,634)
Inventories 53,193 (20,650)
Prepaid expenses and other (8,343) 2,372
Increase (decrease) in current
liabilities--
Accounts payable 3,920 (9,779)
Accrued liabilities (5,015) 4,774
Accrued payroll and related taxes (2,422) (800)
Accrued interest payable 10,329 8,487
Accrued pension and profit
sharing costs (310) 454
--------- ---------
Net cash provided by operating activities 13,246 8,901
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (7,698) (17,882)
Proceeds from sale of property, plant and
equipment 184 --
--------- ---------
Net cash used for investing activities $ (7,514) $ (17,882)
--------- ---------
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of these condensed statements.
Page 6 of 27
<PAGE> 7
GENEVA STEEL COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from revolving credit facility $ 17,522 $ 25,648
Payments on revolving credit facility (20,762) (14,890)
Payments of deferred loan fees (1,580) --
Change in bank overdraft (912) (1,782)
Other -- 5
-------- --------
Net cash provided by (used in) financing
activities (5,732) 8,981
-------- --------
Net change in cash -- --
Cash at beginning of period -- --
-------- --------
Cash at end of period $ -- $ --
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 5,717 $ 21,939
</TABLE>
Supplemental schedule of noncash financing activities:
For the nine months ended June 30, 1999 and 1998, the Company increased the
redeemable preferred stock by $657 and $559, respectively, for the accretion
required over time to amortize the original issue discount on the redeemable
preferred stock incurred at the time of issuance. At June 30, 1999, the
Company had accrued dividends payable of $28,492 (total contractual
dividends of $33,630).
During the nine months ended June 30, 1999, warrants to purchase 233,502
shares of Class A common stock were exercised at $11 per share. The exercise
price was paid to the Company with 11,642 shares of redeemable preferred
stock as provided for in the redeemable preferred stock agreement.
The accompanying notes to condensed financial statements are an integral part
of these condensed statements.
Page 7 of 27
<PAGE> 8
GENEVA STEEL COMPANY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) VOLUNTARY FILING FOR RELIEF UNDER CHAPTER 11 OF THE UNITED STATES
BANKRUPTCY CODE
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results for
fiscal 1998 and for the first three fiscal quarters of 1999 were severely
affected by, among other things, a dramatic surge in steel imports beginning in
the summer of 1998. As a consequence of record-high levels of low-priced steel
imports and the resultant deteriorating market conditions, the Company's overall
price realization and shipments declined precipitously. Decreased liquidity made
it impossible for the Company to service its debt and fund ongoing operations.
Therefore, the Company sought protection under Chapter 11 of the Bankruptcy
Code. The Company has responded to the surge in imports by significantly
decreasing production, reducing costs and pursuing trade cases against dumped
and/or subsidized steel imports. Prior to the bankruptcy filing, the Company did
not make the $9 million interest payment due January 15, 1999 under the terms of
the Company's 9 1/2% Senior Notes due 2004. The Bankruptcy Code generally
prohibits the Company from making payments on unsecured, pre-petition debt,
including the 9 1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due
2001, except as provided in a confirmed plan of reorganization. The Company is
continuing operations in Chapter 11 and has a $125 million debtor-in-possession
credit facility in place (see Note 5).
As of February 1, 1999, the Company discontinued accruing interest on the
senior notes and dividends on its redeemable preferred stock. Contractual
interest on the senior notes for the three months ended June 30, 1999 was $8.3
million, which is not included in the accompanying financial statements.
Contractual dividends on the redeemable preferred stock as of June 30, 1999, was
approximately $33.6 million, which is $5.1 million in excess of dividends
accrued in the accompanying balance sheet.
(2) INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements of 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
accompanying unaudited condensed financial statements 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 of the Company.
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.
Page 8 of 27
<PAGE> 9
(3) INVENTORIES
Inventories were comprised of the following components (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
-------- --------
<S> <C> <C>
Raw materials $ 13,828 $ 29,250
Semi-finished and finished goods 41,147 78,746
Operating materials 5,556 5,728
-------- --------
$ 60,531 $113,724
======== ========
</TABLE>
(4) BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated based upon the
weighted average number of common shares outstanding during the periods. Diluted
net income (loss) per common share is calculated based upon the weighted average
number of common shares outstanding plus the assumed exercise of all dilutive
securities using the treasury stock method. For the three and nine months ended
June 30, 1999 and 1998, stock options and warrants prior to conversion are not
included in the calculation of diluted net loss per common share because their
inclusion would be antidilutive. Class B common stock is included in the
weighted average number of common shares outstanding at one share for every ten
shares outstanding because the Class B common stock is convertible to Class A
common stock at this same rate.
The net income (loss) for the three and nine months ended June 30, 1999 and
1998 was adjusted for redeemable preferred stock dividends only through January
31, 1999. The accretion required over time to amortize the original issue
discount on the redeemable preferred stock incurred at the time of issuance was
adjusted for the entire time periods.
(5) $125 MILLION DEBTOR-IN-POSSESSION CREDIT FACILITY
On February 19, 1999, the U.S. District Court for the District of Utah
granted the Company's motion to approve a new $125 million debtor-in-possession
credit facility with Congress Financial Corporation (the "Credit Facility"). The
Credit Facility expires on the earlier of the consummation of a plan of
reorganization or February 19, 2001. The Credit Facility replaced the Company's
previous revolving credit facility with a syndicate of banks led by Citicorp
USA, Inc. as agent, and, by including the property, plant and equipment in the
collateral base, is intended to provide additional liquidity. The Credit
Facility is secured by, among other things, accounts receivable; inventory; and
property, plant and equipment. Actual borrowing availability is subject to a
borrowing base calculation and the right of the lender to establish various
reserves, which it has done. The amount available to the Company under the
Credit Facility is approximately 60%, in the aggregate, of eligible inventories,
plus 85% of eligible accounts receivable, plus 80% of the orderly liquidation
value of eligible equipment up to a maximum of $40 million, less reserves on the
various collateral established by the lender. Borrowing
Page 9 of 27
<PAGE> 10
availability under the Credit Facility is also subject to other covenants. As of
August 11, 1999, the Company's eligible inventories, accounts receivable and
eligible equipment supported access to $66.4 million in borrowings under the
Credit Facility. As of August 11, 1999, the Company had $8.9 million available
under the Credit Facility, with $55.2 million in borrowings and $2.3 million in
letters of credit outstanding. There can, however, be no assurance as to the
amount of availability that will be provided in the future or that the lender
will not require additional reserves in the future.
(6) MANNESMANN MARKETING AGREEMENT
On November 2, 1998, the Company signed a new, three-year agreement with
Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann is
responsible for marketing the Company's steel products throughout the
continental United States. Mannesmann previously marketed the Company's steel
products in fifteen midwestern states and to certain customers in the eastern
United States. The Company's existing sales force will remain Company employees,
but will be directed by Mannesmann. The Company also made several other
organizational changes designed to improve product distribution and on-time
delivery.
The Mannesmann agreement requires Mannesmann to purchase and pay for the
Company's finished goods inventory as soon as it has been assigned to or
otherwise identified with a particular order. This requirement was implemented
beginning in April 1999. Mannesmann then sells the products to end customers at
the same sales price Mannesmann paid the Company plus a variable commission. As
of June 30, 1999, the Company had received $9.1 million from Mannesmann for the
purchase of finished goods inventory that was assigned to a discrete order. The
Company recognizes the sale of this inventory when it is shipped. Therefore, the
Company only records the receipt of funds and the corresponding inventory
reduction for the cost of the inventory in the accompanying financial statements
until shipment occurs. The Company remains responsible for customer credit and
product quality. On or before August 31, 1999, the Company has the right to
terminate the Mannesmann agreement effective December 31, 1999. At present, no
decision to terminate the agreement has been made. Termination of the Mannesmann
agreement would likely have a negative impact on the cash flow and liquidity of
the Company.
Page 10 of 27
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results for
fiscal 1998 and for the first three fiscal quarters of 1999 were severely
affected by, among other things, a dramatic surge in steel imports beginning in
the summer of 1998. As a consequence of record-high levels of low-priced steel
imports and the resultant deteriorating market conditions, the Company's overall
price realization and shipments declined precipitously. Decreased liquidity made
it impossible for the Company to service its debt and fund ongoing operations.
Therefore, the Company sought protection under Chapter 11 of the Bankruptcy
Code. The Company has responded to the surge in imports by significantly
decreasing production, reducing costs and pursuing trade cases against dumped
and/or subsidized steel imports (See Results of Operations). Prior to the
bankruptcy filing, the Company did not make the $9 million interest payment due
January 15, 1999 under the terms of the Company's 9 1/2% Senior Notes due 2004.
The Bankruptcy Code generally prohibits the Company from making payments on
unsecured, pre-petition debt, including the 9 1/2% Senior Notes due 2004 and the
11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of
reorganization. The Company is continuing operations in Chapter 11 and has a
$125 million debtor-in- possession credit facility in place (See Liquidity and
Capital Resources).
As of February 1, 1999, the Company discontinued accruing interest on the
senior notes and dividends on its redeemable preferred stock. Contractual
interest on the senior notes for the three months ended June 30, 1999 was $8.3
million, which is not included in the accompanying financial statement.
Contractual dividends on the redeemable preferred stock as of June 30, 1999, was
approximately $33.6 million, which is $5.1 million in excess of dividends
accrued in the accompanying balance sheet.
Page 11 of 27
<PAGE> 12
Results of Operations
The following table sets forth the percentage relationship of certain cost
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 124.8 89.3 136.7 90.4
------ ------ ------ ------
Gross margin (24.8) 10.7 (36.7) 9.6
Selling, general and
administrative expenses 4.3 3.3 8.2 3.2
------ ------ ------ ------
Income (loss) from operations (29.1) 7.4 (44.9) 6.4
------ ------ ------ ------
Other income (expense):
Interest and other income 0.7 0.1 0.4 --
Interest expense (2.3) (5.7) (7.8) (5.6)
------ ------ ------ ------
(1.6) (5.6) (7.4) (5.6)
Income (loss) before reorganization
item and provision for income taxes (30.7) 1.8 (52.3) 0.8
Reorganization item 3.2 -- 1.7 --
------ ------ ------ ------
Income (loss) before provision
for income taxes (33.9) 1.8 (54.0) 0.8
Provision for income taxes -- 0.7 -- 0.3
------ ------ ------ ------
Net income (loss) (33.9)% 1.1% (54.0)% 0.5%
====== ====== ====== ======
</TABLE>
The following table sets forth the sales product mix as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Plate 53.2% 67.1% 59.5% 59.8%
Sheet 28.9 17.1 19.2 18.7
Pipe 10.8 8.8 10.0 11.5
Slab 4.3 5.2 8.2 7.9
Non-Steel 2.8 1.8 3.1 2.1
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Page 12 of 27
<PAGE> 13
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Net sales decreased 53.9% primarily due to decreased shipments of
approximately 190,300 tons and decreased overall average selling prices for the
three months ended June 30, 1999 as compared to the same period in the previous
fiscal year. The weighted average sales price (net of transportation costs) per
ton of plate, pipe, sheet and slab products decreased by 27.3%, 21.3%, 23.0% and
29.2%, respectively, in the three months ended June 30, 1999 compared to the
same period in the previous fiscal year. Shipped tonnage of plate, pipe and slab
products decreased approximately 161,900 tons or 49.8%, 11,000 tons or 27.8% and
18,200 tons or 45.9%, respectively, while shipped tonnage of sheet products
increased approximately 800 tons or 0.8%, between the two periods. The decreases
in prices and volumes were primarily a result of increased supply from imports
as discussed below, as well as other market factors.
During the fourth quarter of fiscal year 1998 and the first three quarters
of fiscal year 1999, order entry, shipments and pricing for all of the Company's
products were adversely affected by, among other things, increased imports. As a
result of the trade cases described below, the Company's overall price
realization and shipments are expected to increase slightly during the fourth
quarter of fiscal year 1999, but the negative impact of high import levels and
the resultant increase in steel inventories, together with other market factors,
will continue to adversely affect the financial performance of the Company
during such period. As of July 31, 1999, the Company had estimated total orders
on hand of approximately 112,000 tons compared to approximately 304,000 tons as
of July 31, 1998. The Company's low backlog is in part due to operating at
one-blast furnace compared to two-blast furnaces.
Foreign competition is a significant factor in the steel industry and has
adversely affected product prices in the United States and tonnage sold by
domestic producers. The intensity of foreign competition is substantially driven
by fluctuations in the value of the United States dollar against several other
currencies as well as the level of demand for steel in the United States economy
relative to steel demand in foreign economies. In addition, many foreign steel
producers are controlled or subsidized by foreign governments whose decisions
concerning production and exports may be influenced in part by political and
social policy considerations as well as by prevailing market conditions and
profit opportunities.
Historically, coiled and flat plate imports have represented approximately
20% of total U.S. consumption. In the summer of 1998, the domestic steel
industry began experiencing an unprecedented surge in imports resulting in a
loss of market share for domestic steel producers as well as a significant
increase in inventories held for sale. During such surge, as much as 40% of
domestic plate and hot-rolled coiled sheet consumption was supplied by imports.
The surge in imports from various countries was in part the result of depressed
economies in various regions, which have greatly reduced steel consumption,
causing steel producers to dramatically increase exports to the United States,
one of the few relatively strong markets for steel consumption. The Company, as
well as other domestic steel producers, believes that foreign producers were and
are selling product into the U.S. market at dumped and/or subsidized prices that
adversely affect domestic shipments and pricing.
Page 13 of 27
<PAGE> 14
While a previous import surge in 1996 primarily involved cut-to-length
plate, the current surge has included all of the Company's products. As a
result, from May 1998 to June 1999, the Company's plate and sheet prices fell by
27% and 28%, respectively. Concurrently, the Company has been forced to reduce
production by as much as 50%, resulting in higher costs per ton and production
inefficiencies, as well as a significant decline in operating results and cash
flow. During the three months ended June 30, 1999, the Company's total shipments
were approximately 317,200 tons, as compared to 523,800 tons for the same period
in the previous year. As a result of the partial import relief described below,
production and order entry rates have increased modestly. In addition, the
Company has announced various price increases for certain of its products, as
have certain other domestic producers. The announced price increases are
expected to gradually improve price realization. There can, however, be no
assurance that market conditions will allow the Company to attain the announced
increases.
On September 30, 1998, the Company and eleven other domestic steel
producers filed anti-dumping actions against hot-rolled coiled steel imports
from Russia, Japan and Brazil. The group also filed a subsidy (countervailing
duty) case against Brazil (all cases described in this paragraph are referred to
as the "Coiled Products Cases"). In April 1999, the Department of Commerce
("DOC") issued a final determination that imports of hot-rolled coiled sheet
from Japan were dumped at margins ranging from 17-65%. In June 1999 the
International Trade Commission (the "ITC") reached a unanimous 6-0 final
determination that imports of hot-rolled coiled sheet from Japan caused injury
to the U.S. industry. As a result, an antidumping duty order has taken effect
against imports from Japan and will last for a minimum duration of five years.
During that time, the amount of dumping duty deposits due from U.S. importers of
the merchandise may vary based upon the results of annual administrative
reviews. The Company believes that in the near term the imposition of these
antidumping duties will almost completely eliminate hot-rolled coiled sheet
imports from Japan, which totaled 2.7 million tons in 1998.
On July 6 and 12, 1999, respectively, the DOC simultaneously issued
suspension agreements and final dumping duty determinations as to imports of
hot-rolled coiled sheet from Brazil and Russia, and a suspension agreement and
final countervailing duty determination as to imports of hot-rolled coiled sheet
from Brazil. The Brazilian countervailing duty suspension agreement provides for
a quantative limitation of no more than 290,000 metric tons annually of
hot-rolled coiled sheet from Brazil and the Brazilian antidumping suspension
agreement provides that tonnage can be sold at prices no lower during the
five-year period than a reference price of $327 a metric ton, $297 a short ton
ex-dock duty paid, in the U.S. market. Based on the fact that these reference
prices were above current domestic prices, that the agreement provided that this
price was a floor price which would increase as domestic prices increased above
$344 per metric ton, $310 per short ton, and that the agreement shielded the
U.S. industry from the devaluations of the Brazilian currency during the five
years of the agreement, the Company and certain other petitioners supported this
suspension agreement. The DOC announced countervailing duty findings of
approximately 7%, and antidumping duties of approximately 40%, as to imports
from Brazil. The ITC is expected to make final affirmative injury
determinations. Therefore, if Brazilian producers
Page 14 of 27
<PAGE> 15
violate the suspension agreements, these duty amounts would likely be
immediately imposed.
The suspension agreement on hot-rolled coiled sheet from Russia provides
for no shipments for the remainder of 1999, 325,000 metric tons for 2000,
500,000 metric tons for 2001, 675,000 metric tons for 2002, and 725,000 metric
tons for 2003. It sets a minimum export price of $255 per metric ton F.O.B.
Russia, which is subject to quarterly changes based on a formula relating to
other import prices. All of the petitioners objected to the Russian suspension
agreement because of the allowed continuation of dumped products at prices below
U.S. market prices. However, the quantative restrictions represent a significant
decrease from the 3.8 million tons of hot-rolled coiled sheet imports from
Russia in 1998. In addition to the hot-rolled coiled sheet suspension agreement,
the DOC also entered into a general steel trade agreement with Russia which
provides for reduction in imports of other flat-rolled steel products.
Simultaneous with the announcement of these agreements, the DOC announced final
dumping duties ranging from 57-157%, and the ITC is expected to shortly issue a
final affirmative injury determination. Therefore, if the hot-rolled coiled
sheet suspension agreement is violated during the next five years, these duty
amounts would likely be immediately imposed.
The success of the three Coiled Products Cases is expected significantly to
reduce imports from these three countries from the seven million tons in 1998.
As a result, the Company expects that its production levels, shipments and
pricing of hot-rolled coiled sheet products will continue to increase modestly
as imports decline and excess inventory levels are reduced. This trend could,
however, reverse itself if other countries significantly increase imports or if
domestic demand for hot-rolled coiled sheet declines.
On February 22, 1999, five domestic steel producers filed anti-dumping
actions against cut-to-length plate imports from the Czech Republic, France,
India, Indonesia, Italy, Macedonia, Japan and South Korea. Also, countervailing
duty cases were filed against France, India, Indonesia, Italy, Macedonia and
South Korea (all cases described in this paragraph are referred to as the
"Cut-to-length Plate Cases"). In April 1999, the ITC made a unanimous
affirmative preliminary injury determination with respect to all the respondent
countries except the Czech Republic and Macedonia, which were dismissed from the
cases. On July 12 and 13, 1999, the DOC announced preliminary margins in the
cases ranging from 3.67 - 59.12%. Bonds in these amounts are now required on
imports. The DOC will issue final determinations in November or December, with
final ITC determinations expected in December 1999 or January 2000.
There can be no assurance as to the ultimate effect of the Coiled Products
Cases or Cut-to-length Plate Cases, that imports from countries not named in the
Coiled Products Cases or the Cut-to-length Plate Cases will not increase or that
domestic shipments or prices will rise. The Company continues to monitor imports
of all products it produces and may file additional trade cases or take other
trade action in the future. Existing trade laws and regulations may be
inadequate to prevent the adverse impact of dumped and/or subsidized steel
imports; consequently, such imports could pose continuing or increasing problems
for the domestic steel industry and the Company.
Page 15 of 27
<PAGE> 16
Five-year sunset reviews of various cut-to-length plate cases decided in
1994 will begin in September 1999. The Company and other U.S. producers are
allowed to participate in those reviews in support of a five-year extension of
the orders. The outcome of these reviews cannot currently be predicted, but the
failure to extend such dumping duties could have a future material adverse
effect.
Domestic competition remains intense and imported steel continues to
adversely affect the market. Moreover, additional production capacity is being
added in the domestic market. 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 higher than that of most of the other domestic
integrated producers. Consequently, the Company may be affected by price
increases or decreases more quickly than many of its competitors. The Company
intends to react to price increases or decreases in the market as required by
competitive conditions.
On November 2, 1998, the Company signed a new, three-year agreement with
Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann is
responsible for marketing the Company's steel products throughout the
continental United States. Mannesmann previously marketed the Company's steel
products in fifteen midwestern states and to certain customers in the eastern
United States. The Company's existing sales force will remain Company employees,
but will be directed by Mannesmann. The Company also made several other
organizational changes designed to improve product distribution and on-time
delivery.
The Mannesmann agreement requires Mannesmann to purchase and pay for the
Company's finished goods inventory as soon as it has been assigned to or
otherwise identified with a particular order. This requirement was implemented
beginning in April 1999. Mannesmann then sells the products to end customers at
the same sales price Mannesmann paid the Company plus a variable commission. As
of June 30, 1999, the Company had received $9.1 million from Mannesmann for the
purchase of finished goods inventory that was assigned to a discrete order. The
Company recognizes the sale of this inventory when it is shipped. Therefore, the
Company only records the receipt of funds and the corresponding inventory
reduction for the cost of the inventory in its financial statements until
shipment occurs. The Company remains responsible for customer credit and product
quality. On or before August 31, 1999, the Company has the right to terminate
the Mannesmann agreement effective December 31, 1999. At present, no decision to
terminate the agreement has been made. Termination of the Mannesmann agreement
would likely have a negative impact on the cash flow and liquidity of the
Company.
Cost of sales includes raw materials, labor costs, energy costs,
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 124.8% for the three months ended June 30, 1999 as compared to
89.3% for the same period in the previous fiscal year. The overall average cost
of sales per ton shipped increased approximately $20 per ton between the two
periods, primarily as a result of production inefficiencies associated with
operating at significantly less than capacity. As described above, the
significant surge in foreign imports and resulting low level of orders,
Page 16 of 27
<PAGE> 17
together with other market factors, caused production levels to be significantly
less than capacity. Operating costs per ton increased in part because fixed
costs were allocated over fewer tons. In addition, the Company, in response to
falling prices, wrote-down the cost of its inventories to market price,
resulting in an adjustment of approximately $4.1 million which increased cost of
sales in the three months ended June 30, 1999. The Company has undergone several
rounds of personnel reductions and other cost cuts in an attempt to at least
partially offset the adverse cost effects of lower production rates. Based on
market conditions, the Company is currently attempting to minimize production
inefficiencies by limiting its production to a full, one-blast furnace level.
The Company will resume a two-blast furnace operation when order entry rates and
pricing indicate that the Company can attain operational results superior to a
full, one-blast furnace operation. A two-blast furnace operation would create
additional working capital needs for the Company. The Company anticipates
instigating a two-blast furnace operation in September or October 1999. There
can, however, be no assurance that market conditions will ultimately justify a
two-blast furnace operation or that the Company will be able to obtain the
requisite working capital from vendor credit, expanded borrowing capacity, or
other sources to support increased production levels.
Depreciation costs included in cost of sales decreased approximately $0.1
million for the three months ended June 30, 1999, compared with the same period
in the previous fiscal year. This decrease was due to a lower asset base as a
result of a write-down at the end of fiscal year 1998 of approximately $16.3
million for impaired, fixed assets.
Selling, general and administrative expenses for the three months ended
June 30, 1999 decreased approximately $2.4 million as compared to the same
period in the previous fiscal year. These lower expenses were due in part to
cost savings related to staff and support personnel reductions.
During the three months ended June 30, 1999, the Company recorded approximately
$2.8 million of professional fees related to its Chapter 11 reorganization
efforts which included the fees and expenses of the bondholders and unsecured
creditors committees. These fees were not included in selling, general and
administrative expenses.
Interest expense decreased approximately $8.8 million during the three
months ended June 30, 1999 as compared to the same period in the previous fiscal
year. As of February 1, 1999, the Company discontinued accruing interest on the
senior notes. Contractual interest on the senior notes for the three months
ended June 30, 1999 was $8.3 million, which is not recorded in the financial
statements. In addition, lower production volumes resulting in lower working
capital needs decreased the average borrowings outstanding compared to the same
period in the previous fiscal year.
NINE MONTHS ENDED JUNE 30, 1999 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1998
Net sales decreased 60.0% due primarily to decreased shipments of
approximately 775,400 tons and decreased overall average selling prices for the
nine months ended June 30, 1999 compared to the same period in the previous
Page 17 of 27
<PAGE> 18
fiscal year. The weighted average sales price (net of transportation costs) per
ton of plate, pipe, sheet and slab products decreased by 19.7%, 19.0%, 22.0% and
24.8%, respectively, for the nine months ended June 30, 1999 compared to the
same period in the previous fiscal year. Shipped tonnage of plate, pipe, sheet
and slab products decreased approximately 449,300 tons or 50.4%, 85,800 tons or
57.1%, 158,800 tons or 47.4% and 81,500 tons or 44.6%, respectively, between the
two periods. The decreases in prices and volumes were primarily a result of
increased supply from imports as discussed above, as well as other market
factors.
The Company's cost of sales, as a percentage of net sales, increased to
136.7% for the nine months ended June 30, 1999 as compared to 90.4% for the same
period in the previous fiscal year. The overall average cost of sales per ton
shipped increased approximately $66 per ton between the two periods, primarily
as a result of production inefficiencies associated with operating at
significantly less than capacity. As described above, the significant surge in
foreign imports and resulting low level of orders caused production levels to be
significantly less than capacity. Operating costs per ton increased in part
because fixed costs were allocated over fewer tons. In addition, the Company, in
response to falling prices, wrote-down the cost of its inventories to market
price, resulting in an adjustment of approximately $5.8 million which increased
cost of sales in the nine months ended June 30, 1999.
Depreciation costs included in cost of sales decreased approximately $1.3
million for the nine months ended June 30, 1999 compared with the same period in
the previous fiscal year. This decrease was due to a lower asset base as a
result of approximately $16.3 million of impaired fixed assets being
written-down at the end of fiscal year 1998.
Selling, general and administrative expense for the nine months ended June
30, 1999 increased approximately $0.7 million as compared to the same period in
the previous fiscal year. These higher expenses were due to increased expenses
of approximately $4.0 million for allowance of doubtful accounts associated with
the depressed steel market that is affecting certain of the Company's customers.
These higher expenses were offset in part by cost savings related to staff and
support personnel reductions.
Subsequent to the Company's filing of a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code on February 1, 1999, the Company recorded
approximately $3.9 million of professional fees related to the reorganization
which included the fees and expenses of the bondholders and unsecured creditors
committees, which were not included in selling, general and administrative
expenses.
Interest expense decreased approximately $14.3 million during the nine
months ended June 30, 1999 as compared to the same period in the previous fiscal
year. As of February 1, 1999, the Company discontinued accruing interest on the
senior notes. Contractual interest on the senior notes for the nine months ended
June 30, 1999 was $24.8 million, which is $13.8 million in excess of recorded
interest expense on the senior notes. In addition, lower production volumes
resulting in lower working capital needs decreased the average borrowings
outstanding compared to the same period in the previous fiscal year.
Page 18 of 27
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from operating expenses, capital
expenditures and working capital requirements, including interest payments. In
the past, the Company has met these requirements principally from the sale of
equity; the incurrence of long-term indebtedness, including borrowings under the
Company's credit facilities; equipment lease financing and cash provided by
operations.
In March 1993, the Company issued in a public offering $135 million
principal amount of 11 1/8% senior notes (the "11 1/8% Senior Notes" and,
together with the 9 1/2% Senior Notes discussed below, the "Senior Notes"). The
11 1/8% Senior Notes mature in 2001, are unsecured, and require interest
payments semi-annually on March 15 and September 15. Since March 1998, the 11
1/8% Senior Notes are redeemable, in whole or in part, at the option of the
Company, subject to certain redemption premiums. The Bankruptcy Code generally
prohibits the Company from making payments on unsecured, pre-petition debt,
including the 9 1/2% Senior Notes due in January 2004 and the 11 1/8% Senior
Notes due in March 2001, except as provided in a confirmed plan of
reorganization. As discussed above, the Company has not been accruing interest
on the Senior Notes since February 1, 1999, the date the Company filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
In connection with the offering of the 11 1/8% Senior Notes, the Company
issued $40 million of 14% cumulative redeemable exchangeable preferred stock
(the "Redeemable Preferred Stock") at a price of $100 per share and warrants to
purchase an aggregate of 1,132,000 shares of Class A common stock. As of June
30, 1999, the Redeemable Preferred Stock consisted of 388,358 shares, no par
value, with a liquidation preference of approximately $151 per share. As allowed
pursuant to the Redeemable Preferred Stock Agreement, 11,642 shares of
Redeemable Preferred Stock have been used to pay for the exercise of warrants to
purchase 233,502 shares of Class A common stock. Dividends accrue at a rate
equal to 14% per annum of the liquidation preference and, except as provided
below, are payable quarterly in cash from funds legally available therefor. For
dividend periods ending before April 1996, the Company had the option to add
dividends to the liquidation preference in lieu of payment in cash. Prior to
April 1996, the Company elected to add the dividends to the liquidation
preference. The Redeemable Preferred Stock is exchangeable, at the Company's
option, into subordinated debentures of the Company due 2003 (the "Exchange
Debentures"). The Company is obligated to redeem all of the Redeemable Preferred
Stock in March 2003 from funds legally available therefor. The Company's ability
to pay cash dividends on the Redeemable Preferred Stock is subject to the
covenants and tests contained in the indentures governing the Senior Notes and
in the Company's Credit Facility. Restricted payment limitations under the
Senior Notes precluded payment of the quarterly preferred stock dividends
beginning with the dividend due June 15, 1996. Unpaid dividends accumulate until
paid and accrue additional dividends at a rate of 14% per annum. As a result of
the Company's inability to pay four full quarterly dividends, the holders of the
Redeemable Preferred Stock elected two directors on May 30, 1997. The right of
such holders to elect directors continues until the Company has paid all
dividends in arrears and has paid the dividends due for two consecutive quarters
thereafter. As of February 1, 1999, the Company discontinued recording dividends
on the Redeemable Preferred Stock.
Page 19 of 27
<PAGE> 20
Unpaid contractual dividends as of June 30, 1999, were approximately $33.6
million, which is $5.1 million in excess of dividends accrued in the Company's
balance sheet. The Company will not pay dividends on the Redeemable Preferred
Stock during the pendency of its Chapter 11 proceeding. Both the Redeemable
Preferred Stock and/or the Exchange Debentures are redeemable, at the Company's
option, subject to certain redemption premiums. The warrants to purchase the
Company's Class A common stock are exercisable at $11 per share, subject to
adjustment in certain circumstances, and expire in March 2000. At June 30, 1999,
warrants to purchase 898,498 shares of Class A common stock were outstanding.
In February 1994, the Company completed a public offering of $190 million
principal amount of 9 1/2% senior notes (the "9 1/2% Senior Notes"). The 9 1/2%
Senior Notes mature in 2004, are unsecured, and require interest payments
semi-annually on January 15 and July 15. After January 1999, the 9 1/2% Senior
Notes are redeemable, in whole or in part, at the option of the Company, subject
to certain redemption premiums. In January 1999, the Company did not make a $9.0
million interest payment due on the 9 1/2% Senior Notes. The Bankruptcy Code
generally prohibits the Company from making payments on unsecured pre-petition
debt, including the 9 1/2% Senior Notes due in January 2004 and the 11 1/8%
Senior Notes due in March 2001, except as provided in a confirmed plan of
reorganization. As discussed above, the Company has not been accruing interest
on the Senior Notes since February 1, 1999, the date the Company filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
On February 19, 1999, the U.S. District Court for the District of Utah
granted the Company's motion to approve a new, $125 million debtor-in-
possession credit facility with Congress Financial Corporation (the "Credit
Facility"). The Credit Facility expires on the earlier of the consummation of a
plan of reorganization or February 19, 2001. The Credit Facility replaced the
Company's previous revolving credit facility with a syndicate of banks led by
Citicorp USA, Inc. as agent, and, by including property, plant and equipment in
the collateral base, is intended to provide additional liquidity. The Credit
Facility is secured by, among other things, accounts receivable; inventory; and
property, plant and equipment. Actual borrowing availability is subject to a
borrowing base calculation and the right of the lender to establish various
reserves, which it has done. The amount available to the Company under the
Credit Facility is expected to be approximately 60%, in the aggregate, of
eligible inventories, plus 85% of eligible accounts receivable, plus 80% of the
orderly liquidation value of eligible equipment up to a maximum of $40 million,
less reserves on the various collateral established by the lender. Borrowing
availability under the Credit Facility is also subject to other covenants. As of
August 11, 1999, the Company's eligible inventories, accounts receivable and
eligible equipment supported access to $66.4 million in borrowings under the
Credit Facility. As of August 11, 1999, the Company had $8.9 million available
under the Credit Facility, with $55.2 million in borrowings and $2.3 million in
letters of credit outstanding. There can, however, be no assurance as to the
amount of availability that will be provided in the future or that the lender
will not require additional reserves in the future. The terms of the Credit
Facility include cross default and other customary provisions.
Page 20 of 27
<PAGE> 21
Besides the above-described financing activities, the Company's major
source of liquidity over time has been cash provided by operating activities.
Net cash provided by operating activities was $13.2 million for the nine months
ended June 30, 1999, as compared with net cash provided by operating activities
of $8.9 million for the nine months ended June 30, 1998. The sources of cash for
operating activities during the nine months ended June 30, 1999 included
depreciation and amortization of $35.6 million, a decrease in accounts
receivable of $48.1 million associated primarily with reduced sales volume and
the implementation of the Mannesmann agreement, a decrease in inventories of
$53.2 million primarily as a result of lower production levels, an increase in
accrued interest payable of $10.3 million and an increase in accounts payable of
$3.9 million. These sources of cash were substantially offset by a net loss of
$121.6 million, an increase in prepaid expenses of $8.3 million, a decrease in
accrued liabilities of $5.0 million and a decrease in accrued payroll and
related taxes of $2.4 million. At current production and pricing levels, the
Company's production activities continue to consume cash. The Company continues
to pursue activities to minimize the liquidity impact thereof. Nevertheless, an
improvement in market conditions is likely necessary for the Company's
production activities to become cash flow positive.
The Company is attempting to improve its liquidity by offering certain non-
core assets for sale. Subsequent to June 30, 1999, the Company finalized an
agreement to sell its large diameter pipe mill equipment for $4.5 million and
continues to offer other non-core assets for sale. The sale of the large
diameter pipe mill equipment has been approved by the Credit Facility lenders
and the bankruptcy court. The large diameter pipe mill equipment has been idled
for many years. The Company was recently informed by the purchaser of the
equipment that payment may not be timely made because of complications involved
in the purchaser's resale of the equipment. The Company believes that it is
entitled to timely payment pursuant to the terms of the contract and will seek
available legal remedies. There can, however, be no assurance as to the timing
or certainty of the receipt of such payment.
Capital expenditures were $7.7 million and $17.9 million for the nine
months ended June 30, 1999 and 1998, respectively. Capital expenditures for
fiscal year 1999 are estimated at approximately $10 to $12 million, which
includes implementation of new business and financial software and various other
projects. Given current market conditions and the uncertainties created thereby,
the Company is continuing to limit its capital spending. The Company has
implemented SAP software, an enterprise-wide business system. The Company
expects to benefit significantly from such implementation, including addressing
the year 2000 issues inherent in its mainframe legacy systems. The project cost
was $9.0 million. The Company is continuing to refine the configuration of the
software and train its employees to better use the software. There can be no
assurance that in the near term the Company will realize the expected benefits
of SAP. Depending on market, operational, liquidity and other factors, the
Company may elect further to adjust the design, timing and budgeted expenditures
of its capital plan.
The Company is a member of a limited liability Company which has entered
into a cooperative agreement with the United States Department of Energy ("DOE")
for the demonstration of a cokeless ironmaking facility and associated power
generation and air separation facilities. As of June 30, 1999, the
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<PAGE> 22
Company had spent (net of DOE reimbursement) approximately $1.1 million in
connection with the project. Expenditures on the project are subject to
government cost sharing arrangements. Completion of the project remains subject
to several contingencies.
YEAR 2000 ISSUES
The Company is actively assessing and correcting potential year 2000
information system issues in the following areas: (i) the Company's information
technology systems; (ii) the Company's non-information technology systems (i.e.,
machinery, equipment and devices which utilize built-in or embedded technology);
and (iii)suppliers and customers. The Company is undertaking its year 2000
review in the following phases: awareness (education and sensitivity to the year
2000 issue), identification (identifying the equipment processes or systems
which are susceptible to the year 2000 issue), assessment (determining the
potential impact of year 2000 on the equipment, processes and systems identified
during the previous phase and assessing the need for testing and remediation),
testing/verification (testing to determine if an item is year 2000 ready or the
degree to which it is deficient), and implementation (carrying out necessary
remedial efforts to address year 2000 readiness, including validation of
upgrades, patches or other year 2000 fixes).
During fiscal year 1997, the Company selected and started the
implementation of SAP software, an enterprise-wide business system. This system
affects nearly every aspect of the Company's operations. During fiscal year
1998, the Company installed new, year 2000 compliant HP computer hardware and
SAP modules for financial accounting, purchasing and accounts payable, raw
materials inventory control and accounts receivable. The human resource and
payroll module was implemented on January 1, 1999. On February 1, 1999, the
Company completed the last phase of the SAP implementation, which includes sales
distribution, materials management, production planning, product costing, and
other management information systems. The HP hardware, operating systems and
software installed with the SAP project are believed to be year 2000 compliant.
The Company has identified other hardware, operating systems and software
applications used in its process control and other information systems and is in
the process of obtaining year 2000 compliance information from the providers of
such hardware, operating systems and applications software. The Company is
working with vendors to test the year 2000 readiness of such hardware, operating
systems and software application systems. The Company is also reviewing, testing
and correcting internally developed software applications for the year 2000
issue.
The Company has substantially completed inventorying its non-information
technology systems and is assessing the year 2000 issues to determine
appropriate testing and remediation. The Company anticipates completing the
assessment of its major non-information technology systems and to start any
necessary testing and implementation efforts for business critical non-
information technology systems in the third quarter of calendar 1999.
The Company has significant relationships with various third parties, and
the failure of any of these third parties to achieve year 2000 compliance could
have a material adverse impact on the Company's business, operating results and
financial condition. These third parties include energy and utility suppliers,
Page 22 of 27
<PAGE> 23
financial institutions, material and product suppliers, transportation
providers, and the Company's significant customers. The Company expects to
review each major third-party supplier to confirm their year 2000 readiness. The
audit/review process will continue into the third calendar quarter of 1999.
Through June 30, 1999, the Company had capitalized approximately $9.0
million in costs to improve the Company's information technology systems and for
year 2000 readiness efforts. The costs include consulting, implementing and
transitioning to new computer hardware and software for the SAP enterprise- wide
business systems. In addition, costs for training and re-engineering efforts
have been expensed. The Company expects to have all year 2000 readiness efforts
completed by October 31, 1999.
The Company is in the process of preparing contingency plans for critical
areas to address year 2000 failures if remedial efforts are not fully
successful. The Company's contingency plans are expected to target the Company's
most reasonably likely worst case scenarios and to include items such as
maintaining an inventory buffer, providing for redundant information technology
systems and establishing alternative third-party logistics. The Company's
contingency plans will be based in part on the results of third-party supplier
questionnaires, and thus are not fully developed at this time. Completion of
initial contingency plans is targeted for the summer of 1999 (which plans will
thereafter be revised from time to time as deemed appropriate).
No assurance can be given that the Company will not be materially adversely
affected by year 2000 issues. The Company may experience material unanticipated
problems and costs caused by undetected errors or defects in its internal
information technology and non-information technology systems. In addition, the
failure of third-parties to timely address year 2000 issues could have a
material adverse impact on the Company's business, operations and financial
condition. If, for example, third party suppliers become unable to deliver
necessary materials, parts or other supplies, the Company would be unable to
timely manufacture products. Similarly, if shipping and freight carriers were
unable to ship product, the Company would be unable to deliver product to
customers.
The foregoing discussion of the Company's year 2000 readiness includes
forward-looking statements, including estimates of the timeframes and costs for
addressing the known year 2000 issues confronting the Company, and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved, and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel with required remediation skills, the ability
of the Company to identify and correct or replace all relevant computer code and
the success of third parties with whom the Company does business in addressing
their year 2000 issues.
FACTORS AFFECTING FUTURE RESULTS
This report contains a number of forward-looking statements, including,
without limitation, statements contained in this report relating to the
Page 23 of 27
<PAGE> 24
Company's ability to improve and optimize operations as well as on-time delivery
and customer service, the Company's objective to increase higher- margin sales
while reducing lower-margin sales, the Company's ability to compete with the
additional production capacity being added in the domestic market, the Company's
ability to compete against imports and the effect of imports and trade cases on
the domestic market, the outcome of trade cases, the Company's expectation that
prices and shipments will gradually improve, the commercial and liquidity
benefits of the Mannesmann agreement, the successful implementation of the
Mannesmann agreement, the Company's ability to successfully reorganize under
Chapter 11 of the Bankruptcy Code, continued access to and adequacy of the
Credit Facility, the Company's ability to restrict capital spending, the
Company's ability to sell certain non-core assets and collect the proceeds
therefrom, the effect of SAP implementation, the Company's plans to become year
2000 compliant, the effect of inflation and any other statements contained
herein to the effect that the Company or its management "believes," "expects,"
"anticipates," "plans" or other similar expressions. There are a number of
important factors that could cause actual events or the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth herein.
The Company's future operations will be impacted by, among other factors,
pricing, product mix, throughput levels and production efficiencies. The Company
has efforts underway to improve throughput rates and production efficiencies and
to continue shifting its product mix to higher-margin products. There can be no
assurance that the Company's efforts will be successful or that sufficient
demand will exist to support the Company's throughput capacity. Pricing and
shipment levels in future periods are key variables to the Company's future
operating results that remain subject to significant uncertainty. These
variables will be affected by several factors including the level of imports,
future capacity additions and product demand.
The short-term and long-term liquidity of the Company also is dependent upon
several other factors, including continued access to the Credit Facility;
vendors credit support; the reactions of customers and others to the Company's
bankruptcy filing; cash needs to fund working capital as volume increases;
availability of capital; foreign currency fluctuations; competitive and market
forces; capital expenditures and general economic conditions. Moreover, 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. In addition, because of the Company's
recent bankruptcy filing and liquidity position, the Company's financial
flexibility is limited. Many of the foregoing factors, of which the Company does
not have complete control, may materially affect the performance and financial
condition of the Company.
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.
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<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results for
fiscal 1998 and for the first three fiscal quarters of 1999 were severely
affected by, among other things, a dramatic surge in steel imports beginning in
the summer of 1998. As a consequence of record-high levels of low-priced steel
imports and the resultant deteriorating market conditions, the Company's overall
price realization and shipments declined precipitously. Decreased liquidity made
it impossible for the Company to service its debt and fund ongoing operations.
Therefore, the Company sought protection under Chapter 11 of the Bankruptcy
Code. The Company has responded to the surge in imports by significantly
decreasing production, reducing costs and pursuing trade cases against dumped
and/or subsidized steel imports. The Bankruptcy Code generally prohibits the
Company from making payments on unsecured, pre- petition debt, including the 9
1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due 2001, except as
provided in a confirmed plan of reorganization. The Company is continuing
operations in Chapter 11 and has a $125 million debtor-in-possession credit
facility in place.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not make its interest payment of approximately $9.0 million
due January 15, 1999 on the Company's 9 1/2% Senior Notes and its interest
payment of approximately $7.5 million due March 15, 1999 on the Company's 11
1/8% Senior Notes, which resulted in a default under the terms thereof. The
defaults were not cured by the Company. As described above, the Company filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code on
February 1, 1999. The Bankruptcy Code generally prohibits the Company from
making payments on unsecured, pre-petition debt, including the Senior Notes,
except as provided in a confirmed plan of reorganization. Interest payment
defaults under the Senior Notes are excluded as a cross default under the terms
of the Credit Facility.
As of February 1, 1999, the Company discontinued accruing interest on the
Senior Notes and dividends on its Redeemable Preferred Stock. Contractual
interest on the Senior Notes for the three months ended June 30, 1999 was $8.3
million, which is not included in the financial statements. Contractual
dividends on the Redeemable Preferred Stock as of June 30, 1999, was
approximately $33.6 million, which is $5.1 million in excess of dividends
accrued in the Company's balance sheet.
Page 25 of 27
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
Number Exhibit Herewith
------ ------- --------
<S> <C> <C>
10.1 Amendment No. 1 to Loan and Security X
Agreement by and between Congress Financial Corporation
and Geneva Steel Company as Debtor and Debtor-in-Possession
as Borrower, dated July 31, 1999
10.2 Agreement for purchase and sale of Large Diameter Pipe X
Mill at Geneva Steel between Mitsubishi International
Corporation and Geneva Steel Company, dated June 21, 1999
10.3 Letter agreement between Mannesmann Pipe and Steel Corporation X
and Geneva Steel Company dated July 30, 1999
27 Financial Data Schedule X
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1999.
Page 26 of 27
<PAGE> 27
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 16, 1999
Page 27 of 27
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.1 Amendment No. 1 to Loan and Security
Agreement by and between Congress Financial Corporation
and Geneva Steel Company as Debtor and Debtor-in-Possession
as Borrower, dated July 31, 1999
10.2 Agreement for purchase and sale of Large Diameter Pipe
Mill at Geneva Steel between Mitsubishi International
Corporation and Geneva Steel Company, dated June 21, 1999
10.3 Letter agreement between Mannesmann Pipe and Steel Corporation
and Geneva Steel Company dated July 30, 1999
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
July 31, 1999
Geneva Steel Company
10 South Geneva Road
Vineyard, Utah 84058
Ladies and Gentlemen:
Geneva Steel Company, Debtor and Debtor-in-Possession (together with
its successors and assigns, "Borrower") has entered into financing arrangements
with Congress Financial Corporation, a Delaware corporation (together with its
successors and assigns, "Lender") pursuant to which Lender may make loans and
advances and provide other financial accommodations to Borrower as set forth in
the Loan and Security Agreement, dated February 19, 1999, between Borrower and
Lender (as the same is amended hereby and may hereafter be further amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement") and the other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including this Amendment (all of the foregoing, together with
the Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements").
Borrower has requested that (i) Lender agree to amend the Loan
Agreement so as to permit Borrower to create an additional encumbrance and to
incur additional indebtedness under the Loan Agreement in connection with
entering into insurance premium financing arrangements and (ii) Lender consent
to the sale by Borrower to Mitsubishi International Corporation ("Purchaser") of
certain equipment as set forth in Schedule A annexed hereto (the "Pipe Mill
Equipment") pursuant to the Agreement for Purchase and Sale of Large Diameter
Pipe Mill, dated as of June 21, 1999, between Borrower and Purchaser (the
"Purchase Agreement"). Lender is willing to agree to such amendment and consent,
subject to the terms and conditions contained herein. By this Amendment,
Borrower and Lender intend to evidence such amendment and consent.
In consideration of the foregoing, and the agreements and covenants
contained herein, the parties hereto agree as follows:
<PAGE> 2
1. Definitions. For purposes of this Amendment, unless otherwise defined
herein, all terms used herein, including, but not limited to, those terms used
and/or defined in the recitals above, shall have the respective meanings
assigned to such terms in the Loan Agreement.
2. Amendments.
2.1. Encumbrances. Section 9.8 of the Loan Agreement is hereby
amended by adding a new Section 9.8(k) thereto as follows:
"(k) liens and security interests of AFCO Credit Corporation
("AFCO") on the unearned or returned premiums with respect to certain of
the insurance policies maintained by Borrower payable as a result of the
cancellation of such policies, provided, that, (i) Lender shall have
received a list and description, in form and substance satisfactory to
Lender, of the insurance policies, the unearned premiums for which are
subject to such liens and security interests and (ii) Lender shall have
received evidence, in form and substance satisfactory to Lender, that
AFCO does not have any security interest or other interest or claim in
or to any assets of Borrower other than claims to unearned or returned
premiums payable as a result of the cancellation of such policies."
2.2. Indebtedness. Section 9.9 of the Loan Agreement is hereby
amended by adding a new Section 9.9(h) thereto as follows:
"(h) Indebtedness of Borrower to AFCO in respect of unearned
premiums payable on certain insurance policies maintained by Borrower
pursuant to the terms of the Premium Finance Agreement, Disclosure
Statement and Security Agreement between Borrower and AFCO, provided,
that, (i) in no event shall the total amount of such Indebtedness
outstanding at any time exceed $3,000,000, (ii) Lender shall have
received true, correct and complete copies of all agreements, documents
and instruments evidencing or otherwise related to such Indebtedness, as
duly authorized, executed and delivered by the parties thereto, (iii)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of the agreements with respect to such Indebtedness;
except, that, Borrower may, after prior written notice to Lender, amend,
modify, alter or change the terms thereof so as to extend the maturity
thereof to defer the timing of any payments in respect thereof, or to
forgive or cancel any portion of such Indebtedness (other than pursuant
to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or
otherwise deposit or invest any sums for such purpose and (iv) Borrower
shall furnish to Lender all notices or demands in connection with such
Indebtedness either received by Borrower or on its behalf after receipt
thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be."
3. Consent. In accordance with the request by Borrower, subject to the
terms and conditions contained herein, Lender hereby consents to the sale by
Borrower of the Pipe Mill Equipment in accordance with the terms of the Purchase
Agreement as in effect on the date
- 2 -
<PAGE> 3
hereof, and Lender hereby releases in favor of Borrower, as of the date hereof
all liens and security interests, to the extent held by Lender, in and to the
Pipe Mill Equipment, subject to the satisfaction of each of the conditions set
forth in Section 6 herein as determined by Lender. The amount received from the
sale of the Pipe Mill Equipment shall not be considered in the application of
the limitation on the amount of worn-out or obsolete Equipment which may be sold
by Borrower pursuant to Section 9.7(b)(ii) of the Loan Agreement.
4. Availability Reserve. In connection with the consent provided for
herein, Lender shall, upon the consummation of the sale of Pipe Mill Equipment
contemplated by the Purchase Agreement, establish an Availability Reserve equal
to $1,500,000 in accordance with Section 1.4 of the Loan Agreement to reduce the
amount of Supplemental Revolving Loans otherwise available to Borrower.
5. Representations, Warranties and Covenants. Borrower represents,
warrants and covenants with and to Lender as follows, which representations,
warranties and covenants are continuing and shall survive the execution and
delivery hereof, the truth and accuracy of, or compliance with each, together
with the representations, warranties and covenants in the other Financing
Agreements, being a condition of the effectiveness of this Amendment and a
continuing condition of the making or providing of any Loans or Letter of Credit
Accommodations by Lender to Borrower:
5.1. This Amendment has been duly authorized, executed and
delivered by Borrower and is in full force and effect, and the agreements and
obligations of Borrower contained herein constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
terms.
5.2. All of the representations and warranties set forth in the
Financing Agreements, as amended hereby, are true and correct in all material
respects after giving effect to the provisions of this Amendment, except to the
extent any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct in
all material respects as of such specified date.
5.3. The failure of Borrower to comply with the covenants, conditions
and agreements contained herein or in any other agreement, document or
instrument at any time executed or delivered by Borrower or any other person
with, to or in favor of Lender shall constitute an Event of Default under the
Financing Agreements; provided, that, notwithstanding anything to the contrary
contained in Section 10.1(n) of the Loan Agreement, any default by Borrower
under its arrangements with AFCO shall only constitute an Event of Default if
such default by Borrower under its arrangements with AFCO continues for more
than ten (10) days.
5.4. On or about the date of this Amendment, Borrower has sold to
Purchaser all of the Pipe Mill Equipment pursuant to the Purchase Agreement as
in effect on the date hereof.
- 3 -
<PAGE> 4
5.5. After giving effect to the provisions herein, no Event of Default
or act, condition or event, which with notice or passage of time or both, would
constitute an Event of Default exists or has occurred.
5.6. On or before the date hereof, Borrower has delivered, or caused to
be delivered to Lender, a true, correct and complete copy of the Purchase
Agreement as executed by the parties thereto, together with all schedules and
exhibits thereto.
5.7. The security interests in and liens of Lender upon all assets and
properties of Borrower, other than the Pipe Mill Equipment, are and shall
continue to be in full force and effect, including but not limited to, all
amounts at any time payable to Borrower or any of its affiliates, and all
rights, benefits and remedies of Borrower, pursuant to the Purchase Agreement.
5.8. Borrower shall cause all amounts at any time payable to Borrower or
any of its affiliates pursuant to the Purchase Agreement or any related
agreements to be paid by Purchaser directly to Lender for application to the
Obligations.
5.9. In the event Borrower or any of its affiliates receives any amounts
at any time payable to Borrower or its affiliates pursuant to the Purchase
Agreements or any related agreements, documents and instruments, such amounts
shall be collected by Borrower or its affiliates as the property of Lender and
held by it or them in trust for Lender and shall on the day received be remitted
to Lender in the form received, with any necessary assignments or endorsements
for application to the Obligations of Borrower to Lender in such order and
manner as Lender may determine.
6. Conditions Precedent.
6.1. The effectiveness of the terms and conditions of this Amendment
shall only be effective upon the satisfaction of each of the following
conditions precedent:
6.2. the receipt by Lender in cash or other immediately available funds,
of all of the proceeds of the sale of the Pipe Mill Equipment by Borrower to
Purchaser pursuant to the Purchase Agreement for application by Lender to the
Obligations of Borrower in such order and manner as Lender may determine;
6.3. the receipt by Lender of a true, correct and complete copy of the
Purchase Agreement, together with all exhibits and schedules thereto.
6.4. the receipt by Lender of a certified copy of the signed Order as
duly entered by the Bankruptcy Court for the District of Utah in the Chapter 11
case approving the insurance premium financing as set forth herein;
-4-
<PAGE> 5
6.5. the receipt by Lender of an original of this Amendment, duly
authorized, executed and delivered by Borrower.
7. General.
7.1. Effect of this Amendment. Except as modified pursuant hereto, no
other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
date hereof. Any acknowledgment or consent contained herein shall not be
considered to constitute an acknowledgment or consent to any other or further
action by Borrower or to entitle Borrower to any other consent. To the extent of
conflict between the terms of this Amendment and the Financing Agreements, the
terms of this Amendment shall control.
7.2. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Amendment.
7.3. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of laws).
7.4. Binding Effect. This Amendment is binding upon and shall inure to
the benefit of Lender, Borrower and their respective successors and assigns.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 5 -
<PAGE> 6
7.5. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
but all of which when taken together shall constitute one and the same
instrument.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: \s\ Thomas McGregor
-----------------------------------
Title: Vice President
--------------------------------
ACKNOWLEDGED AND AGREED TO:
GENEVA STEEL COMPANY, Debtor and
Debtor-in-Possession
By: \s\ Ken C. Johnsen
--------------------------------------
Title: Executive Vice President
-----------------------------------
- 6 -
<PAGE> 1
Exhibit 10.2
AGREEMENT FOR PURCHASE AND SALE OF
LARGE DIAMETER PIPE MILL AT GENEVA STEEL
Between
MITSUBISHI INTERNATIONAL CORPORATION
of New York, New York
and
GENEVA STEEL COMPANY
of Vineyard, Utah
June 21, 1999
<PAGE> 2
AGREEMENT FOR PURCHASE AND SALE OF
LARGE DIAMETER PIPE MILL AT GENEVA STEEL
This Agreement for Purchase and Sale of Large Diameter Pipe Mill (the
"Agreement") dated as of June 21, 1999 is entered into by and between MITSUBISHI
INTERNATIONAL CORPORATION of New York, New York ("BUYER") and GENEVA STEEL
COMPANY, Debtor and Debtor-in-Possession, of Vineyard, Utah ("SELLER"), under
the terms and conditions as outlined in the following sections.
SECTION 1 SCOPE OF AGREEMENT
1.1 Subject to the terms and conditions of this Agreement , BUYER agrees to
buy and SELLER agrees to sell the used Large Diameter Pipe Mill and
related equipment located on the premises of SELLER in Vineyard, Utah,
USA (the "Premises") and which is more particularly listed and described
in Appendix 1 which is made a part hereof, together with any existing
spares designed to function solely with such equipment, as agreed upon
by BUYER and SELLER, and any existing drawings, manuals and production
and maintenance records for such equipment in SELLER's possession as of
the date hereof (collectively, the "EQUIPMENT"). The EQUIPMENT shall not
include cranes (except as provided in Section 1.1.1. of Appendix 1) or
real property or any items that are real property improvements or
fixtures. SELLER shall not remove any of the EQUIPMENT from the Premises
after the date of this Agreement; provided, however, that SELLER shall
not be responsible for any shortages unless it can be shown by BUYER
that such EQUIPMENT was in existence at the Premises on the date hereof.
In no event shall SELLER be liable for any EQUIPMENT removed from the
Premises by BUYER or its contractors, employees, or representatives due
to the failure of BUYER to adequately secure the site of the EQUIPMENT
as provided herein. After the transfer of title to the EQUIPMENT and the
receipt of the Contract Price (defined below) by SELLER (the "Closing"),
BUYER, BUYER's client or BUYER's contractor shall be solely responsible
to secure the site of the EQUIPMENT for dismantling and removal.
Notwithstanding anything in Appendix 1 to the contrary, the EQUIPMENT
shall not include any electrical main systems, transformers, breakers or
switches.
1.2 The EQUIPMENT is being sold "as is" and "where is" in all respects.
Except as specifically provided herein, SELLER makes no warranties or
representations whatsoever regarding the Premises or the EQUIPMENT, or
any other matter in any way related to the Premises or the EQUIPMENT,
including, but not limited to, merchantability, fitness for a specific
use, title to the EQUIPMENT (except as set forth in Section 6.2 hereof),
existence (except as contemplated in Section 1.1 hereof), utilities,
ability to dismantle or transport the EQUIPMENT, operational capability,
use, value or condition (environmental and otherwise) of the EQUIPMENT.
BUYER has inspected the EQUIPMENT and is of sufficient sophistication,
technical expertise
1
<PAGE> 3
and financial ability to evaluate the merits of the purchase of the
EQUIPMENT. Other than as specifically provided in this Agreement, BUYER
is not relying on, and hereby specifically waives any claim of liability
based on, any statement, representation, warranty, promise, covenant, or
undertaking by SELLER or any other person representing or purporting to
represent SELLER in connection with the EQUIPMENT or the Premises.
SECTION 2 BANKRUPTCY AND CONSENT MATTERS
2.1 For the purposes of this Agreement, the terms "363 Order" and "Final
Order" shall have the following definitions:
2.1.1 "363 Order" means an order of the Bankruptcy Court (as defined
below), in form and substance reasonably satisfactory to BUYER
and SELLER, approving the sale of the EQUIPMENT by SELLER to
BUYER under this Agreement pursuant to Sections 105 and 363 of
the Bankruptcy Code, free and clear of any Encumbrances (as
defined below) except as specifically set forth in this
Agreement, and finding that BUYER is a "good faith purchaser"
including for purposes of Section 363(m) of the Bankruptcy Code.
2.1.2 "Final Order" means an order of the Bankruptcy Court (as defined
below) (a) as to which the time to appeal shall have expired and
as to which no appeal shall then be pending, or (b) if an appeal
shall have been filed or sought, either (i) no stay of the order
shall be in effect or (ii) if such stay shall have been granted
by the Bankruptcy Court, then (A) the stay shall have been
dissolved or (B) a final order of the district court having
jurisdiction to hear such appeal shall have affirmed the order
and the time allowed to appeal from such affirmance or to seek
review or rehearing thereof shall have expired and the taking or
granting of any further hearing, appeal or petition for
certiorari shall not be permissible; provided, that the
possibility that a motion under Rule 60 of the Federal Rules of
Civil Procedure, or any analogous rule under the U.S. Bankruptcy
Rules or local court rules, may be filed with respect to such
order shall not prevent such order from being considered a Final
Order.
2.2 The (a) sale of the Equipment pursuant to this Agreement, (b) rights and
obligations of the parties hereto, and (c) effectiveness of this
Agreement, shall be subject to (i) the approval of the transaction
contemplated by this Agreement by the United States Bankruptcy Court for
the District of Utah (the "Bankruptcy Court"), before which the
bankruptcy proceeding under Chapter 11 of the Bankruptcy Code involving
the SELLER as Debtor and Debtor-in- Possession was commenced and, (ii)
the terms and conditions of the Bankruptcy Approval (as defined in
Section 2.3) meeting the reasonable approval of SELLER and BUYER, which
approval shall not be unreasonably withheld or delayed.
2
<PAGE> 4
2.3 The approval of the Bankruptcy Court shall be evidenced by the entry by
the Bankruptcy Court of the 363 Order prior to the Closing Date (as
defined below), in substantially the form contemplated by this
Agreement, which order shall not have been reversed, stayed, modified or
amended in any manner adverse to BUYER, and which shall have become a
Final Order which remains valid and binding and in full force and effect
(the "Bankruptcy Approval"). In the event such Bankruptcy Approval is
not obtained by SELLER within sixty (60) days after the filing by SELLER
of the motion for the 363 Order, or such other period as the parties may
agree in writing (the "Approval Period"), this Agreement and the rights
and obligations of the parties hereunder shall be null and void and of
no further force or effect upon written notice by SELLER to BUYER;
provided that if the Bankruptcy Approval is being diligently pursued by
SELLER, either party hereto may extend the Approval Period for an
additional thirty (30) days by giving written notice to the other party
of such extension prior to the expiration of the original Approval
Period.
2.4 In addition to anything contained in Section 2.1.1 hereof, and
notwithstanding anything to the contrary contained herein, SELLER shall
endeavor to have the Final Order include the provisions set forth in
Subsections 2.4.1, 2.4.2 and 2.4.3.
2.4.1 Pursuant to sections 363(b), 363(f) and 105(a) of the Bankruptcy
Code, on the Closing Date the EQUIPMENT and all of SELLER's
right, title and interest therein shall be transferred to BUYER
in accordance with this Agreement and shall be free and clear of
(i) all mortgages, security interests, conditional sale and/or
title retention agreements, pledges, liens, judgments, demands,
encumbrances, restrictions, constructive or resulting trusts, or
charges of any kind or nature (collectively referred to as
"Liens") and (ii) all debts arising in any way in connection
with any acts of SELLER, claims (as that term is defined in
section 101(5) of the Bankruptcy Code), obligations, demands,
guarantees, options, rights, contractual commitments,
restrictions, interests, and matters of any kind or nature,
including, but not limited to, any restrictions on the use,
transfer or other attributes of ownership, to the extent arising
prior to the closing of this Agreement or relating to acts
occurring prior to the closing of this Agreement, and whether
imposed by agreement, understanding, law, equity or otherwise
(collectively referred to as "Claims", and together with Liens,
the "Encumbrances"). All such Encumbrances, as well as any and
all Liens, Claims, demands, actions, causes of action, rights,
obligations, liabilities, guarantees, damages, costs, expenses
and other losses of every kind and nature, whether known or
unknown, whether accrued or not accrued, whether choate or
inchoate, and whether contingent or liquidated, which may exist
or might have existed against SELLER or its affiliates prior to
the closing of the Agreement including but not limited to any
successor liability at law or in equity by the holders of any
Liens and/or Claims, shall be released, terminated and
discharged as to the EQUIPMENT
3
<PAGE> 5
with all such Encumbrances attaching to the proceeds of the sale
of the EQUIPMENT.
2.4.2 All persons and entities holding Encumbrances of any kind and
nature with respect to the EQUIPMENT are hereby forever barred
and permanently enjoined from asserting such Encumbrances of any
kind and nature against the EQUIPMENT or BUYER or its
successors, assigns or affiliates.
2.4.3 In no event shall BUYER be liable for any amounts or pre-Closing
Date liabilities or obligations arising from and related to the
EQUIPMENT.
SELLER acknowledges that the failure of the Bankruptcy Court to include
in the 363 Order the language of Subsections 2.4.1, 2.4.2 and 2.4.3 or
language with the same effect shall be a basis for BUYER to withhold its
consent to the Bankruptcy Approval; provided that, if, in granting the
363 Order, the Bankruptcy Court limits the scope of the release,
termination and discharge of successor liability arising out of the
transfer of the EQUIPMENT as described in the last sentence of
Subsection 2.4.1, such limitation as to the release, termination and
discharge of successor liability alone shall not provide a basis for
BUYER to withhold its consent to the Bankruptcy Approval. BUYER's
consent to the Bankruptcy Approval shall be a condition precedent to the
rights and obligations of the parties hereunder.
2.5 At its sole cost and expense, SELLER shall, as promptly as practicable
after the date of the Agreement, file with the Bankruptcy Court the
necessary motions, notices and supporting papers, and a form of 363
Order, all in form and substance reasonably satisfactory to BUYER,
seeking Bankruptcy Approval approving this Agreement and SELLER's
performance hereunder, and SELLER shall use its commercially reasonable
efforts to obtain entry of the 363 Order. BUYER agrees that it will take
such actions as are reasonably requested by SELLER to assist in
obtaining the Bankruptcy Approval, including by furnishing affidavits or
other documents or information for filing with the Bankruptcy Court for
purposes, among other things, of providing necessary assurances of
performance by BUYER and demonstrating that the BUYER is a "good faith"
purchaser under Section 363(m) of the Bankruptcy Code. In the event the
363 Order shall be appealed, SELLER shall at its sole cost and expense
use all reasonable efforts to defend such appeals.
2.6 SELLER shall provide BUYER with copies of all motions, notices and
supporting papers, and form of 363 Order motion, to be filed by SELLER
with the Bankruptcy Court relating to the matters herein prior to the
filing thereof and shall not file any such document with the Bankruptcy
Court in connection with this Agreement without BUYER's prior approval,
unless due to emergency time constraints or as otherwise necessary in
SELLER's opinion, for SELLER to fulfill its obligations under the
Bankruptcy Code.
4
<PAGE> 6
2.7 To the extent such matters are within SELLER's control, SELLER shall
provide adequate notice to BUYER of, and afford BUYER opportunity to
attend and participate in, all bankruptcy motions, orders, hearings and
other proceedings relating to the subject matter in this Section 2.
2.8 In the event that at any time and from time to time prior to receipt of
the Bankruptcy Approval by the parties, SELLER receives another bona
fide offer or offers from any third party with a higher purchase price
or more favorable terms and conditions to SELLER with respect to the
EQUIPMENT (each, an "Other Offer") which SELLER desires to accept,
SELLER shall give written notice to BUYER (the "Offer Notice") of such
Other Offer, including a copy of the document reflecting such Other
Offer. Unless otherwise agreed to by SELLER and BUYER, BUYER shall have
a period of five (5) business days after receipt of such Offer Notice
either (i) to terminate this Agreement (which Agreement shall then
become null and void with no further rights or obligations hereunder) or
(ii) unconditionally agree in writing to modify this Agreement to
include the material terms and conditions set forth in the Offer Notice.
If BUYER fails to timely so notify SELLER of its termination of this
Agreement or its unconditional acceptance of the terms and conditions
set forth in the Offer Notice, this Agreement shall automatically
terminate and thereafter this Agreement shall be null and void and
neither SELLER nor BUYER shall have any further rights or obligations
hereunder.
2.9 The rights and obligations of the parties hereto are subject to the
further condition that SELLER shall have received the consent of
Congress Financial Corporation, a Delaware corporation ("Congress
Financial"), to SELLER's entry into this Agreement and the consummation
of the transaction contemplated hereby. Promptly after the signing of
this Agreement by the parties hereto, SELLER shall request such consent
by Congress Financial and use its commercially reasonable efforts in an
attempt to obtain such consent by Congress Financial. In the event such
consent by Congress Financial is not obtained on or before the receipt
of Bankruptcy Approval by the parties hereto, this Agreement and the
rights and obligations of the parties hereunder shall be null and void
and of no further force or effect upon written notice by SELLER to
BUYER.
SECTION 3 PRICE
3.1 The total purchase price for the EQUIPMENT described in Section 1 of
this Agreement (the "Contract Price") is US$4,555,000.00 (Four Million
Five Hundred Fifty-Five Thousand US Dollars).
3.2 The Contract Price is firm.
5
<PAGE> 7
3.3 Any sales, use or other tax (other than income taxes of BUYER) payable
to the State of Utah in connection with the sale of the EQUIPMENT by
SELLER to BUYER shall be paid by SELLER.
SECTION 4 PAYMENT AND TERMS OF PAYMENT
4.1 All payments under this Agreement shall be paid in U.S. Dollars.
4.2 The Contract Price of US$4,555,000.00 (Four Million Five Hundred
Fifty-Five Thousand US Dollars) shall be paid by BUYER to SELLER in the
following manner:
4.2.1 A down payment of 20% of the Contract Price, or $911,000.00
(Nine Hundred Eleven Thousand US Dollars) (the "First Payment"),
shall be paid to SELLER by wire-transferred funds (same day
availability) within ten (10) days after Bankruptcy Approval.
4.2.2 The balance of the Contract Price, or $3,644,000.00 (Three
Million Six Hundred Forty-Four Thousand US Dollars) (the"Final
Payment"), shall be paid to SELLER by wire-transferred fund
(same day availability) no later than the last to occur of (i)
fifteen (15) days after Bankruptcy Approval or (iii) thirty (30)
days after the signing of this Agreement (the "Closing Date").
SECTION 5 EQUIPMENT REMOVAL & SCHEDULES
5.1 BUYER shall be responsible for using a qualified U.S. contractor for
dismantling and removal of the EQUIPMENT from the Premises and loading
the EQUIPMENT onto shipment containers, flat racks, trucks and/or rail
cars at the Premises provided by BUYER. After dismantling and removal of
the EQUIPMENT from the Premises, BUYER shall be responsible for
performing a site clean-up of the Premises, including a clean sweep of
the site and placing safety barriers around open pit areas which
resulted from the dismantling and removal of the EQUIPMENT. SELLER shall
allow BUYER, BUYER's client and BUYER's contractor access to the
Premises for the purpose of dismantling and removing the EQUIPMENT
provided that such entry shall be subject to the conditions precedent
that SELLER shall have received the entire Contract Price and that
BUYER, BUYER's client and BUYER's contractors shall have each entered
into an agreement in form and substance satisfactory to SELLER
addressing coordination, insurance, liability, indemnification,
utilities, staging, battery limits, labor relations, transportation,
security and other matters in connection with the dismantling and
removal of the EQUIPMENT and the operation of SELLER's plant and other
facilities.
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5.2 The dismantling of the EQUIPMENT shall commence after payment in full of
the Contract Price but no later than sixty (60) days after the
Bankruptcy Approval. The period for dismantling and removal of the
EQUIPMENT at the Premises as contemplated by Section 4.1 shall not
exceed eight (8) months from the date of the Bankruptcy Approval;
provided however that (i) such period shall be extended a day for each
day that the critical path for removal of the EQUIPMENT by BUYER is
delayed solely by the wrongful acts or omissions of SELLER in the
performance (or non-performance) of SELLER's obligations hereunder, and
(ii) BUYER shall be entitled to an additional one-time thirty (30) day
extension of such period (whether or not extended by operation of clause
(i) above) by written notice thereof to SELLER so long as (a) BUYER is
diligently pursuing dismantling and removal of the EQUIPMENT, (b) any
delay in such dismantling and/or removal was not caused by BUYER,
BUYER's client or BUYER's contractor, and (c) BUYER is not otherwise in
default hereunder. If BUYER does not completely dismantle and remove the
EQUIPMENT within such eight (8) month period, as such period may be
extended pursuant to the immediately foregoing sentence, BUYER shall be
in material breach hereof and SELLER, in addition to its other rights
and remedies at law or in equity, shall have the right to remove the
EQUIPMENT from the Premises and dispose of such EQUIPMENT, or any part
thereof, as SELLER may in its sole judgment deem appropriate and apply
the proceeds thereof in partial recoupment of its damages and other
costs and expenses (including attorneys' and consultants' fees) incurred
in connection with such default; provided that any proceeds in excess of
such damages, costs and expenses shall be paid to SELLER upon SELLER's
reasonable request.
5.3 Both SELLER and BUYER shall each have a designated representative on
site during the entire period of EQUIPMENT dismantling, removal and
loading in order to coordinate with each other. In addition, subject to
Section 5.1 hereof, SELLER shall permit representatives of BUYER,
BUYER's client and BUYER's contractor to be on site at SELLER's Premises
during such period for the purpose of inspecting the EQUIPMENT,
observing the performance of the dismantling, removal and loading of the
EQUIPMENT, and match- marking the EQUIPMENT. The representatives of
BUYER, BUYER's client and BUYER's contractors shall abide by all
applicable laws, and by SELLER's rules and regulations of which they
have received written notice, with respect to safety at the Premises.
5.4 SELLER shall be responsible for removal and disposal of any and all
known hazardous materials, and all known hazardous and non-hazardous
oils and fluids present in the EQUIPMENT, to a commercially acceptable
level prior to the commencement of the EQUIPMENT dismantling, removal
and loading, and shall otherwise be responsible for compliance prior to
the Closing of the EQUIPMENT with all federal, state and local laws,
ordinances, regulations, permits and approvals applicable to the
EQUIPMENT and the Premises, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") and rules and regulations of the
Occupational Safety and Health Administration ("OSHA"), the
Environmental
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Protection Agency ("EPA") and similar state, county and municipal
agencies with jurisdiction over such matters. The foregoing sentence
shall not obligate SELLER to modify, upgrade or change the EQUIPMENT or
otherwise alter the as-is nature of this transaction, SELLER's
obligations being limited to the removal of such materials, oils and
fluids. BUYER is responsible for disposal of any residual non-hazardous
hydraulic oils or fluids discovered in the machine components during
EQUIPMENT dismantling, removal and loading, and SELLER is responsible
for disposal of any residual hazardous materials, oils and fluids
discovered in the EQUIPMENT during dismantling, removal and loading at
the Premises. Removal of such EQUIPMENT from the Premises shall be
deemed to be BUYER's acknowledgment and approval of the satisfactory
removal and disposal of such materials, oils and fluids by SELLER.
SELLER shall have no responsibility or liability for any such materials,
oils or fluids discovered in the EQUIPMENT after removal from the
Premises.
5.5 Without limiting the generality of Section 5.4 hereof, BUYER shall cause
each person performing any dismantling, removal or loading work or
services for BUYER, BUYER's client or BUYER's contractor, to comply with
all of the obligations set forth on Exhibit A hereto. Notwithstanding
anything in this Agreement (including Exhibit A) to the contrary,
neither BUYER, BUYER's client nor BUYER's contractor shall be liable for
any environmental condition of the Premises to the extent that such
condition existed prior to the entry by BUYER, BUYER's client or BUYER's
contractor on the Premises.
5.6 SELLER shall provide BUYER and BUYER's contractor with access to and use
of cranes currently available on the Premises as reasonably necessary
for the dismantling, removal and loading. SELLER will allow BUYER's
contractor to make an opening in one side of the building wall to allow
larger EQUIPMENT in and out of the facility so long as such opening can
be made without impairing the structural integrity of the building.
SELLER shall provide BUYER and BUYER's contractor with the use of its
utilities, staging areas and facilities at the Premises as necessary for
the dismantling, loading and removal of the EQUIPMENT as contemplated
herein at no additional cost or expense.
5.7 Prior to entering the Premises, BUYER, BUYER's client and BUYER's
contractor shall provide SELLER with a certificate of insurance, or
certified copies of insurance policies if requested by SELLER,
evidencing that the insurance coverage described on Exhibit B hereto is
in full force and will remain in full force during the entire
dismantling and removal period. Failure to do so shall be a material
default by BUYER of its obligations hereunder.
5.8 Subject to the terms, conditions and limitations of this Agreement,
including but not limited to the provisions of Section 5.1 hereof,
SELLER hereby grants to BUYER a non-exclusive easement for vehicular and
pedestrian ingress and egress to and from the site of the EQUIPMENT to
Geneva Road, such easement to be located on the existing roadways on the
Premises, as such roadways may be relocated and established from time to
time, for the sole
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and limited purpose of allowing BUYER, BUYER's client and BUYER's
contractor(s) to dismantle, remove and load the EQUIPMENT pursuant to
the terms of this Agreement. Such easement shall automatically terminate
upon the removal of the EQUIPMENT from the Premises or the termination
of this Agreement, whichever first occurs.
SECTION 6 TRANSFER OF OWNERSHIP
6.1 Title to and ownership of the EQUIPMENT shall be transferred from SELLER
to BUYER at the time the Final Payment is received by SELLER. SELLER
shall issue to BUYER a bill of sale (without representation or warranty
except as provided in this Agreement) evidencing such transfer of title
and ownership, such bill of sale to be substantially in the form of
Exhibit C hereto.
6.2 SELLER hereby represents and warrants to BUYER, as of the date hereof
and as of the Closing, as follows:
6.2.1 Subject to obtaining the Bankruptcy Approval, this Agreement has
been duly executed by SELLER and constitutes a valid and binding
obligation of SELLER, enforceable in accordance with its terms
except that enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws of general
application and general principles of equity.
6.2.2 Except for obtaining the Bankruptcy Approval and the approval of
Congress Financial, no further consent or approval is necessary
for the valid execution and delivery by SELLER of this Agreement
and all other documents necessary or advisable to consummate the
transactions contemplated hereby and thereby, or the valid
performance by SELLER of its obligations under this Agreement
and all other documents necessary or advisable to consummate the
transactions contemplated hereby and thereby.
6.2.3 SELLER shall indemnify, protect, defend and hold harmless BUYER
from and against any and all claims (including claims for
contribution and/or indemnification), demands, causes of action,
losses, damages, liabilities, suits, costs and expenses,
including without limitation, attorneys' fees and court costs,
asserted against or suffered or incurred by BUYER by reason of,
arising out of or in connection with (a) a breach or violation
of any representation or warranty of SELLER set forth in this
Agreement or in any other document executed by SELLER in
connection hereunder, (b) a misrepresentation or inaccurate
statement of fact made by SELLER in this Agreement or in any
other document executed by SELLER in connection herewith, or (c)
a default by SELLER in the performance of or failure of SELLER
to perform any of its obligations or agreements set forth in
this Agreement or in any other document executed by SELLER in
connection herewith.
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6.2.4 The EQUIPMENT will be conveyed to BUYER with good title and free
from any Encumbrances to the extent provided by the Bankruptcy
Approval.
6.2.5 The sale of the EQUIPMENT by SELLER as contemplated hereunder
shall not violate or abridge any applicable laws or the right,
title and interest of third parties in intellectual property.
6.3 BUYER represents and warrants to SELLER, as of the date hereof and as of
the Closing, as follows:
6.3.1 This Agreement has been duly executed by BUYER and constitutes a
valid and binding obligation of BUYER, enforceable in accordance
with its terms except that enforceability thereof may be limited
by bankruptcy, insolvency, reorganization or other similar laws
of general application and general principles of equity;
6.3.2 BUYER is not a party to, subject to, or bound by, any
restrictions, lease, contact, indenture, trust, agreement of any
nature, mortgage, deed of trust, loan agreement, security
agreement, judgment, order, writ, injunction or decrees of any
court or governmental body, that prohibits, impairs or affects
in any way this Agreement or the consummation of the
transactions contemplated by this Agreement;
6.3.3 No further consent or approval is necessary for the valid
execution and delivery by BUYER of this Agreement and all other
documents necessary or advisable to consummate the transactions
contemplated hereby and thereby, or the valid performance by
BUYER of its obligations under this Agreement and all other
documents necessary or advisable to consummate the transactions
contemplated hereby and thereby.
6.3.4 BUYER shall indemnify, protect, defend and hold harmless SELLER
from and against any and all claims (including claims for
contribution and/or indemnification), demands, causes of action,
losses, damages, liabilities, suits, costs and expenses,
including, without limitation, attorneys' fees and court costs,
asserted against or suffered or incurred by SELLER by reason of,
arising out of or in connection with (a) a breach or violation
of any representation or warranty of BUYER set forth in this
Agreement or in any other document executed by BUYER in
connection herewith, (b) a misrepresentation or an inaccurate
statement of fact made by BUYER in this Agreement or in any
other document executed by BUYER in connection herewith, or (c)
a default by BUYER in the performance of or failure of BUYER to
perform any of its obligations or agreements set forth in this
Agreement or in any other document executed by BUYER in
connection herewith.
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6.3.5 Commencing with the Final Payment of the Contract Price, all
risk of loss, condemnation, damage or destruction related to the
EQUIPMENT shall be borne by BUYER. If after the date of this
Agreement but prior to Final Payment the EQUIPMENT is damaged by
an event covered by SELLER's property insurance policy, BUYER
shall be entitled to a credit against the Contract Price in an
amount equal to the amount of insurance proceeds actually
received by SELLER net of any costs, expenses (including
attorneys' and consultants' fees and costs), deductibles or
other sums expended by SELLER in pursuing such insurance claim.
SECTION 7 GOVERNING LAW
7.1 This Agreement is to be construed and interpreted in accordance with the
laws of the State of Utah, USA, except for those portions of such laws
which would give preference to the laws of another jurisdiction. Any
action, suit or proceeding arising out of or relating in any way to this
Agreement shall be commenced and maintained in the courts of the State
of Utah, each party consenting to the exercise of personal jurisdiction
of such courts as if such parties were personally present in such State.
SECTION 8 FORCE MAJEURE
8.1 "Force Majeure" shall mean any of the following causes to the extent
that any such cause was neither foreseen nor reasonably foreseeable and
is beyond the reasonable control of the party affected thereby: acts or
omissions of third parties (excluding consultants, contractors or others
in privity of contract with BUYER or SELLER (each a "Consultant")), any
acts of government or government authority (including, without
limitation, the failure to issue, the delay in issuing or the revocation
after issuance of work permits, export licenses or consents relating to
the sale of the EQUIPMENT as contemplated hereunder), acts of God,
strikes or other collective action of labor, fires, floods, storm,
tornado, earthquake, explosions, or any other cause, whether similar or
dissimilar to those specifically enumerated herein, which is unforeseen
or unforeseeable and is beyond the reasonable control of the party
affected thereby; provided, however, that nothing herein shall require
the settlement of any labor dispute or other controversy against the
will of the party affected thereby.
8.2 Neither BUYER nor SELLER shall be liable for any delay or failure in the
keeping or performance of its obligations under this Agreement during
the time and to the extent that any such failure arises by reason of
Force Majeure; provided that an event of Force Majeure shall not relieve
BUYER of its obligation to timely pay to SELLER the Contract Price as
provided in Sections 3 and 4 hereof except in the case of the
destruction of the EQUIPMENT prior to Final Payment.
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8.3 In the event of an event of Force Majeure, the party affected thereby
shall promptly give written notice (setting forth full particulars) to
the other party, and shall resume the keeping and performance of the
respective obligation after the cause of Force Majeure has come to an
end.
8.4 If an event of Force Majeure occurs and continues for a period of thirty
(30) calendar days from the date of occurrence of such event, the
parties shall meet and make reasonable efforts to resolve the problem.
SECTION 9 DAMAGES
9.1 If BUYER defaults in the performance of its obligations under this
Agreement due to the reasons other than those caused by Force Majeure as
outlined in Section 8, SELLER shall give written notice to BUYER
designating such default. BUYER shall have a period of ten (10) days
following the giving of such notice within which to correct, or in the
case of a default which reasonably cannot be corrected within such ten
(10)-day period, within which to commence action to correct, the default
of which BUYER has received notice. If BUYER shall fail to correct such
default within said ten (10)-day period or, if applicable, to commence
action to correct such default within such ten (10)-day period and
thereafter to diligently pursue the same to completion, SELLER shall be
entitled to commence an action to recover damages from BUYER, and/or to
compel specific performance by BUYER, and to recover all costs and
expenses incidental to such an action, including reasonable attorneys'
fees and costs.
9.2 If SELLER defaults in the performance of its obligations under this
Agreement due to the reasons other than those caused by Force Majeure as
outlined in Section 8, BUYER shall give written notice to SELLER
designating such default, and thereafter SELLER shall have a period of
ten (10) days within which to correct, or in the case of a default which
reasonably cannot be corrected within such ten (10)-day period, within
which to commence action to correct, the default of which SELLER has
received notice. If SELLER shall fail to correct such default within
said ten (10)-day period or, if applicable, to commence action to
correct such default within such ten (10)-day period and thereafter to
diligently pursue the same to completion, BUYER shall be entitled to
commence an action to recover damages from SELLER and/or compel specific
performance by SELLER, and to recover all costs and expense incidental
to such an action, including reasonable attorneys' fees and costs.
SECTION 10 NOTICES
10.1 All notices that are required or are permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given if
delivered or sent by certified airmail postage
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prepaid, return receipt requested, or delivered by a recognized
overnight courier service with evidence of delivery, at the following
addresses:
If to BUYER:
MITSUBISHI INTERNATIONAL CORPORATION
Address: 520 Madison Avenue, New York, New York 10022-4223
Phone: (212) 605-2639
FAX: (212) 308-4708
Attention: Kazushi Okawa
Department Manager - Heavy Machinery Department
If to SELLER:
GENEVA STEEL COMPANY
Address: 10 South Geneva Road
Vineyard, Utah 84058
Phone: (801) 227-9321
FAX: (801) 227-9141
Attention: Ken C. Johnsen
Executive Vice President
10.2 Such address may be changed at any time and from time to time by written
notice given by one party to the other.
SECTION 11 MISCELLANEOUS
11.1 If either SELLER or BUYER have incurred or agreed to pay for any other
obligations, contingent or otherwise, for broker's or finder's fees with
respect to matters provided for in this Agreement , the party incurring
any such obligations shall be solely responsible therefor. BUYER and
SELLER warrant that there are no brokers involved in this transaction
other than Van Deilen Industries, Inc. (the "Broker"). BUYER will
indemnify and hold SELLER harmless from any and all claims, expenses or
damages (including attorneys' fees) for broker's commissions arising
from the Broker or any of BUYER's actions. SELLER will indemnify and
hold harmless BUYER from any and all claims, expenses or damages
(including attorneys' fees) for broker's commissions (excluding the
Broker's commission) arising from any of SELLER's actions.
11.2 Notwithstanding anything in this Agreement to the contrary, neither
SELLER nor BUYER shall be liable for any consequential damages arising
out of or related in any way to this
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Agreement or the breach of this Agreement, including, but not limited
to, lost profit or breach of collateral agreements.
11.3 This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
11.4 This Agreement, together with the exhibits attached hereto, constitutes
the entire agreement between the parties and supersedes and cancels all
prior negotiations, warranties, representations, undertakings or
agreements between the parties. No statement or representation shall be
considered a part of this Agreement or binding upon the parties unless
the same shall be expressly contained herein. This Agreement may not be
modified in any manner except by an instrument in writing signed by
SELLER and BUYER. There are no verbal agreements which modify or affect
this Agreement.
11.5 This Agreement may be executed in any number of counterparts, each of
which when so executed shall be an original but all of which shall
constitute in the aggregate but one and the same document.
11.6 The captions contained herein are for purposes of identification and
convenience only and do not define, limit or prescribe the scope of this
Agreement and shall not be considered part of this Agreement.
11.7 If a legal action or other proceeding is brought for enforcement of this
Agreement or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this
Agreement , the party that prevails shall be entitled to recover
reasonable attorney's fees, actual costs and expenses incurred, in
addition to any other relief to which such party may be entitled.
11.8 BUYER and SELLER agree to execute such additional documents and take
such further actions as may be reasonably required to carry out each of
the provisions and the intent of this Agreement.
11.9 Whenever possible, each provision of this Agreement and every related
document shall be interpreted in such a manner as to be consistent and
valid under applicable law; but if any provision of any of the foregoing
shall be invalid or prohibited under applicable law, such provision
shall be ineffective to the extent of such invalidity or prohibition,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement or said documents.
11.10 If the final date of any period set forth herein shall fall upon a
Saturday, Sunday or recognized legal holiday in the State of Utah, then
the time period related thereto shall be
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extended to the next day which is not a Saturday, Sunday or recognized
legal holiday under the laws of Utah.
11.11 The parties hereto acknowledge that this Agreement has been prepared
after extensive negotiations and the opportunity for each party to
review the Agreement with and obtain advice from their respective legal
counsel. In construing the Agreement, the fact that one party or the
other may have drafted its various provisions shall not affect the
interpretation of such provisions.
11.12 The covenants, representations and warranties set forth herein shall
survive the delivery of, and shall not be merged into, the bill of sale
or any other document executed in connection with the purchase and sale
of the EQUIPMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their authorized representatives as of the day and year first above written.
BUYER:
MITSUBISHI INTERNATIONAL CORPORATION
By: \s\ Hajime Katsumura
-------------------------------------
Title: Senior Vice President and COO
----------------------------------
Printed Name: Hajime Katsumura
---------------------------
SELLER:
GENEVA STEEL COMPANY,
Debtor and Debtor-in-Possession
By: /s/ Ken C. Johnsen
-------------------------------------
Ken C. Johnsen
Executive Vice President
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APPENDIX 1 SCOPE OF SUPPLY
The EQUIPMENT listed below represents the major items to be included in this
sale. All other available components not listed but determined by SELLER to be
pertaining to the EQUIPMENT will be included, except for the cranes and
building.
A.1 MAJOR EQUIPMENT LISTING
1. Large Diameter Pipe Mill
1.1 Plate Receiving and Handling
Plate is shipped from rolling mill on plate cars which are spotted in
plate receiving bay. Receiving bay crane operator unloads plate,
stacks plate in stockpiles, and feeds unsticked crane by placing
material in stacks beneath the unsticked. This magna vacuum
crane, operating in sequence with planer, picks up single plate
from stack, placing it on planer entry conveyor.
1.1.1 Unsticked Crane
Eder unit, 15-ton capacity, 64'-5" span, double drum hoist
with hooks on 18-foot centers, crane runway 25'-6" long,
maximum lift of hooks 14'-6", consists of a bridge
drive, GE 10 HP, 900 RPM, A.C. motor; a hoist drive, GE
75 HP, 1200 RPM, A.C. motor; and a 7.5 KW Allis Callers
magnet power supply.
1.2 Plate Planing
Single plates are squared and planed, both sides simultaneously, on two
Baldwin Southward planers, capacity 40'-6" plate 1 1/2" thick,
60" to 125" wide.
1.2.1 Entry Conveyor
Flat plate conveyor 75'-9" long, 9-0" wide, consisting of
sections LA, LB1, and LB2, for moving plate into planer
at 154 FPM.
1.2.2 Plate Planers
Two Baldwin Southward plate planers 52'-5 1/4" long for edge
preparation of plate, complete with bed section, end
columns, top beams, traveling tool holder carriages,
plate centering devices, plate feed roll system, plate
clamping units and two 75 HP planer carriage drives.
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1.2.3 Planer Rubout Conveyor
Two speed conveyor for handling planed plate and centering plate
for entry into edge breaker. Conveying speed 227 FPM out
of planer and 90 FPM into edge breaker, complete with
plate centering side guide.
1.2.4 Plate Transfer Conveyor
Plate transfer conveyor for moving plate from edge break exit to
U-press entry, chain type, 48' C-C of sprockets, with
driven conveyor chains spaced at 26'0" C-C. Fifteen rows
of idler roll conveyors support the plate during
transfer. Conveyor driven by GE, 1 HP, 1720 RPM, 60
cycle, 220/440 volt motor, Model 5K203D17 through Link
Belt gear reducer size T.M. 40, 195:1 ratio, 9 RPM,
Model No. 393Z2-V.
1.3 Plate Forming
1.3.1 Edge breaker
McKay Machine Company unit for edge forming line pipe plate:
Capacity 60" to 126" plate width, in lengths 20' to
40'-6", plate thickness .188" to .750", and yield
strength to 100,000 psi. Complete with tooling to edge
form 20 through 40" diameter pipe. The machine contains
four work roll stations, five drive roll stands, and
forms the plate at 90 FPM. The main drive consists of
four 50 HP, 1200 RPM, Westinghouse motors, 440/3/60,
TEFC, NEMA design "D" 5-8% slip, on Frame No. 444U,
through four Horsburgh & Scott gear reducers No. L.D.
3600, 79.55:1 ratio, triple reduction units.
1.3.2 U-Press
One Verson 2000 ton plate U-ing press machine No. 2000-HD4-4927,
132" width between columns and 492" long. Shut height
between upper and lower platen 68", 110" fully opened,
press is composed of four sections, each 123" long and
containing hydraulic power pumping station driven by
Reliance 50 HP, 870 RPM motor to an oilgear pump type
DX-6025, rated 2500 psi at 60 GPM on a 350 gallon
reservoir; 22 1/2" bore, 42" stroke, and 21 1/2" rod
diameter power cylinder; a U-press entry conveyor, a
rise and fall type, with plate transfer speed of 227
feet per minutes; and a U-press - O-press transfer
conveyor, track mounted car 28'-0" long with three Foote
Bros. Conveyor drives and a single U'ed can side support
unit.
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1.3.3 O-Press
16,000 ton, three section, Verson O-Press No. HD-3-4927, 60"
clear width, 492" long, tooled for forming 20", 22",
24", 26", 30", 33", 34", 36", and 40" O.D. large
diameter pipe. U'ed and O'ed pipe cans are conveyed
through press on 3 Verson idler cushion rolls, Type
2W-1424, Serial No. 11703, each cushion roll mounted on
14" bore, 24" stroke air cylinder and power side
pressure rolls with 4 Reliance 3 HP, 1740 RPM, 240/480,
3 phase, 60 cycle electric motors in Frame No. CB-225,
through 4 Foote Bros. Gear reducers No. 613-1. Each
Verson press section contains a hydraulic power source
driven by one 125 HP, Reliance motor, 875 RPM, through
oilgear pump model DX-15024, 2500 psi, with 1135 gallon
oil reservoir; and hydraulic cyclinders, one 63 1/4"
straight shaft cylinder 45" stroke, and two 21 1/4" bore
cylinders with 19 3/4" rod and 45" stroke.
1.4 Tack Welding Fixture
A 40'-6" structural frame, supports 13 hydraulically powered
chain pipe clamps, two idler and two powered conveyor
rolls, a set of powered pipe rotating units, and welding
Equipment consisting of two NCG weld wire feed motors,
two NCG portable welder controllers Model WC 50, and two
Tweco Model P-5 Mig-guns. The two power supplies are 600
amp units - NCG Model DRU600. Hydraulic power is
supplied from I.D. welder hydraulic pumping station.
1.5 Inside Seam Welders
Basic Equipment consists of five automatic Unionmelt process, double
submerged arc welders, mounted on a 43-foot boom with a
traveling operator console and carriage. Each welder is tooled
with clamp bands and shoes for 20", 22", 24", 26", 30", 33",
34", 36", and 40" O.D. pipe. Each welder consists of the
following components:
1.5.1 Welding Equipment
Two 1,500 amp Westinghouse A.C. arc welding transformers, and
one 1,000 amp Westinghouse transformer, three unionmelt
type UEH-1 automatic welding head assemblies, two Linde
voltage and control assemblies, one Linde UEC-1, and two
Linde UEC-6 controls, one 41-foot copper chillbar
hydraulic cylinder actuated to assure complete backup,
and three weld wire roll pack payoff units, which allows
three wire welding.
1-3
<PAGE> 20
1.5.1.1 Carriage Drive System
A Reliance 5 HP D.C. adjustable speed motor, frame 2110,
Hewitt Robins, Gear Reducers 30:1 Ratio - Type
O, Size 50 Hypower and double rack and pinion
transmission system are provided tracks for the
weld carriage are "Vee" guide rails and a "Vee"
rail wheels. Power tracks are provided for weld
power, electrical drive power, flux vacuum
pickup ground wires and air blowing of scale.
1.5.1.2 Flux Recovery Equipment
Boom mounted vacuum pickup head removes unfused flux
from the pipe following welding. The material
enters a cyclone precipitator which gravity
feeds into a 30" diameter Sweco separator Model
2A. Flux is screened and directed into three
receiving hoppers according to size. Fused flux
that stays in the pipe is removed in the pipe
tilting pit and transported to the flux
separator by bucket elevator. (Missing One
Conveyor)
1.5.2 Hydraulic Power Source
Three Ingersoll-Rand two-stage motor pumps, 7 1/2 HP, 40
GPM at 130 psi Model No. 1-MRVN and two Wilson
Snyder high pressure triplex pumps, Model 336P
with 4.44:1 gear ratio, driven by 125 HP, 1800
RPM, 440/3/60 Westinghouse motors, Frame No.
445-US rated for 61 GPM at 3180 psi. Low
pressure pumps feed into two accumulators rated
at 150 psi, capacity 625 gallons each. (Missing
Pumps and Motors)
1.5.3 Hydraulic Pipe Clamping Equipment
West end of the pipe is clamped in a fixed type end
clamp. The remainder of the pipe is clamped with
nine 8" bore x 10 1/2" stroke hydraulic
cylinders, trunnion mounted at the head end,
connected through a linkage to each end of a
steel clamp band and secure each pipe during
seam welding.
1.6 Outside Seam Welders
Four automatic triple submerged arc, unionmelt process, A.C. welders mounted on
a driven carriage, are driven on a "Vee" rail and have the same motor
and gear reducer as the 5 inside seam welders. Double rack and pinion
drive is also used. The Equipment is designed to weld 20" through 40"
diameter pipe. Each welding machine consists
1-4
<PAGE> 21
of the following: three Linde weld wire feed motors, Type DS-H, Part No.
25V26 with #15 gear train; three weld payoff reels, 200# capacity each;
three CWS built weld heads adjustable vertically and transversely; three
Westinghouse welding transformers, A.C. primary voltage 440, primary
current 190 amps, single phase, welding current 1,500 amps, 1 hour
continuous load, volts 40, 60 KW at rated load, with Linde controls Nos.
UEC-1 and UEC-6.
1.6.1 Flux System
Two Cyclone assemblies consisting of two invincible 7 1/2 HP vacuum
generators and cyclones, magnetic separators, vibrating conveyor
and flux blender are provided for recovery. Unfused flux is
picked up by a weld carriage mounted vacuum system off the
cyclone and recirculated into the system.
1.6.2 Carriage Drive System
A Reliance 5 HP D.C. adjustable speed motor frame 2110, Hewitt Robbins,
gear reducers 30:1 ratio Type O Size 50 hypower and double rack
and pinion transmission system are provided. Weld carriage track
is a "Vee" rail on both sides and power tracks are provided for
weld power, electrical drive power flux vacuum pickup air for
scale blowing and ground wire for welder carriage.
1.6.3 Pipe Handling Equipment
One set of pipe turning rolls consisting of a driven and an idler boggie
wheel pipe rotator. Each unit is raised and lowered by a 10"
bore, 4" stroke air cylinder and driven roll powered by a Foote
Bros. Louis Allis gearmotor #33A-203 Type IX, rated 1 HP, and
16.5 RPM output with a Stearns brake #H.B. 2A. One set of pipe
elevating ground shoe saddles tooled with spacers for 20", 22",
24", 26", 30", 33", 34", 36" and 40" diameter pipe. Each saddle
is elevated by a 4" bore, 27" stroke hydraulic cylinder with 6"
rod extension.
1.7 Hydraulic Expander
Consolidated Western designed and built for expanding and hydro-testing large
diameter pipe in 40'-6" to 30'-7" lengths, wall thickness to 3/4"
maximum and grades to X-60. Machine has sixteen pipe holding die halves,
each die tooled for processing 20", 22", 24", 26", 30", 33", 34", 36",
and 40" pipe. Pipe is mechanically rolled into open dies, power end
cylinder engage pipe forcing opposite end onto the internal belling ring
seal. Pipe is filled and dies locked. Expand pressure is applied forcing
pipe
1-5
<PAGE> 22
against dies, pressure is reduced to hydrotest pressure with end dies
lowered during test.
1.7.1 Expander Pipe End Preparation
1.7.1.1 End tabs are removed automatically by a horizontally
rotating framed roll mounted in Conveyor Line L-17 at
Column Row 20. Pipe is automatically positioned, with
the seam at bottom, by a set of pipe turning rolls and a
feeler limit switch, all located in Conveyor Line L-17.
Conveyor then reverses driving east end tab into breaker
removing same, pipe is then kicked onto expander
preparation skid.
1.7.1.2 Inside weld seams are chipped smooth to contour of pipe,
a distance of 4" from each pipe end, manually, by two
chippers. Pipe is held on two sets of double pipe
escapements, each station having a driven set of pipe
positioning rolls. Pipe is then moved to an end grinding
station, located in Conveyor L-30, at Column Row 17,
where a single grinder manually smooths the area where
end tab was located. Powered set pipe positioning rolls
constitutes the Equipment at this station.
1.7.2 Pipe Washer
Located immediately ahead of the expander entry, pipe is automatically
internally washed. Pipe rolls into a double escapement where a
set of powered pipe rotators pick the pipe off the skids and
rotate while a fire nozzle washes pipe clean. Limit switches,
operating in conjunction with solenoid control valves,
automatically state and stop the cycle.
1.7.3 Pipe Handling Equipment
Conveyor L-23 is designed to end position and rotate incoming pipe to
the proper position prior to entering the expander. A
combination lift and metering escapement then sets the pipe in
position to enter the expander. A pipe letdown assembly stops,
holds, and lowers pipe onto expander exit skids.
1.7.4 Hydraulic Equipment
1.7.4.1 High Pressure Pumps
1-6
<PAGE> 23
Four Kobe motor pumps, pump Frame No. 3CRE, 236.5 RPM, 20.6 GPM
output at 3000 psi, with 40 HP, 1200 RPM, 440/3/60
electrical motor; 3 Kobe motor pumps, pump Frame No.
3CRE, 322 RPM, 28.05 GPM output at 3000 psi, with 40 HP,
1200 RPM, 440/3/60 electrical motor; 2 Kobe motor pumps,
pump Frame No. 3CRE, 266 RPM, 23.1 GPM at 3000 psi, with
40 HP, 1200 RPM, 440/3/60, electrical motor. (Missing 3
Motors and Pumps)
1.7.4.2 Fill Pumps
Four Worthington motor pumps, pump No. 8L1-2500 GPM at 50' TDH,
with 40 HP, 1800 RPM, 440/3/60 electrical motor.
1.7.4.3 Accumulators
One low pressure fill accumulator 11,000 gallon capacity, rated
at 100 psi; one medium pressure air ballast accumulator
160 gallon usable capacity, 1900 gallon total capacity,
3000 psi working pressure; two high pressure air ballast
accumulators, one 160 gallon capacity usable, 1900
gallon total, 3000 psi working pressure, one 95 gallon
usable capacity, 1150 gallon total capacity, 3000 psi
working pressure; one filter water supply tank 1750
gallon capacity; one low pressure air ballast prefill
accumulator 2200 gallon capacity, 150 psi working
pressure; one expand water storage tank 63,000 gallon
capacity.
1.7.5 Hydraulic Power Equipment
1.7.5.1 Main power cylinder 43" bore, 6'-6" stroke with 20"
diameter rod, 5000 psi hydraulic cylinder.
1.7.5.2 Die hoist cylinders, 16 units, 5 1/2" bore, 5'-1 3/4"
stroke, 1500 psi custom built hydraulic cylinders.
1.7.5.3 Die lock bar cylinders, 8 assemblies, each with 7" bore,
8" stroke, 1000 psi hydraulic cylinder, mounted between
a double guide shaft and yoke assembly.
1.7.5.4 Stripper cylinders fill end only, four 4" bore, 3"
stroke, hydraulic cylinders.
1-7
<PAGE> 24
1.7.5.5 Hydraulic intensifier cylinders, two 16 1/2" bore, 50
1/2" stroke units, with 11 7/8" rod, 5000 psi working
pressure.
1.7.5.6 Hydraulic ratio cylinder, 5000 psi working pressure, 16
1/2" bore, 65" stroke, with 6 1/2" diameter rod and rod
sleeve inserts of various outside diameters for proper
output pressures when processing 20", 22", 24", 26",
30", 33", 34", 36", and 40" pipe.
1.8 Pipe End Facing
Two Consolidated Western designed and built rotary pipe end facing machines
tooled for processing 20", 24", 26", 30", 34", 36", and 40" diameter
pipe. The machines have a fixed centerline, with adjustable height
conveyors, to compensate for the various pipe sizes. Rotating tool
holding arm contains two Carbide insert type cutting tools located
180(0) apart. Each facer consists of the following components:
1.8.1 Drive Assembly
Rotating cutting heads driven by 50 HP, 1800 RPM, 440/3/60 electrical
motor on Frame No. 405, with a solenoid operated magnetic brake,
160# foot torque, Cutler-Hammer Type 105, bored for 1 7/8"
diameter shaft. Foote Bros. helical gear reducer ratio 28.6:1,
Size 20 M.D. with special 7" diameter output shaft. (Missing 50
HP motor and magnetic brake)
1.8.2 Hydraulic Equipment
A single 5" bore, 6" stroke, hydraulic cylinder controlled by 1/2"
Vickers traverse control valve #C-1237-K, moves end face machine
through the facing cycle. A single 7" bore, 19" stroke,
hydraulic cylinder powers the end facer pipe clamp arms. Three
Vickers two-stage pumps, 23.45 GPM at 250 psi and 4.7 GPM at
1000 psi, Model No. VC-138-A-30B-4, mounted on 150 gallon
capacity tank and driven by 5 HP, 1200 RPM 440/3/60 electric
motor, Frame No. 284, provide high pressure hydraulic medium.
1.9 Pipe Weighing and Measuring
A CWS designed and built electronic scale consisting of a structural weigh
bridge, 21'-11 1/2" long, mounted on four load cells Baldwin No. C3P1,
capacity 10,000# each. Baldwin electronic weight indicator with nixie
light readout, 15,000# maximum capacity, graduated in 10 pound
increments. Length measuring Equipment consists of manually read and
positioned tape.
1-8
<PAGE> 25
1.10 Pipe Repair Facilities
1.10.1 I.D. Weld Repair
One semi-automatic submerged arc portable welder, Lincoln
#S-7059, 440/3/60, Serial No. A-241808, with 600 amp
power source. (Missing one conveyor)
1.10.2 O.D. Weld Repair
Four portable welding machines, three 400 amp Lincoln units and
one 300 amp G.E. unit, operated by hand arc welders at
two welding stations, constitute O.D. weld repair
facilities. (Missing machine)
1.10.3 Pipe Burn-Off
Designed,rotating pipe burn-off units, for cutting 20" to 40"
pipe, each machine consists of a structural frame
mounted on four 2-ton Duff Norton jacks, with guide
rods, for centering the burn-off machine. A plasma arc
cutting torch mounted on a rotating face plate, are
driven by a Vickers adjustable speed drive #HAS-1, with
a 30:1 speed variation ratio and an output speed range
of 55 to 1680, through a Falk speed reducer #400, ratio
50:1, Type AD. These units use the same control, power
supply and torch as the small mill.
1.11 Inspection Facilities
1.11.1 Plate Ultrasonic Inspection Equipment (Missing)
1.11.2 Preliminary visual inside weld seam inspection station,
located on Skids L-6, consists of a set of double pipe
escapements and a set of powered pipe rotating rolls
with decking at each pipe end to permit inspector access
to pipe.
1.11.3 Preliminary visual outside weld seam inspection station,
installed at Skids L- 10, contains a set of double pipe
escapements, set of powered pipe rotating rolls, and
decking full length of pipe.
1.11.4 Pipe end x-ray station, installed in Conveyor L-20
adjacent to Column Row 12, consists of a General
Electric industrial x-ray unit, Model DX-175, 12 MA
continuous duty, with one x-ray tube head and one 7 1/2"
KVA transformer. X-ray booth 7'-0" x 8'-0" structural
steel with 3/16" lead sheeting. X-ray dark room,
structural steel frame building 12' x 6' x 8' high,
furnished with a Pakorol XM automatic x-ray film
processor and dryer
1-9
<PAGE> 26
complete with chemical filtration device, two 25 gallon
replenisher tanks, and automatic replenish and
temperature control.
1.11.5 Two fluoroscopic inspection facilities, installed
parallel to Conveyor L-20, between Col. 4 and 12. Each
contains a movable operator cubicle, structural steel
framed with lead sheathing and glass 10'-4" x 5'-10",
7'-0" high; one 42-foot boom holding a Picker image tube
assembly #3515H and an image amplifier tube No. T4ON-3
with 8 3/4" input phosphor; one pipe moving and handling
carriage with turning rolls, letdowns, kickers, and
driven by a Louis Allis adjustospede drive, Type
COGX-ACM, 7 1/2" HP and Louis Allis gear reducer Line
"A" gear Frame No. 424, 38.4:1 ratio, through a cable
drum with an endless cable; Picker 150 KV industrial
unit, Cat. No. 6157B with KL-1 control, #3373B starter,
#585G transformer, four T40G-2P valve tubes, one #3516B
power supply, and one #45765 SKVA stabilizer.
1.11.6 Company final inspection station, located on Skid L-12,
immediately north of Conveyor L-18, contains turning
rolls and escapements with overhead fluorescent lights
at two stations, one for inside seam final visual
inspection and one for outside seam final inspection.
1.11.7 Customer Inspection Station (Missing)
1.12 L. D. Pipe Shipping (Not Included)
1.13 Internal Pipe Coating
Coating is performed by an outside Agreement or who sets up on Skids
Nos. L-17 and L-18 (Skids Missing). Pipe is delivered by Geneva
to painting entry skid on Conveyor L- 25. The Equipment
includes: Butler Type Building 60'-0" x 240', 15 feet to square;
pipe cleaning Equipment consists of boom-mounted rotating
brushes, with detergent saturated steam as cleaning medium.
Clear water rinse completes cleaning process, force air heaters
dry the pipe, boom-mounted rotating paint spray head applies the
internal coating full length of each pipe joint.
1.14 L.D. Pipe Mill EOT Cranes (Not Included)
1.15 Conveyors and Skids
1.15.1 L.D. pipe conveyors are of two types, South San
Francisco with hourglass idlers, and Foote Bros. with
Mathews type idlers. South San Francisco type conveyor
contains channel mounted hourglass idler conveyor rolls
with drive assembly composed of 1 1/2HP, 1750 RPM,
440/3/60 motor on Frame No.
1-10
<PAGE> 27
204, and a 30:1 speed reducer chain driven to a 16 x 400
solid rubber tire, 25 RPM output. Drive assembly is base
plate mounted, hinged at one end and hung from spring
mounted bolts at opposite end. Total conveyor footage of
this type 1350 L.F.
Foote Bros. type conveyor contains 2430 L.F. consisting of
Mathews type flat roll idlers, each idler assembly
containing two rolls, base mounted to form a "Vee"
trough with 140(0) included angle, Drive assembly is
composed of 2 HP Foote Bros. electric motors, 1735 RPM,
440/3/60 TEFC with a worm gear reducer, 56 RPM output.
Two half-hourglass drive rolls completes the assembly.
1.15.2 L.D. skids, constructed from "I" beams welded to "I"
beam posts, pipe is stored or rolled on two parallel
skids spaced approximately 23 feet apart, these form a
set of skids. Total footage of skid sets in the L.D.
pipe area 1740 feet.
Note: No Tooling or Parts available for making 33" O.D. pipes.
A.2 SPARE PARTS
All available spare parts applicable to the EQUIPMENT that are existing
at the plant at the time this Agreement is entered into by the parties.
A.3 TECHNICAL DOCUMENTATION
All drawings, operating manuals and production and maintenance records
in SELLER's possession pertaining to the EQUIPMENT that are existing at the
plant at the time this Agreement is entered into by the parties.
1-11
<PAGE> 28
MAIN DRAWING LIST
Pipe Equipment and X-Ray
Unstacker
Pipe Conveyors and Skids Hydraulic Systems #1, #2, #3
Accumulators
Turning Rolls from Other Plants
Plate Planer - Maywood
Plate Planer - So. San Francisco
Plate Puller - So. San Francisco
U-ing Press
O-ing Press
Tack Welder
Seam Welder
Flux Recovery
Changeover Equipment
Seam Welder
Hydraulic Expander
Plate and Pipe Driers
End Facers
Oxy-Acetylene Pipe Cutoff
Weighing and Measuring Equipment
Round Seam Welder
Changeover Equipment
Spare Parts
Scrap Handling
Large Diameter - General
Plate Turner
End Tab Forming and Receiving Bay Plate Shear
End Tab Removal
and O.D. Weld Repair
Pipe Inspection Equipment
Strain Aging
Plate Inspection and Repair
Scale Removal Hammer
Proposal Drawings
1-12
<PAGE> 29
ADDITIONAL DRAWINGS
<TABLE>
<S> <C>
PMP261 A L. D. Pipe Mill I.D. & O.D. Welder Machine
PMP291 D L. D. Pipe Mill Forming Area "U"-ing Press Rocker
Detail of long inserts
PMP307 D L. D. Pipe Mill Final Inspection Area Cat Walk Col #7 to
Col #10 on E Row Plan & Elevation
PMP308 D L. D. Pipe Mill Final Inspection Area Cat Walk Col. #7 to
Col. #10 on E Row, Details & Section
PMP309 D L. D. Pipe Mill Final Inspection Area Car Walk Co. #7 to
Col. #10 on E Row, Detail & Plan
PMP321 D L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil
Filter Unit Assembly
PMP322 D L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil
Filter Unit Casing Weldmet
PMP323 C L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil
Filter Unit, Casing Detail
PMP324 B L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil
Filter Unit, Stand Pipe Detail
PMP325 B L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil
Filter Unit, Baffle Plates Detail
PMP356 D L. D. Pipe Mill Primary Flow Diagram, Pipe Processing,
Geneva Pipe Mill
PMP404 D L. D. Pipe Mill Plate Edge Planer, Plate Aligning
Hydromotor, Motor Body Detail
PMP100 B L. D. Pipe Mill Tacking Jig, Spiral Can Indicator, Detail
of Scale
PMP101 B L. D. Pipe Mill Tacking Jig, Spiral Can Indicator, Sliding
Pointer Detail
PMP102 B L. D. Pipe Mill Plate Edge Planer, Underside Deburring
Tool, 1 x 1 1/2x 6" Long Circle C
</TABLE>
1-13
<PAGE> 30
<TABLE>
<S> <C>
PMP103 B L. D. Pipe Mill, I.D Welders, Meter Panel
PMP104 D L. D. Pipe Mill Inside Seam Welders, Welder Head Assembly
PMP105 D L. D. Pipe Mill Inside Seam Welders, Welder Head and Flux
Hopper, Detail
PMP106 D L. D. Pipe Mill Inside Seam Welders, Rod Feed Motor
Platform & Boom Extension, Detail
PMP107 B L. D. Pipe Mill Inside Seam Welders, Nozzle Block, Detail
PMP108 B L. D. Pipe Mill Inside Seam Welders, Nozzle Block Holder,
Detail
PMP109 B L. D. Pipe Mill Inside Seam Welders, Trail Nozzle Block Bus
Bar, Detail
PMP110 B L. D. Pipe Mill Inside Seam Welders, Lead Nozzle Block Bus
Bar, Detail
PMP111 B L. D. Pipe Mill Inside Seam Welder, Lead & Trail Wire Guide
Block, Detail
PMP112 B L. D. Pipe Mill Inside Seam Welders, Guide Wheel Mounting,
Bracket, Detail
PMP113 B L. D. Pipe Mill Inside Seam Welder, Nozzle & Bus Bar,
Insulations, Detail
PMP114 B L. D. Pipe Mill Inside Seam Welder, Misc. Parts, Guide
Wheel, Details
PMP115 B L. D. Pipe Mill Inside Seam Welders, Nozzle Block Holder
and Bus Bar Assembly
PMP116 B L. D. Pipe Mill Inside Seam Welders, Un-fused Flux Nozzle,
Detail
PMP117 B L. D. Pipe Mill Inside Seam Welder, Lead & Trail Wire Guide
Block Assembly
PMP124 B L. D. Pipe Mill Inside Seam Welders, Meter Panel, Hole
Covers
PMP125 A L. D. Pipe Mill Inside & Outside Seam Welders, Leghi Crack
Test, Test Plate
PMP157 B L. D. Pipe Mill Flux Pick-up Nozzle, O.D. Welders, Detail
PMP158 D L. D. Pipe Mill Flux Pick-up Nozzle, I.D. Welders, Detail
</TABLE>
1-14
<PAGE> 31
<TABLE>
<S> <C>
PMP162 A L. D. Pipe Mill I.D. & O.D. Welder Nozzle, Detail
PMP217 B L. D. Pipe Mill I.D. & O.D. Welders, Commericas Iossum Pump
Duct Filter, Detail
PMP218 B L. D. Pipe Mill O.D. Welder, Flux Conveyor System, 8 x 4
Pan Side Board
PMP219 D L. D. Pipe Mill Inside Seam Welders, Unfused Flux Recovery
System, Modification
PMP220 D L. D. Pipe Mill Inside Seam Welders, Unfused Flux Recovery
System, Separator Support Frame
PMP221 D L. D. Pipe Mill Outside Seam Welders, Ground Contact Shoe -
Bus, Detail
PMP222 D L. D. Pipe Mill Outside Seam Welders, Insulated Ground Shoe,
Installation
PMP226 A L. D. Pipe Mill, Pipe Marking Stencil, Neill Price
International Inc., Stencil Detail
PMP227 D L. D. Pipe Mill X-Ray Inspection, X-Ray Core, Detail
PMP231 D L. D. Pipe Mill Pipe Marking Stencil, National Iranian Oil
Co., Export Order
PMP232 A L. D. Pipe Mill I.D. & O.D. Welder Nozzle, Carbide Insert
Wire Guide, Detail (Ref. PMP152)
PMP233 A L. D. Pipe Mill Pipe Marking Stencil, National Iranian Oil
Co., Neill Price Export Order
PMP237 D L. D. Pipe Mill I.D. Welding Machines, Flux Dust Disposal
Conveyor, General Layout
</TABLE>
1-15
<PAGE> 32
EXHIBIT A
TO
AGREEMENT FOR PURCHASE AND SALE
Environmental Provisions
BUYER acknowledges that it understands that the Premises are located on
the site of a steel manufacturing facility and that the Premises may have
involved the use of Hazardous Materials. In dismantling and removing the
EQUIPMENT, BUYER shall comply with all applicable federal, state and local laws,
rules and regulations and shall comply with all applicable Environmental Laws,
as hereinafter defined, concerning Hazardous Material, as hereinafter defined.
1. Upon BUYER's knowledge, BUYER shall immediately advise SELLER in
writing of (i) any and all Environmental Liabilities and Costs imposed on BUYER,
(ii) the presence of any Hazardous Materials on, under or about the Premises,
and (iii) copies of all communications with any person or federal, state and
local governments or agencies relating any legal proceedings, action, claim,
suit, administrative proceedings, or other governmental action relating to any
noncompliance with any Environmental Laws.
2. BUYER shall promptly take any and all necessary remedial action in
response to the storage, use, disposal, transportation, discharge, or release of
any Hazardous Materials by BUYER on, under or about the Premises; provided
however, that BUYER shall first obtain SELLER's approval of any proposed
remedial action. In the event BUYER undertakes any such remedial action, it
shall conduct and complete such remedial action: (i) in compliance with all
applicable federal, state and local laws, regulations, rules, ordinances and
policies and any applicable Environmental Laws; (ii) to the satisfaction of
SELLER; and (iii) in accordance with the orders and directives of all federal,
state and local governments or agencies.
3. BUYER shall defend, indemnify and hold SELLER harmless from and
against any and all actual or potential claims for any Environmental Liabilities
and Costs to the extent that such are caused by the actions of the Buyer,
including but not limited to any use, handling, production, transportation,
disposal or storage of any Hazardous Materials in or on the Premises by BUYER or
its agents, assigns, invitees, contractors or representatives, or any person
acting with the consent of BUYER. In addition, BUYER agrees that in the event
any Hazardous Material brought upon the Premises by BUYER or its agents,
assigns, invitees, contractors or representatives, is caused to be removed from
the Premises, the number, or other designation, assigned by BUYER, or any
federal, state or local governments or agencies, for such Hazardous Material
shall be solely in the name of BUYER and BUYER shall assume any and all
liability for such removed Hazardous Material. BUYER's liability to SELLER shall
arise upon the earlier to occur of (a) discovery of any release of any Hazardous
Materials on, under or about the Premises or (b) the institution of any claims
for any Environmental Liabilities and Costs, and not upon the realization of
loss or damage, and BUYER agrees to pay to SELLER from time to time, immediately
upon SELLER's request, an
A-1
<PAGE> 33
amount equal to such Environmental Liabilities and Costs, as reasonably
determined by SELLER, subject to the final determination of any dispute or
proceeding undertaken by BUYER in good faith to contest imposition of such
expenses by governmental authorities. SELLER shall have the right to join and
participate in, as a party if it so elects, in any legal or administrative
proceedings or actions relating to BUYER's activities or occupancy or use of the
Premises initiated in connection with any Environmental Liabilities and Costs
and each party shall pay its own attorneys' fees in connection therewith. Except
as provided in this Contract, neither party is relieved from any responsibility
or liability under any applicable Environmental Law.
4. As used herein, (a) "Environmental Law" means all federal, state and
local laws, statutes, ordinances and regulations, now or hereafter in effect,
and in each case as amended or supplemented from time to time, and any judicial
or administrative interpretation thereof, including, without limitation, any
judicial or administrative order, consent decree or judgment, relating to the
regulation and protection of human health, safety, the environment and natural
resources, (b) "Hazardous Material" means any radioactive, hazardous or toxic
substances, material, waste or similar term, including, but not limited to,
petroleum and petroleum products, the presence of which at the Premises or the
discharge or emission of which from the Premises, or the use, generation,
manufacture, collection, storage, treatment, disposal or transportation of
which, is regulated by any Environmental Law, (c) "Remedial Actions" means all
actions required or voluntarily undertaken to (i) clean up, remove, treat or in
any other way detoxify or address Hazardous Materials; (ii) prevent the release
or threatened release or minimize the further release of Hazardous Materials so
that they do not migrate or endanger or threaten to endanger public health or
welfare, natural resources, or the environment; or (iii) perform pre-remedial
studies and investigations and post-remedial monitoring and care, and (d)
"Environmental Liabilities and Costs" means any liabilities, obligations,
responsibilities, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including, without
limitation, all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any person (including, but not limited to, any federal, state or local
governments or agencies), whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including, without
limitation, any portion thereof arising under any Environmental Law, permit,
order or agreement with any person or federal, state or local governments or
agencies, and which relate to any environmental, health or safety condition of
the Premises, or activities of BUYER (or its agents, assigns, invitees,
contractors, representatives, or other persons for whom they may be legally
responsible), past, present or future, except to the extent any such condition
is shown to be due to the activities of a party or parties other than BUYER (or
its agents, assigns, invitees, contractors, representatives, or other persons
for whom they may be legally responsible).
A-2
<PAGE> 34
EXHIBIT B
TO
AGREEMENT FOR PURCHASE AND SALE
Insurance Provisions
BUYER shall, as a part of the Contract Price and without limiting its
obligations or liabilities hereunder, obtain and maintain during the term of
this Contract or longer, as may be indicated below, the following insurance
coverages with limits not less than those shown below with a company or
companies authorized to do business in Utah and acceptable to SELLER and under
forms of policies satisfactory to SELLER:
1. Workers' Compensation and Employer's Liability Insurance. Workers
compensation insurance shall be provided covering all employees of BUYER
directly or indirectly engaged in any activities in connection with this
Contract in accordance with all statutory requirements (whether now existing or
hereafter imposed) of all states with jurisdiction over such employee-employer
relationship. Such insurance shall be written for the required statutory
amounts. In addition, employer's liability insurance, including occupational
disease coverage, shall be provided with the following policy limits and shall
include broad form other states and voluntary compensation endorsements
(references are to standard Insurance Services Office current forms):
$1,000,000 Each Accident - Bodily Injury by disease
$1,000,000 Policy Limit - Bodily Injury by disease
$1,000,000 Each Disease - Bodily Injury by disease
2. Commercial General Liability Insurance. A 1988 ISO commercial general
liability insurance policy shall be provided on an occurrence basis with the
following annually renewing policy limits and the following terms and coverage:
(a) no deductible and coverage limits of $2,000,000 for bodily
injury and property damage per occurrence, $2,000,000 general aggregate.
(b) providing coverage up to the policy limits for all sums
which the insureds shall become legally obliged to pay for damages because of
bodily injury (including death at any time resulting therefrom) sustained by any
person or persons or because of damage to or destruction of property caused by
an occurrence or accident arising out of any operations carried on in connection
with this Contract.
(c) including blanket coverage for broad form contractual
liability for the Work.
(d) including the following coverage endorsements (references
are to standard Insurance Services Office current forms):
B-1
<PAGE> 35
<TABLE>
<S> <C>
(1) Blanket X, C and U Coverage;
(2) Premises-Operations Liability;
(3) Products and Completed Operations Liability
for a period of not less than three (3)
years after final acceptance of the Work;
(4) Owner's and Contractor's Protective Liability;
(5) Employers Liability;
(6) Non-Owned Automobile Liability;
(7) Bodily injury and property damage;
(8) Elevators;
(9) Broad form contractual liability and broad form property
damage;
(10) Fire legal liability; and
(11) Personal injury (deleting employee and contractual
exclusions)
</TABLE>
3. Comprehensive Automobile Liability Insurance. A comprehensive
automobile liability policy shall be provided on a standard form providing
coverage for bodily injury, property damage and uninsured vehicles for all
occurrences whether occurring at the SELLER Works or elsewhere. The limit of
liability shall not be less than $1,000,000.00 combined single limit for bodily
injury and property damage per occurrence. Such insurance shall cover the use of
all owned, non-owned. and hired vehicles used in connection with the Work.
4. Excess Liability Insurance. An excess liability insurance policy
will be provided following the form of the insurance policies provided for in
the immediately foregoing Sections 1, 2 and 3, subject to a limit of not less
than $5,000,000 per occurrence and annual aggregate limits.
5. Additional Insured; Waiver of Subrogation. The policies required by
the immediately foregoing Sections 1 (employer's liability only), 2, 3, and 4
shall provide that SELLER is an additional insured thereunder and that said
policies are primary without right of contribution from SELLER or any insurance
otherwise maintained by SELLER. All BUYER's policies of insurance (except for
the workers compensation insurance required by Section 1 of the Contract), shall
be endorsed to include a complete waiver of subrogation in favor of SELLER.
B-2
<PAGE> 36
6. Cross-Severability Clause. The policies required by this Exhibit
shall be endorsed to state that the inclusion of more than one insured under
such insurance shall not operate to impair the rights of one insured against
another insured and (except for the applicable aggregate policy limits) the
coverage afforded by each insurance policy shall apply as though a separate
policy had been issued to each insured.
7. Subcontractor Insurance. Unless otherwise agreed in writing by the
parties hereto, BUYER shall require each of its Subcontractors to provide
insurance at levels and coverage similar to that set forth above and to provide
evidence of the same to SELLER prior to entering the Premises.
8. Cancellation of Insurance. Each insurance policy required by this
Exhibit shall be endorsed to state that coverage shall not be suspended,
amended, voided, cancelled, reduced in coverage or in limits except after thirty
(30) calendar days prior written notice by certified mail, return receipt
requested, has been given to SELLER.
B-3
<PAGE> 37
EXHIBIT C
TO
AGREEMENT FOR PURCHASE AND SALE
Bill of Sale
BILL OF SALE
THIS BILL OF SALE is made and entered into effective as of the _____
day of _________, 1999 by GENEVA STEEL COMPANY, Debtor and Debtor in Possession,
("Seller"), in favor of MITSUBISHI INTERNATIONAL CORPORATION ("Buyer").
WITNESSETH:
Concurrently with the execution and delivery of this Bill of Sale,
Seller is conveying to Buyer certain specific assets owned by Seller, upon the
terms and conditions set forth in that certain Agreement for Purchase and Sale
of Large Diameter Pipe Mill (the "Agreement") dated as of June 21, 1999 between
Buyer and Seller.
NOW, THEREFORE, FOR TEN DOLLARS ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller hereby agrees as follows:
1. Definitions. Capitalized terms used in this Bill of Sale shall have
the same meaning ascribed to them in the Agreement unless otherwise specifically
indicated herein.
2. Conveyance. Seller hereby grants, bargains, sells, assigns, conveys
and transfers to Buyer all of Seller's right, title, claim and interest in and
to the EQUIPMENT described in Section 1.1 of the Agreement.
3. NO WARRANTIES. THE EQUIPMENT IS BEING SOLD "AS IS" AND "WHERE IS" IN
ALL RESPECTS. EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT, SELLER MAKES NO
WARRANTIES OR REPRESENTATIONS WHATSOEVER REGARDING THE PREMISES OR THE
EQUIPMENT, OR ANY OTHER MATTER IN ANY WAY RELATED TO THE PREMISES OR THE
EQUIPMENT, INCLUDING, BUT NOT LIMITED TO, MERCHANTABILITY, FITNESS FOR A
SPECIFIC USE, TITLE TO THE EQUIPMENT (EXCEPT AS SET FORTH IN SECTION 6.2 OF THE
AGREEMENT), EXISTENCE (EXCEPT AS CONTEMPLATED IN SECTION 1.1 OF THE AGREEMENT),
UTILITIES, ABILITY TO DISMANTLE OR TRANSPORT THE EQUIPMENT, OPERATIONAL
CAPABILITY, USE, VALUE OR CONDITION (ENVIRONMENTAL AND OTHERWISE) OF THE
EQUIPMENT. BUYER HAS INSPECTED THE EQUIPMENT AND IS OF SUFFICIENT
SOPHISTICATION, TECHNICAL EXPERTISE AND FINANCIAL ABILITY TO EVALUATE THE MERITS
OF THE PURCHASE OF THE EQUIPMENT.
C-1
<PAGE> 38
OTHER THAN AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, BUYER IS NOT RELYING ON,
AND HEREBY SPECIFICALLY WAIVES ANY CLAIM OF LIABILITY BASED ON, ANY STATEMENT,
REPRESENTATION, WARRANTY, PROMISE, COVENANT, OR UNDERTAKING BY SELLER OR ANY
OTHER PERSON REPRESENTING OR PURPORTING TO REPRESENT SELLER IN CONNECTION WITH
THE EQUIPMENT OR THE PREMISES.
4. Successors and Assigns. This Bill of Sale shall inure to the benefit
of Buyer, its successors and assigns, and shall be binding upon Seller, and its
successors and assigns.
5. Applicable Law. This Bill of Sale shall be construed, enforced and
interpreted in accordance with the laws, excluding the choice of law rules, of
the State of Utah.
6. Entire Agreement. This Bill of Sale, together with the Agreement,
constitute the entire understanding between the parties hereto with respect to
the subject matter hereof and supersede all negotiations, representations, prior
discussions and preliminary agreements between the parties hereto relating to
the subject matter hereof.
7. No Merger. Nothing contained in this Bill of Sale is intended to, or
shall, in any way effect a merger, elimination, modification, or termination of
any covenant, undertaking, representation or warranty or other matter set forth
in the Agreement.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale as
of the date first written above.
"SELLER":
GENEVA STEEL COMPANY,
Debtor and Debtor in Possession
By: \s\ Ken C. Johnsen
---------------------------------------------
Ken C. Johnsen
Executive Vice President
C-2
<PAGE> 1
Exhibit 10.3
July 30, 1999
Mannesmann Pipe & Steel Corp.
1990 Post Oak Blvd., Suite 1800
Houston, Texas 77056
RE: Amended and Restated Sales Representation Agreement dated as of
October 30, 1998 (the "Agreement") between Geneva Steel Company
("Geneva") and Mannesmann Pipe & Steel Corporation
("Mannesmann")
Gentlemen:
Pursuant to Section 12 of the foregoing Agreement, Mannesmann has agreed
to provide full cooperation in accomplishing a transition of customers and sales
force in the event of a termination of the Agreement. This letter confirms that
such cooperation will include the following:
1. Assignment of Open Accounts. Within ninety (90) days after the date
of termination, Mannesmann shall assign to Geneva any and all receivables for
Products sold by Mannesmann and which remain uncollected on the date of
termination and Geneva will fund such receivables to Mannesmann within ninety
(90) days after having receiving notice of such assignment.
2. Administration of Open Accounts. Mannesmann, upon Geneva's request,
shall continue to administer all orders that are open on the date of
termination. To the extent not already paid, all moneys owed Geneva for
shipments against such orders shall be remitted by wire by Mannesmann to Geneva
within five (5) working days after receipt of payment from customers. The
administration of any orders which remain open after ninety (90) days from the
date of termination shall become the responsibility of Geneva, and any payments
which Mannesmann may have made for material which remains undelivered at such
time shall be refunded to Mannesmann within ninety (90) days thereafter.
In addition to the foregoing, this letter confirms that Geneva has no
objection to the insertion the following language in Mannesmann's Terms and
Conditions of Sale:
1. On the face of the Terms and Conditions:
THIS CONTRACT INCORPORATES FURTHER TERMS AND CONDITIONS ON
THE REVERSE HEREOF. THIS CONTRACT IS FOR THE SALE OF GENEVA
STEEL COMPANY ("GENEVA") PRODUCTS ONLY. BUYER AND SELLER
RECOGNIZE THAT THE FAILURE OF GENEVA TO SUPPLY PRODUCTS TO
<PAGE> 2
Mannesmann Pipe & Steel Corp.
July 30, 1999
Page 2
SELLER IS AN EVENT OF FORCE MAJEURE PURSUANT TO SECTION 8 OF THE TERMS
AND CONDITIONS SET FORTH ON THE REVERSE HEREOF. YOUR SPECIAL ATTENTION
IS ALSO DIRECTED TO PARAGRAPH 10, WARRANTY DISCLAIMER, AND PARAGRAPH 11,
LIMITATION OF REMEDIES.
2. The handwritten changes to Sections 1, 3, 5 and 8 of the General
Terms and Conditions attached hereto are acceptable to Geneva.
3. The additional language outlined in Sections 12 and 15 of your fax of
June 17, 1999 are acceptable. The balance of the suggested changes to the Terms
and Conditions of Sale, including those proposed for Sections 1, 10, 11 and 17,
will not be made.
Finally, this letter confirms Mannesmann's agreement that in the event
Geneva assumes the Agreement under applicable bankruptcy procedures, the notice
of termination provided for in the last sentence of Section 10 of the Agreement
will be considered timely if given by August 31, 1999.
If the foregoing meets accurately reflects Mannesmann's understanding
and agreement, please indicate by signing and returning a copy of this letter by
facsimile. Nothing set forth in this letter is intended to or shall be deemed to
be an assumption by Geneva of the Agreement, which assumption is hereby
expressly disclaimed by Geneva.
Sincerely,
Ken C. Johnsen
AGREED TO AND ACCEPTED:
Mannesmann Pipe & Steel Corporation
By /s/ Tim A. Taylor
--------------------------------------------------------------
Tim A. Taylor, Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,380
<ALLOWANCES> 10,024
<INVENTORY> 60,531
<CURRENT-ASSETS> 103,493
<PP&E> 666,689
<DEPRECIATION> (281,438)
<TOTAL-ASSETS> 493,814
<CURRENT-LIABILITIES> 91,033
<BONDS> 325,000
55,814
0
<COMMON> 106,018
<OTHER-SE> (176,290)
<TOTAL-LIABILITY-AND-EQUITY> 493,814
<SALES> 225,044
<TOTAL-REVENUES> 225,044
<CGS> 307,677
<TOTAL-COSTS> 307,677
<OTHER-EXPENSES> 22,375
<LOSS-PROVISION> (4,911)
<INTEREST-EXPENSE> (16,579)
<INCOME-PRETAX> (121,587)
<INCOME-TAX> 0
<INCOME-CONTINUING> (121,587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121,587)
<EPS-BASIC> (7.55)
<EPS-DILUTED> (7.55)
</TABLE>
